Kallum Pickering Warns of US Asset Market Leverage Risks

Economist Kallum Pickering warns that the United States economy is more leveraged to its own asset markets than at any point in the modern cycle, creating a risk of massive wealth destruction. He argues that high benchmark interest rates have fostered a k-shaped economy, where capital is concentrated in exuberant markets like AI while other necessary investments are crowded out.

Pickering characterizes the current global economic climate as a race for AI dominance between the United States and China. He notes a fundamental difference in their strategies: China utilizes export surpluses to finance innovation, whereas the United States relies on debt surpluses.

To manage this volatility, Pickering suggests the Federal Reserve System could contain long-term yields by leveraging strong quarterly earnings to nudge short-term rates upward and maintain a hawkish stance on inflation. He predicts that while inflation may increase in the short term over the next few months, it will drift lower in 2027.