The US economy may be reliving the 'roaring '20s' – and that means growth, inflation, and rates will all stay high, UBS says

• The US economy has defied most analysts' predictions this year, with growth staying strong.
• That could set the stage for a "roaring '20s" decade, according to UBS.
• Higher growth, inflation, and interest rates could come to define the period, the Swiss bank said.

The economy's surprising resilience this year could set the stage for a new "roaring '20s" decade of growth, according to UBS.

Many forecasters had expected a recession, but growth has held up much better than expected, with US GDP expanding at its fastest pace in two years last quarter.

Meanwhile, inflation has cooled away from four-decade highs but is still running far clear of the Federal Reserve's 2% target. Meanwhile, yields on benchmark 10-year Treasury bonds have spiked to 16-year highs.

"The data suggests the economy is in a new macro regime," a team led by UBS's head of asset allocation for the Americas Jason Draho said. "A regime is defined by its growth, inflation, and rate attributes."

Higher GDP growth, inflation, bond yields, and interest rates would be the main features in a "roaring '20s outcome" for the economy, the strategists added.

Another feature of the decade could be higher volatility, according to UBS.

Stocks and bonds have tended to move in different directions since the start of the pandemic, with equities racking up big gains while fixed income suffered one of the worst routs in market history.

But the two asset classes have showed more signs of correlation in recent months, with both slipping lower between the end of July and late October, before investors' belief that the Fed is now done raising borrowing costs fueled a recent rally.

"A higher stock-bond correlation will make multi-asset portfolios more volatile, a consequence compounded by higher inflation volatility," UBS said.