The Blubber

The U.S. economy is performing so well that UBS has hinted at the possibility of a return to the prosperous days of the "Roaring ’20s."

The European financial powerhouse believes the nation is edging toward a booming economic period, giving it a 50% chance of unfolding. The phrase references the 1920s, a decade known for rapid economic expansion, a construction surge, and increased prosperity for many American families.

Looking back, the 1920s were marked by significant economic growth, fueled by the widespread adoption of electricity and automobiles, alongside a post-World War I consumption boom.

At the time, many people didn’t realize the fortune they were living through, a situation that Jason Draho, head of asset allocation Americas at UBS, suggests the U.S. finds itself in again today.

While economists are concerned about rising unemployment, a potential recession, or stagflation, Draho believes that the odds are now tilting more in favor of a prosperous period.

In a note published yesterday, Draho stated that by UBS’s criteria, the U.S. economy is already experiencing a new "Roaring ’20s."

"It’s no longer too early or too optimistic to say that the U.S. will experience a Roaring ’20s economy," he wrote. "By our criteria, it’s already happening, and the real question is whether these conditions will continue, not whether they will emerge."

He added that the likelihood of this positive scenario is growing, with recent developments in demand, supply, and monetary policy supporting this outlook.

Investors are also increasingly leaning toward the idea of a "soft landing" for the economy, Draho noted. A survey conducted in September by the Financial Times found that most of the 37 economists surveyed didn’t expect a contraction in the coming years.

This optimistic outlook came just before the Federal Reserve’s anticipated rate cut last month, which many see as a shift toward balancing unemployment concerns within the Federal Open Market Committee's (FOMC) dual mandate, potentially keeping productivity and economic activity strong.

"If current trends continue, by early 2025, only the most pessimistic investors will need rose-colored glasses to see a clear path to a Roaring ’20s outcome," Draho said.

As for the criteria to officially declare the 2020s a "Roaring ’20s," Draho pointed to sustained GDP growth of 2.5% or more, inflation between 2-3%, a Fed funds rate around 3.5%, and a 10-year Treasury yield near 4%.