In 2012, the late acclaimed novelist Martin Amis famously said, “America still is the centre of the world, and what happens in the American economy matters everywhere.” Fast forward 14 years, and his words still hold true.
Just over a year ago, the US economy was labelled the ‘envy of the world’ by The Economist, but today the country seems to be at a crossroads due to various factors, such as a slowdown in economic growth and a softer job market, which are impacting the growth of the American economy. Additionally, cost-of-living concerns and the Middle East crisis have further complicated the lives of the average American household.
Against this backdrop, Dr Conor O’Kane, Senior Lecturer in Economics at Bournemouth University, offers his assessment of the country’s economic health.
In an exclusive interview with International Finance, Dr Conor O’Kane discusses inflation trends, the role of the Federal Reserve, labour market shifts, and the broader risks shaping America’s economic outlook.
How strong is the United States economy right now, and what indicators best reflect its true health?
Many of the macroeconomic fundaments for the US economy are strong, with the US set to continue leading the G7 in key areas like economic growth and productivity. However, even before the recent outbreak of war with Iran, there was some economic data that would become a cause for concern if the trend should continue.
Economic growth for the 4th quarter of 2025 was revised down to 0.7%, a sharp and unexpected decline from the previous quarter’s 4.4% growth.
Also, the US unemployment rate was 4.3% in January 2026, a slight increase from the 4% rate in January 2025. The US economy added an average of just 49,000 jobs per month in 2025, down from an estimated gain of 168,000 a month the year before.
Inflation has been a major concern for American households. Do you believe current policies are doing enough to bring prices down?
The post-COVID period saw a significant inflation spike in many advanced economies. In the US, inflation peaked at 9.1% in June 2022.
In response, policymakers at the Federal Reserve aggressively raised interest rates with the figure going up from 0.5% in February 2020 to 5.5% in July 2023, which had the desired impact. Since mid-2022, inflation has been on a downward trend and was 2.4% in February 2026, closing in on the Federal Reserve’s target 2% rate.
However, the cumulative inflation increase in the US since 2020 is approximately 26%, so while the rate of annual price increases has indeed slowed down, prices are still significantly higher, and consumers are feeling this cost-of-living squeeze.
Job numbers often make headlines, but are they the best measure of economic success in the US today?
Traditionally, new job creation numbers have been one of the key metrics for the US economy. They are considered a leading indicator in the Federal Reserve’s interest rate-setting policy.
However, in recent years, we have seen periods of relatively strong economic growth figures without the accompanying job creation. One possible explanation for this ‘jobless growth’ is that firms are using AI and automation to improve productivity. For example, the data centres needed to power AI require significant investment expenditure but do not need many employees to actually operate them once up and running.
How much does stock market performance really tell us about the financial well-being of ordinary Americans?
First and foremost, the stock market is not the economy! The best way to think about stock market performance is as a forward-looking snapshot of investor expectations of future corporate profits.
Approximately 50% of US workers have their retirement savings invested in the stock market through their 401(k) savings plans, and hence there is a link between the markets and 401(k) holders’ wealth. However, another 50% of American workers have little or no link to the fortunes of the stock market.
The US stock market gained 19% in the period from January 2025 until February 2026. However, when compared to stock market returns from other advanced economies, the US ranks 21st out of 23 countries, with only New Zealand and Denmark indices doing worse. It is likely that the uncertainty surrounding the US ‘liberation day’ tariffs announced in April 2025 dampened investors’ expectations regarding the future profitability of US firms.
The Federal Reserve has taken several steps to manage inflation. Are its policies helping or hurting economic growth?
Like many central banks, the Federal Reserve focuses on achieving its 2.0% inflation target. When inflation rose to over 9% in 2022, the series of interest rate hikes did seem to get inflation and, more importantly, inflation expectations on a trend back towards its target rate. The expectation was that 2025 would see more rate cuts, but concerns over the potential inflationary impact of the US administration’s tariff policy meant the Federal Reserve adopted a more cautious approach to rate cutting. All things considered, I think the Federal Reserve policymakers have done well over the last few years.
With rapid advances in artificial intelligence, should Americans be excited about new opportunities or worried about job losses?
The answer to this depends on who you are. If AI delivers the kind of productivity improvements and cost savings that it seems to promise, this should improve the profitability of many US firms. This would also likely benefit many US workers with 401(k) savings plans.
However, if you don’t have a 401(k) investment plan, or you have a job that AI can easily replace, well then, you might be a little bit less excited about the potential impact of AI.
A recent Financial Times poll found that about 60% of Trump voters were concerned about AI’s rapid development, and almost 80% believed the technology required more regulation.
Given President Donald Trump’s stated policy goal of establishing US global dominance in AI, these issues have the potential to become a controversial policy objective going forward. I expect this, and the cost-of-living, to be a major policy issue in the 2026 mid-term elections later this year.
How vulnerable is the US economy to global shocks such as conflicts, trade tensions, or energy price spikes?
Many of the US macroeconomic fundaments are in a good place now, and that does provide room in terms of economic resilience. However, history shows us that energy-related supply shocks have often been the trigger for recessions. The current conflict in the Middle East has the potential to develop into a major global energy crisis.
Over the last two decades, the US has become self-sufficient in terms of its oil needs. However, while a spike in energy prices might be good news for US energy producers, the US public will likely bear the brunt of the increase in energy prices.
What are the biggest risks facing the US economy over the next two to three years?
Given where we are today, with the ongoing conflict in the Middle East and the potential for a major energy price spike, you would have to say that the key risk over the next few years is stagflation. This is a relatively rare economic environment, characterised by stagnant economic growth, accompanied by higher inflation and unemployment. We last saw this in the 1970s because of the oil price shocks in 1972 and 1979. There is a risk that this could happen again, which should concern policymakers.
If you had to identify one policy change that could significantly strengthen the US economy, what would it be and why?
The policy change I would recommend is to end the chaotic tariff policy that the current US administration is following. It is causing enormous uncertainty and is damaging to American consumers, who we know are paying most of the tariffs.
It is also damaging to domestic US investment and FDI in the US, as firms are reluctant to invest in an environment where tariffs are regularly changed on the whim of the president or due to Supreme Court rulings.
The institutions that run the global economy were designed and run by the US. The free trade policy pursued since Bretton Woods in 1944 has helped many US firms become globally dominant in a range of industry sectors. Tearing up the global rules-based economic order, from which you have massively benefited, is not sound economic policymaking. It needs to stop.