President Trump’s intensified his call for the Federal Reserve (Fed) to cut interest rates, as recent data suggests the world’s largest economy might be showing signs of strain.
The US labour market has long been a cornerstone of economic strength. The unemployment rate is currently 4.2%, remaining relatively stable around the 4% mark since its peak during the pandemic in 2020.
However, recent job growth figures indicate the labour market could be starting to cool. While the May jobs report wasn’t weak, the addition of 139,000 jobs fell short of the 147,000 added in April. To add to this, job numbers for both March and April were revised downward from initial estimates.
The jobs market has grown on average by 124,000 jobs per month between January and May. Although this doesn’t appear to be a worrying, economists are concerned that this is the lowest average in the past 30 years when you exclude years of recession.
GDP and tariffs starting to bite
US GDP declined sharply for the first quarter of the year falling by 0.3%. This is a hefty fall from the end of 2024 where GDP grew 2.4% for the final quarter of the year.
The decline was mostly caused by a rise in imports. A country importing more then it exports is negative for GDP growth. With the recent uncertainty caused by Trump’s tariffs, many companies rushed to import goods before they came into effect. It’s likely to reverse in the next quarter but with the tariff situation remaining unclear, imports might continue to be elevated.
Tariffs are also expected to have a longer-term impact on the US economy. The International Monetary Fund (IMF) has lowered its forecast for US growth this year to 1.8%, down from the 2.7% it projected in January.
This downgrade has prompted Trump to renew his calls for the Fed to implement significant interest rate cuts. Despite the mounting political pressure, the Fed has remained firm, reiterating that it’ll base its decisions solely on economic data.
In addition to the jobs report, inflation will be one to watch. While the more substantial tariffs were delayed to allow trading partners time to negotiate new trade deals with the US, the universal 10% tariffs that were implemented remain in effect. However, in May, inflation rose to 2.4% from 2.3% in April. Economists were expecting a bigger rise as this is the first full inflation reading that reflects the impact in tariffs.
If inflation continues to rise and the Fed still sees sufficient job growth, it’s unlikely to yield to begin cutting interest rates.
Trump’s ‘big beautiful’ bill
One of Trump’s key campaign promises has been to expand on the tax cuts he introduced during his first term. He’s taken the first step toward fulfilling that pledge with a multi-trillion-dollar tax break package that narrowly passed the House.
The bill now moves to the Senate, where Republicans hold a slim majority. To block the bill, Democrats need to vote together and persuade at least four Republicans to rebel.
Dubbed by Trump as his “big, beautiful bill,” the bill extends tax cuts set to expire this year but also increases defence spending and allocates funds to support his immigration policies. The bill faces criticism over how it will be funded, with several other areas of government spending facing significant cuts.
A notable cut is to Medicaid, which provides health coverage to millions of low-income Americans. This could potentially be a key point of debate for both parties.
There’s also growing concerns that the bill will further inflate the already rising US deficit. The government is currently spending far more than it collects in revenue, and Trump’s tax breaks are projected to add $5.2 trillion to the national debt over the long term and $600 billion to the deficit over the next year alone.
Even Elon Musk the billionaire CEO of Tesla, X (Twitter), and SpaceX, and once a close Trump ally has voiced opposition to the bill, citing its potential impact on the national debt.
How have the US Wealth Shortlist funds performed?
Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
This article isn’t advice. Investments and any income they produce will rise and fall in value, meaning you could get back less than you invest. If you’re not sure if an investment is right for you, ask for financial advice. Remember, past performance is not a guide to the future.
For more details on each fund and its risks, you can use the links to their factsheets and key investor information below.
Baillie Gifford American
The strongest performer of our wealth shortlist US funds over the last year was the Baillie Gifford American fund. The fund rose 23.17%* over the past 12 months, outperforming the IA North American sector average which returned 5.42%.
Our analysis shows that managers stock selection was the main driver of the fund’s impressive returns over the year. The managers investment in software company Cloudflare, technology companies Duolingo and Shopify as well as food delivery company DoorDash were some of the biggest contributors to the fund’s strong performance.
FTF Royce US Smaller companies
The weakest performer over the past 12 months was FTF Royce US Smaller companies, returning -12.75%, behind the IA North American smaller companies sector average which returned- 5.58%.
We don’t expect all the funds on the wealth shortlist to perform in the same way. We think it’s important for investors to build a portfolio filled with managers who have different approaches and investing styles to help generate long-term returns.
Annual percentage growth
31/05/2020 To 31/05/2021 | 31/05/2021 To 31/05/2022 | 31/05/2022 To 31/05/2023 | 31/05/2023 To 31/05/2024 | 31/05/2024 To 31/05/2025 | |
|---|---|---|---|---|---|
Baillie Gifford American | 54.89% | -44.69% | 10.38% | 19.04% | 23.17% |
IA North America | 24.23% | 6.36% | 2.62% | 21.69% | 5.42% |
FTF Royce US Smaller Companies Fund | 39.54% | 3.04% | 2.48% | 15.38% | -12.75% |
IA North American Smaller Companies | 36.84% | -7.04% | -1.29% | 15.86% | -5.58% |