Strategy focus: The U.S. Economy ahead of the midterm elections

The U.S. economy, the world’s largest, continues to surprise with its economic strength and the performance of its financial markets. Since 2024, this momentum has been driven in part by the rise of artificial intelligence (AI), fueled by an unprecedented wave of investment and strong profit growth in the sector. However, this strong performance is accompanied by vulnerabilities, including uneven growth, higher inflation, and persistent fiscal and external imbalances.

• AI-Driven Growth and Equity Markets. Economic activity remains robust and consistently exceeds expectations, supported in part by massive investments in the AI ecosystem. This momentum is also fueling the equity markets, where a large portion of the performance reflects the strong growth in earnings and valuations of companies in the sector.

• Uneven growth. The resilience of the U.S. economy masks significant disparities across income levels and sectors. Wealth effects primarily benefit the wealthiest households, which account for more than 40% of U.S. consumption. Furthermore, the wave of investment in AI tends to crowd out some of the funding intended for other sectors of the economy.

• Persistently Uncomfortable Inflation. The combination of strong domestic demand and persistent supply shocks is resulting in higher inflation than in other major economies, with a recent trend toward acceleration.

• Deficits Continue to Widen and Weigh on Interest Rates. Strong growth is also accompanied by significant budget deficits, fueled by a series of stimulus packages since 2020. The current account deficit also remains high, with financing increasingly provided by private investors, particularly through the stock markets.

• Midterm elections. The midterm elections, scheduled for November 3, are traditionally unfavorable to the incumbent president’s party. A Democratic victory in either chamber of Congress could therefore lead to more political and budgetary gridlock during the second half of Donald Trump’s term.

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