NORTH AMERICA - Reports

Deflation is often overshadowed by inflation in economic debates, yet history shows it to be the more destabilizing force. Unlike inflation, which erodes purchasing power, deflation tightens the grip of debt, depresses spending, and can paralyze entire economies. In 2025, the United States faces a convergence of cyclical slowdowns, financial fragilities, and policy asymmetries that raise the probability of a deflationary turn.

Despite upbeat headlines—job growth, stable inflation, surging stock markets—a deeper fragility persists. Employment gains are mostly in low-productivity sectors, private hiring is weakening, and housing affordability is being squeezed by rising mortgage rates. Tech stocks buoy market indices, obscuring real weaknesses.

Bank of America offers a more positive outlook, suggesting the U.S. is likely to sidestep stagflation (stagnant growth plus high inflation) and move toward a cyclical boom. Drivers include pro-growth policies under Trump's "Big Beautiful Bill," massive investments in AI and infrastructure, and an improving regime indicator signaling economic recovery. 

Global trade enters 2025 in a state of pragmatic re-wiring rather than collapse. After the pandemic shock, the energy crunch, war-related disruptions, and a bruising round of tariff brinkmanship, firms and policymakers have shifted from just-in-time to just-in-case supply chains, diversified supplier footprints, and reweighted trade corridors. The resulting system is more regional, more digitized, more services-heavy, and more carbon-constrained than the one that defined the 1990s–2010s.

The Federal Reserve’s potential rate cut signals a shift toward supporting economic growth amid slowing activity. Lower rates ease borrowing costs, stimulate investment, and bolster consumer spending. However, risks remain: inflation could re-accelerate, asset bubbles may form, and global capital flows shift, impacting portfolios and requiring active risk management strategies.