Executive Summary 

• The U.S. economic expansion is hitting a relatively normal fifth year but is already showing classic signs of being late-stage.
• Risks surrounding the Fed’s dual mandate (inflation and employment) are roughly balanced.
• Expect the Fed to slow-walk further rate cuts as it feels its way to a more appropriate, neutral setting for monetary policy.
• Investors should maintain neutral positioning during a late-stage expansion while actively looking to rebalance and diversify portfolios.

Approaching its fifth year, the economic expansion is sitting close to the historical norm

Each dot shown represents an economic expansion in the U.S. (i.e., a period in which the economy experiences sustained growth). Dots are graphed along the x-axis according to their duration (in months) and along the y-axis according to their cumulative real economic growth. Cumulative real economic growth is measured by the total increase in a country's inflation-adjusted output of goods and services (real gross domestic product). Past performance may not be indicative of future results.

• While still relatively young, the current economic expansion has achieved growth levels comparable to those seen in longer historical expansions.
• The ongoing expansion is likely to persist through 2025, with growth dynamics resembling those of prior long-term cycles.

The U.S. economy already shows classic signs of a late-stage expansion

Data shown in the left panel is U.S. gross domestic product (GDP), potential GDP and various stages of the economic cycle, measured in trillions of U.S. dollars. Red, green, blue and yellow shaded regions represent periods of Recession and Early Cycle, Mid Cycle and Late Cycle economic expansion in the U.S., respectively. The stages of the economic cycle are defined as the following: Recession refers to periods of economic downturn, Early Cycle to rebounds from recessions, Mid Cycle to ongoing growth up to the economy’s potential and Late Cycle to periods where the economy is operating at or above potential. The visual in the right panel is a qualitative representation of Glenmede’s opinions on how far each component of economic activity is along the spectrum from early to late economic cycle. The left side of the visual shows the typical Early Cycle behavior of the listed sectors of the economy and the right side shows the typical Late Cycle behavior. Potential GDP is the theoretical level of GDP an economy can sustainably produce when operating at full capacity, without causing inflationary pressure.

• The U.S. economy remains in a late-stage expansion, a phase typically marked by positive GDP growth, a tight labor market, elevated inflation and tight monetary policy.
• Stronger-than-normal productivity growth has the potential to provide a tailwind that could help extend this late-stage economic expansion.

Risks surrounding the Fed's dual mandate (inflation and employment) are roughly balanced

The Fed has started cutting rates, but expect it to slow-walk further cuts as it feels its way to a neutral setting

Data shown in green are Glenmede’s estimates of the neutral federal funds rate over time (i.e., the level of rates that is neither economically stimulative nor restrictive) based on expectations for real interest rates via the Holston-Laubach-Williams model and Glenmede’s 10yr inflation expectations. Fed Funds Rate in blue is the target rate midpoint. The dashed blue line represents projections based on the median response in the Federal Open Market Committee’s latest dot plot survey. The dashed yellow line represents projections based on fed funds futures, as of the latest date. Actual results may differ materially from projections.