- Trade wars. There was recently a trade war between the U.S and China but they have engaged in talks to bring it to an end. Prolonged trade wars, especially with Europe, would cause serious consequences for both parties and potentially spell the end of the economic expansion.
- Consumer fatigue. Consumers are the key drivers of the U.S economy. Consumer loans have grown significantly over the past two years and the same can be said about jobs growth. These are factors that promote consumption but if consumer spending happens to slow down then it would negatively affect economic expansion.
- The fall of the credit market. A repricing of high-yield loans might throw off the credit market because it is one of the most sensitive aspects that are considered catalysts for the economy. It, therefore, goes without saying that the credit market would take a huge hit if the credit market went belly up.
- A Chinese current account deficit. In case China reaches a point where it has a current account deficit that forces it to require foreign financing, then it would be forced to sell its forex reserves. This would subsequently lead to higher long-term interest rates due to less demand for Treasurys which would also be detrimental to economic expansion.
- Inefficient Federal Reserve– The economic expansion would also be likely disrupted if investors start losing faith in the Federal Reserve. The Fed has been walking on a fine wire lately due to criticism from the current U.S President Donald Trump over poor handling of interest rates. The criticism promoted the idea that the Federal Reserve has been making decisions based on political interests, particularly on the election cycle. Distrust by investors may cause the dollar to plummet, thus affecting long-term interest rates.
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