The Top Client Questions About the U.S.

Libby Cantrill · PIMCO

Democrats look set for a possible wave election in the midterms, with the House likely to flip.

PIMCO's midterm regression model tracks two significant indicators. Democrats lead the enthusiasm gap by 11 points and the generic ballot by 9 points. Those readings match past wave elections in 2006 and 2010, while the same indicators did not signal the 2002 red wave. Republicans hold the House by only three seats, so Democrats need just three to flip it. The Senate, where Republicans hold a four-seat edge, would need a near-perfect night and effectively a wave.

“Right now, democrats lead that by plus 11 points. That's definitely in wave territory.”at 11:38

Libby Cantrill · PIMCO

Populist restiveness will keep generating policy and market volatility as long as it persists.

Anti-establishment sentiment that elected Trump is now spreading across both parties. Voters are restive about affordability, inequality and the status quo. That restiveness will keep producing unpredictable policy and market volatility in US politics for as long as populism persists.

“as long as this populism continues, there is going to be restiveness and volatility in The US politics.”at 33:51

Libby Cantrill · PIMCO

The US consumer has held up well; higher gas prices have not hurt high-end spending much.

The US economy has been incredibly resilient despite many challenges. Higher gas prices have not really affected consumers, particularly at the high end. Consumer sentiment has been supported by the wealth effect from AI gains. Consumer strength is a key source of support for growth, though a sentiment shock from weaker AI-linked markets could change that.

“This higher gas prices haven't really actually affected the consumer, particularly at the high end.”at 3:16

Libby Cantrill · PIMCO

The US economy is largely an AI story; an AI wobble could slow growth, though recession is not the base case.

The US economy has been resilient, and much of that strength comes from the data center and capex build-out and from a wealth effect that lifts consumption because of AI. If the AI investment story wobbles, with a pullback in investment and equity market weakness, that could weigh on consumption and slow the economy. Her base case is not recession, but she sees headwinds going into 2027.

“The US economy is kind of an AI story. ... if the AI story wobbles a little bit, ... I do think that you could see sort of The US economy slow a little bit. It's not our base case.”at 3:35

Libby Cantrill · PIMCO

Trump may escalate the Iran conflict in the post-midterm lame-duck period before the new Congress is seated.

Trump is playing for legacy, and his endgame is to stop Iran from getting a nuclear weapon, which is why he has stuck with an unpopular war (about 60% of Americans disapprove). Republicans still control Congress until January, and many have asked him to wait until after the midterms. Congress's power of the purse will constrain him in 2027. About $150 billion from the 2025 tax bill's Pentagon money is funding the conflict and will run out soon, so he will need Congress for more money. If Democrats take both chambers, they will attach more conditions to Iran spending.

“I do think there's a risk after the midterm elections that he escalates this. I think the politics have constrained him a little bit.”at 6:29

Libby Cantrill · PIMCO

No fiscal consolidation is expected; the roughly 6% of GDP deficit may rise further near term.

Regardless of the election outcome, Republicans and Democrats agree on more spending. Trump will need more defense money for Iran, and Democrats will likely agree to some extra defense spending in exchange for more health care spending. The deficit, now around 6% of GDP, could rise in the short term. Entitlement spending on autopilot is the biggest driver of the debt, so without entitlement reform there is no real consolidation.

“Republicans and Democrats, the only thing they agree on these days is more spending.”at 13:57

Libby Cantrill · PIMCO

Social Security trust fund depletion around 2032 will force reform; a 20% benefit cut is unlikely to happen.

The trust fund currently tops up benefits. Once it is depleted, the program becomes pay-as-you-go with fewer workers paying in and more beneficiaries, which implies a benefit cut of about 20% for existing recipients. Congress will not allow that cut. She expects the deadline to act around 2032 to catalyse broader fiscal reform, including taxes, with both parties needing to address deficits and entitlement reform in the 2028 campaign.

“there will be a benefit cut for existing beneficiaries of about 20%.”at 15:57

Libby Cantrill · PIMCO

Corporate, capital gains and inheritance taxes are likely to be raised to fund the budget.

The US has a low tax base, and capital gains are taxed far below labor income. Corporate taxes were cut from 35% to 21% in 2017, and that rate is now vulnerable. Populist anger about gas, groceries, health care, housing and a K-shaped, two-speed economy will not stand politically, so tax increases are coming despite Americans' dislike of taxes. She thinks the trust fund deadline could catalyse this broader fiscal reform.

“So I think that corporate taxes are gonna be on the table. I think capital gains are gonna be on the table. Inheritance is going to be on the table.”at 18:01

Libby Cantrill · PIMCO

Expects the Fed to hike again by year-end, possibly once more in early next year.

Chair Warsh has shown he will think independently, even if the president dislikes his decisions. The Fed also has guardrails, since a majority of the FOMC must vote for policy changes. Hikes are expected even though a pullback in AI investment and equity market weakness could eventually weigh on consumption and growth.

“So we do think there's another Fed hike in store by the end of the year, maybe one more the beginning of next year.”at 19:52

Libby Cantrill · PIMCO

PIMCO is getting more selective on data center debt as issuance rises and terms worsen for investors.

Past data center financings such as the Meta deal were bondholder friendly, and PIMCO negotiated strong protections for its clients. Now, as issuance grows and terms become less favorable, PIMCO is becoming more selective. It still sees a lot of opportunity in the sector, but it is being more selective and working more closely with traders to assess the political environment around projects.

“We're just having to be now even more selective... because we're seeing now, you know, more issuance and less favorable terms.”at 23:14

Libby Cantrill · PIMCO

Washington stays more hawkish on China than Trump; hawkish rhetoric likely returns around 2029.

Trump imposed tariffs of around 145% on China in spring 2025, and China responded with its critical minerals leverage. Tensions have eased since then, which she sees as good for global stability. But the center of gravity in Washington remains more hawkish, and some Republicans and intelligence officials distrust China. Congressional oversight may rebalance policy in the last two years of the administration, and by 2029 hawkish rhetoric could return to the front page.

“I do think the center of gravity in Washington is still much more hawkish on China than president Trump is.”at 26:17

Libby Cantrill · PIMCO

Prediction markets and polls on the 2028 race are unreliable this early; signal emerges only by late 2027.

The current 2028 polling, which puts Kamala Harris and Gavin Newsom in the lead, is driven by name recognition, and no candidate has an edge yet. Prediction-market prices this early are not informative. The primaries begin in January 2028, and credible candidates will become clear only by the end of 2027.

“all of this polling, the prediction markets this early on, it is kinda garbage, honestly. It's just way too early.”at 32:07