“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
AI Summary.Prices fell for 51 of 67 consumer items tracked over a two-year period in China, while the broader GDP deflator, which includes upstream sectors, declined for 10 straight quarters, indicating deflation is more entrenched in industry. The share of "zombie" firms whose profits cannot cover debt interest rose from 19% to 34% over five years.
BloombergBloomberg Staff
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A Bloomberg analysis finds that prices dropped on 51 of 67 products and services in China over the past two years. 34% of Chinese firms are unable to cover interest on their debt – a 25-year high – as China’s deflationary spiral worsens.
How deeply has deflation taken hold in China's industrial sector?
Core argument: Prices fell on 51 of 67 items tracked by Bloomberg News over the last two years, while China's GDP deflator, which includes upstream sectors, has declined for 10 straight quarters, indicating deflation is more entrenched in industry.
Among 67 items tracked by Bloomberg News, prices on 51 dropped over the last two years. A broader gauge that includes upstream sectors, known as the GDP deflator, has been steadily declining for 10 quarters, indicating that deflation is much more entrenched in the industrial sector. Polysilicon, the raw material for solar panels, saw prices drop to less than a fifth of its peak in 2022. Prices for steel rebar, widely used in construction, fell to an eight-year low in May. Across the market, company results show the same pressures: the share of “zombie” firms — those whose profits can’t cover interest payments on their debt — rose from 19% to 34% over the past five years; capital and R&D spending fell for most companies, a first in a decade; and more than a third of companies across industries cut jobs in 2024.
Takeaways by Macro Roundup® AI
Prices fell on 51 of 67 items tracked by Bloomberg News over the last two years, while China's GDP deflator, which includes upstream sectors, has declined for 10 straight quarters, indicating deflation is more entrenched in industry.
Polysilicon, the raw material for solar panels, has fallen to less than a fifth of its 2022 peak price, and steel rebar used in construction hit an eight-year low in May.
The share of Chinese "zombie" firms whose profits cannot cover debt interest payments rose from 19% to 34% over five years, capital and R&D spending fell for most companies for the first time in a decade, and over a third cut jobs in 2024.
Related Articles:
How NOT To Negotiate With China— Trade diversion signals deep distress in China's export sector, and the author argues a sustained 10% tariff hike would be more credible than larger ones and could counter China's rare earths leverage. Easing up on Chinese exporters instead signals weakness and discourages Europe from coordinating with the US.
China’s Youth Unemployment Soars To 2-Year High As Job Crunch Deepens— China's urban unemployment rate for 16- to 24-year-olds excluding students rose to 18.9% from 17.8%, the highest since the National Bureau of Statistics revised its calculation method for the series. A record 12.2m university students graduated into a job market strained by deflationary pressures and external uncertainties, with many struggling to find roles matching their education and skills.
Xi Overcapacity Fight Leaves Economy Vulnerable Without Stimulus— China's total debt has risen to over 300% of gross domestic product from a little over 200% a decade ago, and with the main policy rate at 1.4%, the central bank has limited room to cut. Price declines are more widespread than in past deflationary episodes, and large-scale stimulus remains off the table.
AI Summary.The employment rate for Americans aged 25–54 has held essentially unchanged at a multi-decade high of 80.7%, just below its recent peak of 80.9%, alongside robust growth in hours worked. Because overall unemployment has risen while prime-age employment stayed stable, job market weakness is concentrated among Americans under 25.
Matt KleinThe Overshoot
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Labor demand and employment remain strong; 80.7% of US residents aged 25–54 have a job – near the recent peak. Hiring, however, has slowed; unemployment for those <25 has risen enough to affect the aggregate unemployment rate.
Is job market weakness concentrated among the youngest workers?
Core argument: The U.S. prime age employment rate stands at 80.7%, just below its recent peak of 80.9% and essentially unchanged over the past 2.5 years at a multi-decade high.
The “prime age employment rate” remains essentially unchanged over the past 2.5 years at a multi-decade high. The current reading of 80.7% is only just below the recent peak of 80.9%. For perspective, this indicator had dropped by 1.6 percentage points between January 2000 and August 2001. The stability of the prime age employment rate and the robust growth in hours worked stands in contrast to the overall unemployment rate, which seems to be breaking out of the range it had been sitting in since last summer. By definition, if prime age employment has been stable at the same time that [the overall unemployment rate] has been rising and at the same time that workers have been dropping out of the labor force, job market weakness must be concentrated elsewhere. Specifically, Americans under 25. While jobless rates for the 16-24 age cohort [are normally] higher and more volatile, that does not explain the relentless surge since the beginning of 2025, and the magnitude of [that] unemployment rate increase has been big enough to affect the aggregate numbers.
Takeaways by Macro Roundup® AI
The U.S. prime age employment rate stands at 80.7%, just below its recent peak of 80.9% and essentially unchanged over the past 2.5 years at a multi-decade high.
The prime age employment rate dropped 1.6 percentage points between January 2000 and August 2001, in contrast to its current stability and robust growth in hours worked, even as the overall unemployment rate appears to break out of the range it held since last summer.
With prime age employment stable while overall unemployment rises and workers drop out of the labor force, job market weakness is concentrated among Americans under 25, whose unemployment rate has surged since the beginning of 2025 by enough to affect the aggregate numbers.
Related Articles:
Canaries in the Coal Mine? Six Facts about the Recent Employment Effects of Artificial Intelligence— Using payroll records covering millions of US workers, the authors find employment for workers aged 22–25 in occupations most exposed to artificial intelligence, such as software developers and customer service representatives, declined 6%, while employment for older workers in those occupations rose 6–9%. Employment in less-exposed occupations grew comparably across age groups.
Shorting the AI Jobs Apocalypse— Employment for workers aged 22-25 and 26-30 has declined relative to its pre-ChatGPT trend and relative to older workers in the same occupation, but the age groups shown are not equally sized. The authors argue that combining all age groups shows software developer jobs have continued to grow overall.
AI and Jobs: The Final Word (Until the Next One)— Unemployment has risen by 0.30 percentage points for the fifth of workers most exposed to artificial intelligence, compared with 0.94 percentage points for the least exposed fifth, leaving no visible AI effect on jobs. The share of workers leaving the labor force within a year is lowest among the most AI-exposed workers and roughly flat.
AI Summary.Regrouping US college majors to match Chinese disciplines yields a 2:1 ratio of science and engineering to humanities and social sciences, the same ratio as in China. The author argues America's building slowdown reflects structural economic shifts—urbanization reached 70% by 1960 and 85% by 2020, shifting needs toward maintenance—rather than a lawyerly culture.
Jonathon SineCogitations
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Jonathon Sine argues China “is moving beyond its breakneck industrial prime, facing similar dilemmas to those America confronted in the 1960s and 70s.” The ratio of science/engineering to humanities undergraduate majors is 2:1 in both the PRC and US.
Does America's building slowdown reflect structural shifts rather than lawyerly culture?
Core argument: Regrouping US college majors according to Chinese disciplines yields a 2:1 ratio of science/engineering to humanities/social sciences, the same ratio as in China when management is grouped with science/engineering in both.
Dan Wang’s “big idea” [is] “China is an engineering state, building big at breakneck speed, in contrast to the United States’ lawyerly society, blocking everything it can, good and bad.” I re-group US college majors according to Chinese disciplines to allow for rough comparison. Surprisingly, the ratio of science/engineering to humanities/social sciences is 2:1, the same as in China (if one groups management with science/engineering, as I also do for China). As with China today, America’s breakneck building phase was decidedly winding down by the 1960s. Urbanization went from 40% in 1900 to 70% by 1960, and grew much more incrementally over the next 60 years to 85% by 2020. The country simply did not need to continue building dams, expressways, and energy production facilities at breakneck pace. It became much more a matter of maintaining and upgrading (which has not gone well, at least according to the American Society of Civil Engineers’ report card). The American [building/investment slowdown that started after the 1970s] may be more about structural economic shifts than lawyers.
Takeaways by Macro Roundup® AI
Regrouping US college majors according to Chinese disciplines yields a 2:1 ratio of science/engineering to humanities/social sciences, the same ratio as in China when management is grouped with science/engineering in both.
US urbanization rose from 40% in 1900 to 70% by 1960, then grew more incrementally to 85% by 2020, with America's breakneck building phase winding down by the 1960s.
The US building and investment slowdown that began after the 1970s may owe more to structural economic shifts than to lawyers, qualifying Dan Wang's contrast between China's engineering state and America's lawyerly society.
Related Articles:
Industrial Colossus: China vs 1950s America— China's growth in its share of global manufacturing has slowed from roughly 1.5 percentage points per year in the early 2010s to just over 0.5 percentage points annually, about one-third the earlier pace. The author argues China's share of global manufacturing is likely near its peak.
The Real China Model— China generates more electricity annually than the United States and European Union combined, having added capacity equivalent to the United Kingdom's total supply each year. Electricity makes up nearly 30% of China's energy use, versus 22% in the US and 21% globally, and its share is growing about 6% a year.
America’s Housing Affordability Crisis and the Decline of Housing Supply— Housing production intensity has fallen substantially, especially in fast-growing Sunbelt markets once known for building, converging toward the low rates long seen on the coasts and in declining industrial centers. The authors argue incumbent-controlled regulation explains the weakening link between high prices, high demand areas, and new construction.
AI Summary.About a sixth of America's 2% real GDP growth over the past year came from investment in computer and communications equipment and data centres, and one estimate puts the artificial intelligence boom's total contribution to growth at 40%. Average electricity bills rose 7%, attributed in part to data-centre demand, while housebuilding and non-AI business investment slumped and real consumption flatlined.
Economist StaffThe Economist
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As AI-related investment has risen since 2023, residential and nonresidential investment have declined or flatlined. This may suggest that a relatively rate-insensitive AI buildout is crowding out more interest-sensitive forms of investment.
Is the AI investment boom crowding out the rest of the economy?
Core argument: Roughly a sixth of the 2% rise in American real GDP over the past year came from investment in computer and communications equipment, including chips, and data centres; one estimate puts the AI boom's contribution at 40% once grid upgrades and software intellectual property are included.
Something like a sixth of the 2% rise in American real GDP over the past year has come from investments in computer and communications equipment, including chips, and data centres. Add in the grid upgrades to power AI models, plus the intellectual-property value of the software itself, and one estimate puts the boom’s contribution to real GDP growth at 40%. The trouble is that the very sector powering so much of America’s economic growth is squeezing the rest of its output. Housebuilders, for instance, cannot afford to be blithe about higher borrowing costs. Data centres have also constrained the rest of the economy by keeping energy prices high. Average American electricity bills have risen by 7% so far in 2025, at least in part due to the extra strain data centres have put on the grid. Real consumption has flatlined since December. Housebuilding has slumped, as has non-AI business investment.
Takeaways by Macro Roundup® AI
Roughly a sixth of the 2% rise in American real GDP over the past year came from investment in computer and communications equipment, including chips, and data centres; one estimate puts the AI boom's contribution at 40% once grid upgrades and software intellectual property are included.
Average American electricity bills have risen by 7% so far in 2025, at least in part due to the extra strain data centres have put on the grid.
Related Articles:
Honey, AI Capex is Eating the Economy— Capital spending on AI data centers is around 20% of railroads' peak spending as a share of GDP and is rising quickly, having already surpassed the dot-com era peak in telecom investment. Unlike long-lived rail infrastructure, data centers are short-lived assets requiring frequent hardware replacement, and the capital is being reallocated from other sectors.
Back to Our Regularly Scheduled Programming— The four largest US hyperscalers spent $440bn on capital expenditure and research in 2024, with $596bn projected for 2025, a 35% increase, leaving large gaps between AI spending and AI revenues. These firms account for more than half of all capital expenditure growth in the US equity market.
The AI Boom’s Hidden Risk to the Economy— Net income at Alphabet, Amazon, Meta and Microsoft rose 73% to $91bn in a quarter two years on, while their combined free cash flow fell 30% to $40bn, as heavy AI investment absorbs cash these firms once recycled into financial markets. That spare cash previously helped hold down long-term interest rates despite large federal deficits.
AI Summary.The author argues the US is likely to see another burst of inflation within roughly five to seven years, cumulatively 20–25% above the 2% target, which would erode the debt as an earlier episode did. He expects markets to respond by demanding higher interest rates, forcing difficult choices.
Ken Rogoff and Tyler CowenConversations with Tyler
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Rogoff argues that the unsustainability of US debt has not yet “come to roost” due to the low real interest rates of 2007-2021, but that over the next 5-7 years cumulative above-target inflation of 20-25% will erase a significant portion of the debt.
Will another burst of inflation erode the US debt?
Core argument: Kenneth Rogoff expects another big inflation within five to seven years, cumulatively 20–25% above the 2% target, versus roughly 10–12% cumulative excess under Biden, which he says brought the debt down.
Eventually — not necessarily in a planned or coherent way — I think we’re going to have another big inflation soon, next five to seven years, maybe sooner with what’s going on, and that’s going to bring [the debt] down just like it did under Biden. It brought the debt down. Then the markets are, fool me once, shame on you. Fool me twice, no, we’re raising the interest rate, and then we’ll have to make choices. Last time we probably had a bonus 10% inflation over the 2% target cumulatively, maybe 12%. I think this time, it’ll be more on the order of cumulatively over the 2% target, 20%, 25%. There’s going to be an adjustment. I don’t think the debt is going to be the sole contribution to that. There are many factors. You have to impinge on Federal Reserve independence. Probably, there’ll be some shock, which will justify it. I don’t know how it’s going to play out. I know that for years, people have said the US debt is unsustainable, but it hasn’t come to roost because we’ve lived through this post-financial crisis, post-pandemic era of very, very low and negative real interest rates. That is not the norm. There’s regression to mean.
Takeaways by Macro Roundup® AI
Kenneth Rogoff expects another big inflation within five to seven years, cumulatively 20–25% above the 2% target, versus roughly 10–12% cumulative excess under Biden, which he says brought the debt down.
Rogoff says such an inflation would require impinging on Federal Reserve independence, probably justified by some shock, with markets then raising interest rates and forcing choices.
Rogoff attributes the failure of long-predicted U.S. debt problems to materialize to the post-financial-crisis, post-pandemic era of very low and negative real interest rates, which he says is not the norm given regression to the mean.
Related Articles:
Are Foreigners Selling US Assets?— European and Japanese investors hold roughly 30% and 20% of their fixed income in foreign debt, versus under 10% for US investors, with US bonds making up about 15% of Eurozone and Japanese portfolios. Because foreign investors are less sticky than domestic ones, turmoil in US bond markets has greater potential to unsettle them.
Dollar Downgrade— The author argues that rising 10- and 30-year US Treasury yields do not show up in long-term inflation expectations, judging by the spread between inflation-indexed and non-indexed Treasury bonds. The author attributes the increase instead to a shift in demand away from long-dated US debt, reinforcing higher long-term real interest rates.
The Inflationary Risks of Rising Federal Deficits and Debt— Simulations of the Federal Reserve's main macroeconomic model estimate that debt-financed deficits raise core prices about 0.2 percentage points over five years absent a central-bank response. With the central bank reacting, the cost shifts to interest rates: short rates roughly 0.25% higher, mortgage rates 23 basis points higher, and real household wealth 1.2% lower.
AI Summary.The authors of an Institute for New Economic Thinking paper estimate that wealth gains among the top 10% of US households were large enough to explain the rise in total consumer spending above its longer-term trend, sustaining their spending even as their inflation-adjusted incomes shrank.
Jonnelle MarteBloomberg
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Americans earning over $250k/year now represent ~50% of US consumer spending, up from ~33% in the 1990s, supported in part by stock market gains. Recent equity market declines may have a disproportionate impact on spending relative to previous selloffs.
Does spending by the wealthiest households now drive the economy?
Core argument: Americans earning more than $250,000 a year account for half of all US consumer spending, up from about one-third in the 1990s, according to a Moody's Analytics analysis.
The increase in wealth experienced by the top 10% of households from 2020 to 2023 was almost without precedent, according to a paper published in May by the Institute for New Economic Thinking, enabling this cohort of “super rich” to keep spending even as their real incomes shrunk when adjusted for inflation. Gains among the wealthy were large enough to explain the rise in total consumer spending above its longer-term trend, according to the authors, economists Thomas Ferguson and Servaas Storm. A recent analysis by Moody’s Analytics found that Americans earning more than $250,000 a year now account for half of all US consumer spending, up from about one-third in the 1990s.
Takeaways by Macro Roundup® AI
Americans earning more than $250,000 a year account for half of all US consumer spending, up from about one-third in the 1990s, according to a Moody's Analytics analysis.
Economists Thomas Ferguson and Servaas Storm argue that wealth gains among the wealthy were large enough to explain the rise in total consumer spending above its longer-term trend.
The wealth increase for the top 10% of households from 2020 to 2023 was almost without precedent, according to a May paper from the Institute for New Economic Thinking, letting them keep spending as their inflation-adjusted incomes shrank.
Related Articles:
The U.S. Economy Depends More Than Ever on Rich People— Moody's Analytics estimates the top 10% of earners account for 49.7% of all U.S. consumer spending, a record in data going back to 1989, up from about 36% three decades ago, with their spending alone equal to almost one-third of gross domestic product.
Consumer Sentiment Deteriorating Rapidly— University of Michigan survey data show consumer sentiment declining for households earning both above and below $100,000, with job-loss worries at levels typically seen in recessions and a record-high share of consumers saying business conditions are worsening. Income expectations are falling while inflation expectations are rising rapidly.
The American Dream Is Not a Coin Flip, and Wages Have Not Stagnated— Using an alternative cost-of-living adjustment, the typical 40-year-old's pre-tax family income rose 52% between 1979 and 2019, or 73% adjusting for family size, versus 15% under the methods behind widely cited mobility estimates. Absolute mobility is down 20 percentage points since 1979 but stood at 72% in 2023.
AI Summary.Government spending and fiscal deficits exceeding 23% and 6% of GDP late in the business cycle have absorbed savings and pushed mortgage rates to 7%, according to this argument. Higher rates have driven existing single-family home sales down 20% from their pre-pandemic peak, roughly the financial-crisis trough level.
Edward ConardMacro Roundup
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Who is paying for Biden’s blowout spending that exceeds 23% of GDP w/ 6% deficits that suck down savings, drive mortgage rates to 7%, and sales of existing homes down to their trough at the depths of the financial crisis—20% below their pre-COVID level.
Are government deficits pushing mortgage rates up and home sales down?
Core argument: Sales of existing family homes are down 20% from their pre-COVID peak, placing them approximately at the trough reached during the financial crisis.
Who is paying the price of the Biden administration's blowout spending? Unprecedented government spending and resulting fiscal deficits--which exceed 23% and 6% of GDP late in the business cycle--have sucked up savings, driven mortgage rates up to 7%, which in turn has driven sales of existing family homes down 20% from their recent pre-COVID peak. Home sales are now approximately at the trough of the financial crisis.
Takeaways by Macro Roundup® AI
Sales of existing family homes are down 20% from their pre-COVID peak, placing them approximately at the trough reached during the financial crisis.
Government spending exceeding 23% of GDP and fiscal deficits exceeding 6% of GDP late in the business cycle have absorbed savings and driven mortgage rates up to 7%, according to the author.
The author attributes the 20% decline in existing home sales to mortgage rates rising to 7% as government borrowing consumed available savings.
Related Articles:
Inflation Adjusted House Prices 1.1% Below 2022 Peak— Inflation-adjusted US house prices are 1.1% below their 2022 peak, based on the Case-Shiller National Index. An affordability measure combining median income, house prices, and 30-year fixed mortgage rates shows the monthly principal-and-interest payment on the same house rose about 80% over three years, as prices climbed 18% and mortgage rates went from roughly 3.07% to 6.81%.
The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly— Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.
Why Housing May Be In for Another Cost Shock Next Year— The apartment market is projected to shift from renter-friendly to landlord-friendly over the next two to three years as new supply peaks and then falls below prior-cycle levels in every major market. With an estimated 20% of US construction workers undocumented, deportations combined with California rebuilding demand could create a construction labor deficit that raises building costs and rents.
AI Summary.Interest rates are ultimately driven by macroeconomic fundamentals, with an "intrinsic risk-free rate" defined as the sum of the inflation rate and real GDP growth tracking the observed 10-year Treasury bond yield closely. On this view, central banks' influence comes from preferential access to data on those fundamentals, their capacity to alter them, and their credibility.
Aswath DamodaranMusings on Markets
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Aswath Damodaran defines an “intrinsic risk-free rate,” the sum of real GDP growth and inflation, which he finds is more predictive of 10-year yields than the FFR. He argues, “Interest rates ultimately are driven by macro fundamentals.”
Do macroeconomic fundamentals, rather than central banks, drive interest rates?
Core argument: Damodaran defines an intrinsic risk-free rate as the sum of the inflation rate and the real GDP growth rate in a period, and argues interest rates are ultimately driven by macro fundamentals rather than set by central banks.
Over the last two decades we have come to accept the notion that central banks set interest rates. [I] argue that interest rates ultimately are driven by macro fundamentals, and that the power of central banks comes from preferential access to data about these fundamentals, their capacity to alter those fundamentals (in good and bad ways) and the credibility that they have to stay the course. [I define] Intrinsic risk-free rate = Inflation rate in period t + Real GDP growth rate in period t. In the chart, I compare my estimates of the intrinsic risk-free rate to the observed ten-year treasury bond rate each year. While the match is not perfect, the link between the two is undeniable, and the intrinsic risk-free rate calculations yield results that help counter the stories about how it is the Fed that kept rates low between 2008 and 2021, and caused them to spike in 2022. I am not suggesting that central banks don't matter or that they do not affect interest rates, because that would be an overreach.
Takeaways by Macro Roundup® AI
Damodaran defines an intrinsic risk-free rate as the sum of the inflation rate and the real GDP growth rate in a period, and argues interest rates are ultimately driven by macro fundamentals rather than set by central banks.
Comparing estimated intrinsic risk-free rates with observed ten-year Treasury bond rates each year, Damodaran finds the match imperfect but the link undeniable, countering claims that the Fed kept rates low between 2008 and 2021 and caused the 2022 spike.
Damodaran attributes central banks' power to preferential access to data on macro fundamentals, their capacity to alter those fundamentals in good and bad ways, and their credibility to stay the course, while acknowledging they do affect interest rates.
Related Articles:
The Fed and the Secular Decline in Interest Rates— The authors find that the long-run decline in US Treasury yields since 1980 is fully accounted for by movements in a narrow window around Federal Reserve policy meetings, while yield changes outside that window prove transitory. They suggest the Federal Reserve conveys information to markets about the long-run level of interest rates.
The Move in Long Rates Is Very Unusual— The Federal Reserve has cut its policy rate by 100 basis points while 10-year interest rates have risen by 100 basis points over the same stretch, a highly unusual divergence. Possible explanations include fiscal worries, weaker foreign demand for U.S. debt, or rate cuts that were not justified.
Our Thoughts on Large US Deficits and Their Impact on Bond Yields— Total borrowing in the US is about average despite high government deficits, as high public borrowing has contributed to the need for higher interest rates that have depressed private sector borrowing. Risk premiums on long-dated debt look about average, with no market signs that economic or debt limits are currently being hit.
