Insight Investment

"The Fed, constrained by tariff-driven inflation, should deliver a modest rate cut in late 2025 before embarking on a more decisive easing cycle in 2026."

State of the world

As the global economy adjusts to a new trade regime, rising fiscal imbalances, and the accelerating impact of AI, our latest Global Macro Research paper explores the structural shifts shaping the investment landscape.

Key takeaways:

The great tariff reset: The US has paused the most extreme elements of its new trade policy, but a baseline 10% tariff is now the new normal. This structural shift is redrawing global trade rules and supply chains, with long-term implications for inflation and growth.

Short-term resilience, long-term headwinds: Economic data remains firm, supported by front-loaded activity during the tariff pause. But we expect growth to stagnate into early 2026 as policy uncertainty and inflationary pressures mount.

Cautious positioning in credit: We maintain a defensive stance, with a preference for investment grade credit and sectors with resilient cashflows such as utilities and telecoms. Opportunities also exist in emerging markets and regions benefiting from fiscal expansion, particularly Europe.

AI-driven capex and policy stimulus offer hope for the future: The AI investment boom, led by US mega-cap tech, and countercyclical measures in Europe and China could support a more constructive medium-term outlook.

Debt sustainability in focus: US fiscal metrics are deteriorating, with the debt-to-GDP ratio projected to reach 125% by 2034. This is contributing to greater volatility at the long end of the yield curve and may weaken the dollar’s dominance.