December 20, 2024 – The term American Exceptionalism should not be used lightly. Like every country, the US is complex, and there are good things and less good things about it. Still, it’s hard to view the US economy in 2024 as anything short of outstanding, especially compared to almost everyone else. Whatever challenges lay ahead, and there are many, the US achieved a remarkable soft landing, with inflation decreasing from a peak of 9.1% in June 2022 to 2.7% in November 2024 while maintaining GDP growth above 2.8% in the third quarter of 2024. This is no small feat.
However, while the US economy may be an outlier, in other regards, the US seems more in line with global trends. When Alexis de Tocqueville first used the term ‘exceptional’ to describe America, he fawned over the uniqueness of American democracy. Today, US politics resembles those of many democracies. Inflation may have been tamed, but consumers worldwide have not forgotten its high cost—the permanent loss of real income that comes with even a short bout of high inflation. Incumbents worldwide paid the price. Over 60 countries held elections in 2024, and alongside economic issues, the results highlighted increasing frustration with representative democracy, growing divides around culture and identity, and the growing influence of international conflicts. Alongside the US, these trends have been highly visible in France and Germany in the closing months of 2024.
Democracies are not the only countries experiencing change. We live in an era of political disruption and geopolitical unrest, and a new global order is emerging before our eyes. The US appears likely to withdraw from some global roles as its isolationist voices grow louder, as they have with some regularity throughout US history. Europe also appears fated for a smaller global role, less by their own choosing than by their decades-long struggle to regain their economic footing. China, which for decades appeared ascendant, is also struggling economically. Worse, its sometimes allies, Russia and Iran, have suffered significant setbacks in the past year. This leaves us with a power vacuum in Eurasia that has not seen in decades, creating space for up-and-coming players like Saudi Arabia, India, and Turkey. Keep an eye on Syria for a window into the evolution of this power struggle.
Adding to the geopolitical uncertainty are technological changes, the impact of which we are only starting to understand. Artificial Intelligence (AI) has long been in the background of many day-to-day applications, but in the past year, it has come into our lives as a core component of productivity, and we’re just getting started. Alongside this techno-optimism is the shadow of economic disruption that could leave a generation of employees out of work. Further, the wars in Ukraine and the Middle East have also demonstrated the devastating impact of low-cost hardware like drones married with smart software. The answer to the question of what wars in the 21st century look like is that they resemble 20th-century wars but with more devastating technology.
Finally, even the US economy, solid as it may be, is not without fault lines. Inflation may have been tamed, but it is not vanquished, and we can expect it to continue playing a role in the financial system in the years to come. Unemployment remains low, but for those out of a job, it’s taking longer to find a new one. But, perhaps the biggest unknown is how the new administration’s policies—from immigration through tariffs and deregulation to deficits—will impact the economy.
Despite all this uncertainty, an air of financial optimism permeates the US in these closing weeks of 2024. US stocks are running hot on their way to another stellar year as investors await further interest rate cuts; Bitcoin has hit new highs in hopes of favorable regulation; and consumers are spending confidently on holiday shopping. Only time will tell if this optimism is warranted, and regardless, the ride ahead will be bumpy. Still, optimism has always been part of the success story that is the American economy, and at least for this moment in time, Americans can be grateful for our strong, if imperfect, economy.
Keep an eye out for my Q4 letter, due mid-January, for more about what happened in 2024 and insights into how to prepare for 2025. In the meantime, I wish you and your families a happy and peaceful holiday season!
— AMD
Sources: US Bureau of Labor Statistics, Federal Reserve Economic Data
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