Australian investment firm GSFM’s market strategist Stephen Miller has observed surprising resilience in the US labour market. January payrolls revealed a 130,000 rise in employment, with the private sector adding 172,000 jobs, pushing the unemployment rate down to 4.3 per cent. This data underscores the US economy’s capacity to perform strongly despite earlier inflation concerns. GSFM is an Australian investment firm offering a range of investment solutions to financial advisers, institutions, and their clients. The company partners with specialist investment managers from around the globe.
Despite worries about sticky inflation and a cautious Federal Reserve policy, US GDP grew by an estimated 2.8 per cent in 2025, significantly exceeding expectations. Miller attributes this growth to productivity gains, particularly from investments in technology and AI, which have increased the economy’s potential growth rate without triggering higher inflation. This development challenges earlier predictions of a stagflation-lite scenario.
Miller noted that previous expectations pointed towards a challenging environment for risk markets, anticipating monetary tightness, the impact of tariffs, and higher bond yields to create a situation where inflation remained stubbornly above 3 per cent, while economic activity flirted with recession. However, the disinflation trend observed now suggests that the Federal Reserve may consider cutting rates later in 2026, especially with Kevin Warsh taking over as chair.
Miller suggests that current disinflation picture makes a policy rate cut a real possibility. A change in leadership at the Federal Reserve could lead to multiple rate cuts this year, particularly if the incoming chair’s assessment aligns with the current economic trajectory. This shift in perspective offers a potentially positive outlook for markets, diverging from earlier concerns about stagflation.
