U.S. President’s approval rating
As investors start to look towards 2026, there is a key event which will take place toward the end of 2026 – the U.S. midterm election. Leading up to and the result of this midterm election could have a material impact on the economy and financial markets. U.S. President Donald Trump and the Republicans currently enjoy a majority in both House & Senate. The Republicans would want to maintain this status quo, however there is a real risk they lose their majority in one. With that in mind, the current trend in U.S. President Trump’s disapproval rating (figure below) would be concerning to Republicans. Despite what any politician may say about not being focused on approval ratings, they pay attention. We suspect President Trump will navigate policies, funding and narrative (as much as he can) to ensure he gets a clear runway to the U.S. midterm elections.
U.S. Fed’s economic forecasts appear hawkish for monetary policy
The U.S. Federal Reserve (U.S. Fed) lowered the interest rate by 0.25% at their recent FOMC meeting. Accompanying the monetary policy decision was the closely watched dot plot, which indicates where each Board member believes the Federal funds rate will be in the coming years. We usually expect the Board members to be largely on the same page with respect to the future monetary policy path. However, the latest dot plot suggests a material divergence. There are some, like the recent President Donald Trump nominee Stephen Miran recommending a 1.5% cut over the near-term. Whereas the other Board member Beth Hammack suggests a wait & see strategy given inflation remains elevated. The U.S. Fed’s latest economic projections are also somewhat confusing – presented in the figure below.
The U.S. Fed’s latest economic projections (revised from June 2025 update) point to a more resilient U.S. economy which shouldn’t require monetary policy support – GDP growth was revised higher and unemployment rate revised lower for 2026/27. Inflation forecast for 2026 was revised higher, although marginally. At the same time, the projections for the Federal funds rate were revised lower (dovish). These latest projections suggest to us that while the U.S. Fed believes economic growth will remain resilient, they will need to lower rates to provide more support – “insurance cuts”.
The Fed wanting insurance cuts is not totally without merit
As we have been highlighting for several months now, the U.S labor market is softening and perhaps why the U.S. Fed feels the need to provide additional monetary policy support to ensure the jobs market does not deteriorate further. The chart below provides another perspective on the jobs market – with the 3-mth change in weekly hours worked in the U.S. now at levels typically seen during recessions.
U.S. economic growth expectations.
Also concerning is the recent downward trajectory in the U.S. 10-Yr real yield – which is a barometer of economic growth (figure below). Declining real yields are usually associated with growth concerns. While the recent decline appears to have been arrested, the recent trend nonetheless again supports the U.S. Fed turning a more cautious on the U.S. economy.
U.S. economic growth expectations.
Also concerning is the recent downward trajectory in the U.S. 10-Yr real yield – which is a barometer of economic growth (figure below). Declining real yields are usually associated with growth concerns. While the recent decline appears to have been arrested, the recent trend nonetheless again supports the U.S. Fed turning a more cautious on the U.S. economy.
