Fears of an imminent US economic downturn are premature given government spending will remain consistent with last year’s levels or even higher. According to Chris Bedingfield, principal and portfolio manager, Quay Global Investors, spending will support economic growth and company profits, while the expected hit to inflation from US tariffs is likely to be one-off.

“The US central bank will watch closely the impact of Trump’s tariffs on economic growth and it may even cut interest rates this year if activity slows too much, which could support the prices of listed real estate assets.

“In the absence of any other fiscal adjustment, tariffs will act as a fiscal drag, slowing the economy and reducing profits and potentially consumer spending. In what is perceived to be an over-heated economy, that may not be a bad thing and may provide scope for the US Federal Reserve to continue to lower interest rates, which would be positive for listed real estate assets as credit costs fall.

“The bigger risk to the US economy is economic policy uncertainty – which could delay private investment, compounding the impacts of higher taxes or tariffs, resulting in a more meaningful slowdown in the US. At this point, however, the outcome is too early to call, but something to monitor closely.

“However, if companies do choose to delay investment decisions because of tariffs, such as the decision to renew leases, this in itself can become a drag on the economy and also work as a significant drag on company profits,” he said.

According to Mr Bedingfield, while tariffs on US imports may increase consumer prices, he does not believe sustained inflation will result. He expects more of a one-off hit to prices, with the biggest risk to economic activity.

“Over time, viewed correctly as a tax, tariffs may well be deflationary by slowing the economy. This view was recently supported by the US Federal Reserve in last month’s monetary policy statement stating that they were assuming that tariffs would cause a one-time jump in prices, rather than a more sustained increase, but it is also a hit to growth,” he said.

The US Federal Reserve (Fed) now expects inflation to stand at 2.7 per cent by the end of the year, up from the 2.5 per cent it had predicted in December. However, the Fed is also expecting economic growth in the US of just 1.7 per cent this year, down from the 2.1 per cent it had previously anticipated.

In terms of US government spending, Bedingfield is reasonably upbeat despite expectations of a huge crackdown on government spending. This follows after the second Trump administration introduced cost-cutting measures developed by the new Department of Government Efficiency (DOGE).

“Despite the concerns of government cuts and drive for government efficiency via ’DOGE’, there has been no deceleration of government spending or net deficit so far in the first quarter,” he said.

“In fact, relative to the same time in 2024, gross and net spending have increased. Further, despite calls for increased government efficiency via DOGE and the elimination of government waste, the recently passed stopgap funding bill known as a Continuing Resolution extended most current funding for the next six months, as well as increased spending on defence and border security.

“We have long argued that while macroeconomics is a hard beast to predict, investors have a better chance if focused on the fiscal pulse in the US, that is, net government spending, rather than an indirect credit pulse, monetary policy. And the data backs us up,” said Mr Bedingfield.