Conference Presentation, Panel, Fireside Chat
2014 London Summit - U.S. Overview: Business and Ballots
- U.S. real GDP is projected to reach approximately 3% or slightly higher over the next six months to a year, a threshold expected to allow the economy to hit escape velocity and assume a leading role in steering global growth amid China's slowdown and European recession risks.
- Declining oil and gasoline prices are anticipated to boost consumer discretionary spending, while U.S. oil production is currently exceeding levels from five years ago by 4 million barrels daily, reducing the import bill and making energy-intensive manufacturing significantly more attractive due to natural gas prices near $4 per million BTUs versus $14 in Europe.
- The housing market is expected to require resolution of regulatory uncertainty regarding Qualified Mortgages (QM), Qualified Residential Mortgages (QRM), and FHFA put-back rules to fully recover; removing current credit constraints could unlock over 0.5% additional GDP growth, create 400,000 to 500,000 new units, and generate 400,000 to 500,000 new jobs.
- The Federal Reserve is expected to maintain accommodative policies while Janet Yellen assesses whether labor market scars are cyclical or structural, with rate hikes unlikely until specific sub-indicators improve, though small businesses may make incremental investments to avoid missing opportunities.
- Equity markets may face short-term volatility and a potential 10% correction driven by geopolitical concerns, but long-term trends in risk assets remain favorable, with volatility expected to persist until a more growth-oriented trajectory is established.
- M&A activity is currently not significantly impacted by market movements but faces headwinds from a potentially hostile regulatory environment, recent political pressure causing transaction withdrawals, and unease among boardrooms regarding government intervention, though enhanced activity may occur as capital investment recovers from early stages.
- A Republican gain of a slim Senate majority is possible if toss-up states remain contested and several specific states switch allegiance; a united legislature could advance free trade agreements, the Keystone XL pipeline, healthcare adjustments like modifying the 30-hour work week or repealing the medical device tax, and tax reform.
- Corporate tax reform is expected to involve a significant reduction in rates to 28% or 25%, with bipartisan alignment possible on a minimum tax on foreign earnings to address repatriation and inversion issues, though comprehensive reform faces political hurdles and the risk of lawmakers being labeled obstructionist if they fail to compromise.
- Infrastructure investment remains a barrier given the U.S. global ranking of 26th or 27th, with the Highway Reauthorization Act likely extending only until May of the following year, presenting a future opportunity for new congressional leadership to facilitate greater private sector participation.
- Financial regulations, specifically the Dodd-Frank Act, are viewed as a work in progress with a focus shifting toward implementation and certainty, while bipartisan legislation regarding derivative end-user exemptions and small business carve-outs is seen as a potential legislative success.