Ferguson says the Fed might get this right and look incredibly clever.
But there’s also a chance that wage growth and inflation could be running at 3 per cent by the start of next year. And if meaningful wage growth happens in the coming months, the Fed could be forced into another U-turn, and raise rates in the back half of this calendar year.
The other big change in 2020 could come from US politics, where the US presidential election will be hotly contested.
One of the big factors Ferguson sees is the rise of younger voters, who will account for 63 per cent of the electorate, compared with 37 per cent who will be Baby Boomers or older.
This suggests a shift to the left, but Ferguson still puts Trump’s chances of re-election at 50 per cent, in part because he believes the coastal centres are getting too excited about the left-leaning policies from the likes of new congresswoman Alexandria Ocasio-Cortez (AOC).
“It’s easy when you’re in that kind of bubble that every single thing that AOC says is anathema to middle America,” Ferguson says.
But even if America elects a Democratic president, one thing might not change – the nation’s distrust of China, which Ferguson says is one issue in which there is “consensus throughout the policy establishment in the United States”.
Indeed, Ferguson says Trump’s suggestions of an imminent trade deal with China could be both misleading – he argues that negotiators in Washington and Beijing remain a long way apart – and meaningless because the depth of opposition to China is now a bipartisan issue.
“In a sense, President Trump no longer has the ability to declare trade peace with China,” he says.
Ferguson says the current trade war is more of a 1970s construct. The bigger issue is a war over technology, which is where China’s rapid rise is such a concern for the US. “In the tech war, there is no peace in sight – there is only escalation.”
He gives the example of artificial intelligence, which he says is “really like the nuclear arms race of the initial Cold War”. Or what he calls the race for “zee Quantam Supremacy” (German accent mandatory).Or even the current jousting over Huawei.
Victory in either battle would allow China to further challenge America’s leadership in innovation and economic power.
But Ferguson says it is in China’s interests to deal, as the trade war and the tech wars make it tougher to the Chinese government “to keep the growth show on the road”.
On this point Ferguson was supported by Keyu Jin, professor at the London School of Economics, who told the summit that China has no desire for “an outright collision with the US”.
This is partly because Chinese Premier Xi Jinping’s most important goal is “how to avoid subversive forces taking over, which can knock China off its path to prosperity”.
These forces include domestic instability – and this includes, ironically, a rise in nationalism in response to Trump’s trade pressure – but also international tensions.
She described Trump as a “strategic gift to China” in that the tension he’s created could help push through reforms that actually align with China’s longer term goals.
She summed these up as being centred around the rest of the world accepting three things.
First, the acceptance that China’s will be the world’s largest economy.
Second, that China will take a different developmental path to Western nations; it will not move to a democratic system, but it does desire a “peaceful rise”.
And finally, China wants acceptance that it will exercise power on the international stage with peace in mind.
“For me, it’s about Chinese aspirations, it’s about the Chinese future development model, and it’s about Chinese technology,” Jin says.
But Jin agrees with Ferguson on the deeper tensions about technology, which goes to the battle for economic dominance. “China believes this is a long-term struggle with this US. Trump is not a cause, he’s a symptom.”
Which brings us neatly back to the challenge Ferguson says faces Australia: how to pick a side.
“This is a profound dilemma for Australia, which for reasons of history, naturally gravitates to the US, but for reasons economic, is powerfully drawn to China.
“It is going to become a central problem of Australian politics, regardless of who is prime minister.”