Is the world losing faith in the US economy?

Saturday, 31 January 2026

The US has led, and been integral to, the world’s developed economies for decades. As that influence weakens, the economies of other countries including New Zealand will have to do some recalibrating.

ANALYSIS: At the end of the first month of 2026, it seems the financial markets are finally registering the shift that has been in evidence for some time: the world appears to be shifting its view about America as the standard bearer of capitalism or the stable centrepiece of the world economy around which everyone else revolves.

This is not opinion, but borne out by what the markets are seeing - a flight from the US dollar that has intensified over the last few weeks, and a flight to the security of gold; a growth in the number of countries and entities selling down their US treasuries (debt securities), and an increasing number of major trade deals that are designed to hedge against the whims of Donald Trump.

US stock markets are thriving, but as some point out, stripping out the tech behemoths paints a different picture - healthy, but not spectacular, with several big drops throughout January as tariffs were once more used as a cudgel to beat American foes and allies alike into submission.

And then there is debt. The IMF says the US budget deficit is now heading towards exceeding 6% of GDP, and public debt could be as high as 143% of GDP by 2030 – roughly the same as that seen in Greece when its sovereign-debt crises erupted in 2010-11. If this unfolds, there are questions around how willing non-US investors will be to retain their current hold on about a third of the US’ US$30 trillion debt.

The 10-year US Treasury yield has risen 50 basis points since September 2024, approaching 4.3%, with the 30-year Treasury yield at 4.92%. At these levels there is evidence of investor concern with rising debt and fiscal stability.

Market strategy for Moomoo ANZ, Greg Boland, said markets were starting to clock the shift happening geopolitically.

But how much concern? The Post asked a range of local market watchers to comment on what they saw when they looked at what’s happening in US markets - and how worried New Zealand should be about what is unfolding. This is what they said.

The world is moving on from the US - and the markets are starting to notice

Greg Boland is market strategy consultant for Moomoo Australia and New Zealand

A structural shift in the global order is quietly becoming visible in markets. Recently, Canada’s Prime Minister Mark Carney delivered one of the clearest warnings yet: the world is not undergoing a transition, but a rupture. Carney – a former governor of both the Bank of Canada and the Bank of England – argued that the rules-based global system has now been formally abandoned. He called on the world’s “middle powers” to unite as great power rivalry intensifies.

Carney’s message was blunt. “Nostalgia is not a strategy,” he said, adding that “the middle powers must act together because if we’re not at the table, we’re on the menu.” It was a rare moment of strategic clarity, and one that Kiwi investors would be unwise to ignore.

At the centre of this shift is growing unease about the United States’ economic and fiscal trajectory. US President Donald Trump’s renewed push for tariffs, unfunded tax cuts, and fiscal expansion is reviving concerns about inflation, debt sustainability, and policy credibility. As economist Desmond Lachman has argued, the combination of ballooning deficits, pressure on the US Federal Reserve’s independence, and increasingly aggressive foreign policy risks undermining foreign confidence in US assets.

Markets are already reacting. The US dollar has weakened noticeably despite relatively high interest rates, suggesting its traditional safe-haven appeal is fading. At the same time, US Treasuries are being sold, not bought. The rise in long-dated yields – even as the Federal Reserve has cut policy rates – points to a growing term premium driven by fiscal risk rather than growth optimism.

Foreign investors hold roughly 30% of outstanding US Treasuries, and signs of diversification away from US government debt are mounting. Gold’s surge to record highs and strong inflows into silver reflect this search for alternatives. These are classic signals of declining confidence in fiat anchors and political stability.

For now, markets remain focused on earnings momentum and near-term equity themes, particularly in US technology stocks. In the short term, little may appear to change. But structurally, the bias that has funnelled global capital almost reflexively into US assets may be starting to erode.

JBWere’s senior manager of investment strategy Phil Borkin says it pays to remember the wise words of Warren Buffett.

If this shift accelerates, the implications are clear: a weaker US dollar, higher US bond yields, and capital flowing toward alternative markets. The recent outperformance of equities in Europe, Hong Kong, and Japan may already be an early expression of that reallocation.

This is not about abandoning the US. It is about recognising that the world, and its capital, may no longer be centred around the US as they once were. And markets are beginning to price that reality in.

Never bet against America

Phil Borkin is senior manager of investment strategy at JBWere

Few topics in economics and finance provoke as much emotion as the US economy right now. With a US administration clearly comfortable challenging long-standing norms, institutional frameworks, established trade and geopolitical relationships, and perhaps even the rule of law, it is hard not to have strong opinions. Provocative commentary and breathless media coverage have at times only added to the sense of drama.

While New Zealand may seem a long way from the theatrics of Washington, what happens there can still hit wallets here at home. The US remains the powerhouse of the global economy and global financial markets. Its influence is felt through demand for our exports, global interest rates and financial conditions, the value of the New Zealand dollar, and ultimately the performance of our KiwiSaver balances. Like it or not, the US matters.

There is no denying that President Trump’s confrontational, strongman approach to decision-making and international relationships can cause confusion and alarm. It has been a factor behind the surge in gold prices to record highs, as investors look to protect wealth and hedge against uncertainty. It may be years before the full economic and geopolitical consequences of some recent policy actions become clear.

Yet, we also need to keep things in perspective. Despite President Trump’s instinct to move fast and break things, meaningful checks and balances remain. Political, institutional, economic and financial market constraints still exist. Episodes of market volatility, weakening approval ratings and growing push-back from within the president’s own party have all acted as recent reminders of those limits.

At the same time, the US economy continues to perform well. Following real GDP growth of around 2½% last year, a similar pace is expected again this year, outpacing many other developed economies. The unemployment rate remains in the mid-to-low 4s, equity markets are at or near all-time highs, and perhaps most impressively, US productivity growth has accelerated. Since 2019, it has averaged above 2% per annum, a stark contrast to almost every other advanced economy.

Wedge Money managing director Dave McLeish says the signs do not point to an imminent crisis.

That is not to say there are no challenges. The US government’s fiscal position is weak and ultimately unsustainable, with little apparent political appetite to address it. Recent growth has been narrowly driven, with AI-related investment playing a central role. Income and wealth inequality are extreme and worsening, political polarisation is intense, and recent bouts of social unrest are hard to ignore. Elevated equity market valuations also leave less room for error should growth or corporate earnings disappoint. These issues can’t be ignored.

Still, time and again the US economy has proven to be one of the most resilient, flexible and productive in the world. Its capital markets remain the deepest and most efficient globally, and its companies among the most innovative and highest quality. Those strengths do not disappear overnight and have endured through numerous shocks, cycles and political administrations.

Warren Buffett famously quipped that investors should “never bet against America”. There are undoubtedly more risks and perhaps a few more chinks in the armour than usual, but for now, we believe those words still ring true.

Keep calm and carry on: Why weakness in bond markets isn’t yet a crisis signal

Dave McLeish is managing director at Wedge Money

Governments around the world are paying more to borrow money for long periods, as shown by rising long-term bond yields. When combined with a falling US dollar and spiking precious metals prices, some commentators warn that a debt reckoning may finally be approaching for the United States.

That may well lie ahead. But these moves do not point to an imminent crisis.

Long-term bond yields mainly reflect three forces: expected long-run growth and inflation, plus the extra return investors demand for tying up their money in an uncertain world. Those sounding the alarm argue that this extra “term premium” is the concern, as it begins to reveal the cost of decades of unchecked spending, unpredictable geopolitics, and a quickening shift away from the US dollar.

These pressures are real. But current long-term yields look well aligned with reasonable growth and inflation expectations.

Much of the rise in long-term yields is simply a return to normal. For much of the past two decades, experimental monetary policies and strong foreign demand allowed the US government to borrow at exceptionally low rates, even as debt surged. That era is ending.

Yet by historical standards, today’s yields remain within ranges seen during periods of steady growth and well-functioning financial markets. They only appear dramatic when compared with the unusually low levels of recent years.

There is also a deliberate policy shift under way in the US.

The Trump administration seems willing to let the economy run hot, pressing for low interest rates and tolerating higher inflation. The aim is to boost short-term growth while slowly eroding the real value of their massive debt burden. Markets are responding rationally, pushing long-term yields higher to reflect faster growth and higher inflation.

The falling US dollar reflects this push for looser conditions, while also supporting the “Made in America” agenda. In other words, the dollar is doing exactly what policymakers intend.

NZIER senior economist Ting Huang says as a small, open economy, New Zealand is particularly exposed to fluctuations in the US dollar.

Rising precious metals prices, alongside record-high US share markets, suggest investors are more concerned about inflation than financial collapse.

For New Zealand, these trends point to tighter financial conditions in the near term.

Inflation pressures have already brought forward expectations for interest-rate hikes, pushing up mortgage costs, while a stronger Kiwi dollar may begin to weigh on exporters.

The positive side is that this same currency strength should help contain imported inflation later in the year, tempering the need for sharp rate rises.

Volatility in US long-term bond yields poses risks to the New Zealand economy

Ting Huang is a senior economist at NZIER

Rising long-term US bond yields are often interpreted positively, as they can reflect optimism about the US economic outlook. However, the recent rise in 10-year yields appears to reflect something more troubling. Investors are increasingly concerned about US fiscal sustainability, persistent budget deficits, rising public debt, and the risk that inflation proves harder to bring under control than policymakers expect. As a result, investors are demanding a higher term premium to hold long-dated US government debt to compensate for greater fiscal risk and policy uncertainty.

Understanding these drivers matters because US bond markets play a central role in shaping global financial conditions. When long-term US yields rise due to heightened fiscal or policy risk, borrowing costs tend to increase globally. Higher yields can also draw capital toward US assets, supporting a stronger US dollar. Smaller, open economies like New Zealand are particularly exposed to these spillovers.

The recent rebound in the New Zealand dollar against the US dollar does not contradict this broader story. It largely reflects a narrowing gap between expectations for New Zealand and US interest rates. Stronger-than-expected domestic data, including the September quarter GDP outturns, headline confidence in the NZIER Quarterly Survey of Business Opinion, and December quarter CPI results, have reinforced expectations that the Reserve Bank of New Zealand will not cut the OCR further this year.

Nonetheless, volatility in US long-term bond yields poses risks to the New Zealand economy. This comes at a time when the effects of lower interest rates are finally gaining traction, but annual CPI inflation has edged up just above the RBNZ’s 1 to 3% target band. If elevated US bond yields are to push up borrowing costs and strengthen the US dollar, they will act as headwinds to spending and investment and increase the risk of prolonged tradable inflation. In that scenario, the RBNZ faces an even more challenging trade-off between supporting growth and controlling inflation.

The key takeaway is that developments in the US economy matter for New Zealand. Policymakers, including the RBNZ, must continue to assess global financial developments alongside domestic data to identify future headwinds and tailwinds.