Edward Conard

Top Ten New York Times Bestselling Author

  • “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
  • “…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
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, October 31, 2023

AI Summary. A study of 1,993 cities in France, Germany, Italy, Japan, the UK and the US finds former manufacturing hubs lost employment on average after each country's manufacturing peak, though a large share fully recovered. After the peak, hubs with a higher initial share of college-educated workers grew significantly faster.

Luisa Gagliardi, Enrico Moretti and Michel Serafinelli University of California
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Enrico Moretti, Michel Serafinelli and @GagliarL show that, among cities worldwide that were hit by shocks that caused a decline in manufacturing, those that had a high share of college-educated workers recovered faster.

Why do some former manufacturing hubs recover employment while others decline?

Core argument: Across 1,993 cities in France, Germany, Italy, Japan, the UK, and the US, former manufacturing hubs lost employment on average after their country's manufacturing peak, yet a surprisingly large share in each country fully recovered.

We study the employment consequences of deindustrialization for 1,993 cities in six countries: France, Germany, Italy, Japan, the United Kingdom, and the United States. We focus on former manufacturing hubs—defined as Local Labor Markets that in the year of their country’s manufacturing peak have a manufacturing employment share in the top tercile of their country’s distribution. While on average former manufacturing hubs lost employment after their country’s manufacturing peak, a surprisingly large share in each country was able to fully recover. We find that in the two decades before the relevant country’s manufacturing peak, cities with a high share of college-educated workers experienced a similar rate of employment growth as those with a low share of college-educated workers. By contrast, in the decades after the manufacturing peak, the employment trends diverge: cities with a high initial share of college-educated workers experience significantly faster employment growth.

Takeaways by Macro Roundup® AI

  1. Across 1,993 cities in France, Germany, Italy, Japan, the UK, and the US, former manufacturing hubs lost employment on average after their country's manufacturing peak, yet a surprisingly large share in each country fully recovered.
  2. In the two decades before each country's manufacturing peak, cities with high and low shares of college-educated workers grew employment at similar rates, with trends diverging only after the peak.
  3. After their country's manufacturing peak, cities with a high initial share of college-educated workers experienced significantly faster employment growth than those with a low share.

Related Articles:

  • Are Manufacturing Jobs Still Good Jobs? An Exploration of the Manufacturing Wage Premium — Manufacturing average hourly wages, once about 3% above private-sector wages, have grown more slowly than private-sector wages, erasing the manufacturing wage premium for most manufacturing jobs. The authors estimate that declining unionization accounts for more than 70% of that drop, an effect that remains significant after controlling for worker and sector characteristics.
  • Bottlenecks: Sectoral Imbalances and the US Productivity Slowdown — The authors estimate that greater dispersion in productivity growth among an industry's input and idea suppliers has a strong negative effect on that industry's own productivity growth, using data on 462 US manufacturing industries and 42 non-manufacturing industries. Their evidence implies most of the US productivity slowdown can be explained by rising cross-industry variance in productivity growth.
  • The Economics of Inequality in High-Wage Economies — United States Income, Wealth, Consumption, and Inequality Diana Furchtgott-Roth

AI Summary. Tentative United Auto Workers agreements with Detroit automakers include a 25% general wage increase over four years, which with cost-of-living adjustments would lift top production-worker pay to about $42 an hour and most unionized workers' annual pay into the mid-$80,000s before overtime. Ford says the contract would add $850–$900 in costs per vehicle.

Mike Colias Wall Street Journal
Date Posted:

All of the Big Three have reached tentative agreements with the UAW which will boost the top pay for production workers to about $42 an hour. A Ford executive estimated the contract would raise costs by $850-900 per vehicle.

How much will new labor agreements raise automakers' costs per vehicle?

Core argument: The tentative UAW agreements include a 25% general wage increase over four years that, with cost-of-living increases, would lift top production-worker pay to about $42 an hour.

The tentative agreements, to be voted on in the coming weeks, include a 25% general wage increase over four years, which with cost-of-living increases would boost the top pay for production workers to about $42 an hour. By the end of the contract’s term in 2028, most of the Detroit companies’ unionized workers would make in the mid-$80,000s annually, before overtime pay. Ford executives are already talking about the need to offset the higher expenses in this latest deal. The automaker has said the UAW contract would add $850 to $900 per vehicle in additional costs. “We have work to do,” Ford Chief Financial Officer John Lawler said last week. “We have to identify efficiencies. We have to increase productivity. It is a record contract.”

Takeaways by Macro Roundup® AI

  1. The tentative UAW agreements include a 25% general wage increase over four years that, with cost-of-living increases, would lift top production-worker pay to about $42 an hour.
  2. Ford says the UAW contract would add $850 to $900 per vehicle in additional costs, and CFO John Lawler said the company must identify efficiencies and increase productivity, calling it a record contract.
  3. By the end of the contract's term in 2028, most unionized workers at the Detroit automakers would earn in the mid-$80,000s annually before overtime pay.

Related Articles:

  • The Unexpected Compression: Competition at Work in the Low Wage Labor Market — The authors estimate that post-pandemic labor market tightness compressed the US wage distribution, reducing the college wage premium and offsetting roughly one-quarter of the four-decade rise in 90-10 wage inequality. They attribute this in part to greater labor supply elasticity facing firms in low-wage markets, which reduced employer market power as young non-college workers moved to higher-paying jobs.
  • Autoworkers Have Good Reason to Demand a Big Raise — Inflation-adjusted average hourly pay for US production and nonsupervisory workers has risen 13% over 20 years, about 0.6% a year, while the average hourly wage for auto production-line workers has fallen 30%. General Motors, Ford and Stellantis earned a combined $42bn in net income over 12 months.
  • Union Workers Score Big Pay Gains As Labour Action Sweeps US — The Bureau of Labor Statistics reports year-on-year wage growth for union members reached 4.6%, catching up with the larger pay rises non-union workers had been receiving. Analysis of 425 newly ratified union contracts by Bloomberg Law found first-year pay increases of 7% and 6.1%, against a 3% average over the preceding 10 years.

AI Summary. Comparing consumption at each age with the average labor income of people ages 30–49 shows how resources are distributed across age groups. When a larger share of resources is held by the elderly, who are eager to spend sooner rather than later, the economy's saving rate — the source of funds for new investment — drops.

Peter Coy New York Times
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Since 1960, older Americans have increased their consumption relative to younger Americans. @petercoy, citing arguments by @Kotlikoff, writes that this has likely lowered domestic investment.

Does a larger share of resources held by the elderly lower saving?

Core argument: Americans age 40 in 2021 consumed about 0.7 times the average labor income of people ages 30 to 49 that year, on charts plotting consumption by age against that benchmark.

The horizontal axis is age, from birth to 85-plus. The vertical axis compares consumption at each age with the average labor income of people ages 30 to 49 in that year. So, for example, people age 40 in 2021 had total consumption of 0.7, which is to say around 70 percent of average labor income for people ages 30 to 49. The last data point in each chart covers all ages 85 and up, not just age 85. (That’s why there’s such a jump in 2021 from age 84.) Here’s why that matters for the economy: When a larger share of resources are in the hands of the elderly — those eager to spend sooner rather than later — the economy’s saving rate, which provides funds for new investment, drops.

Takeaways by Macro Roundup® AI

  1. Americans age 40 in 2021 consumed about 0.7 times the average labor income of people ages 30 to 49 that year, on charts plotting consumption by age against that benchmark.
  2. When a larger share of resources sits with the elderly, who are eager to spend sooner rather than later, the economy's saving rate, which provides funds for new investment, drops.
  3. The final data point in each chart covers all ages 85 and up rather than age 85 alone, which produces the jump from age 84 in the 2021 series.

Related Articles:

  • The US Capital Glut and Other Myths — The US capital-output ratio remains close to its postwar average and the real return to capital has stayed roughly constant near 6%, at 5.84% in the 2000s and 6.42% in the 2010s. Market-based real returns averaged 5.52% from 1950-1989 versus 6.95% from 1990-2019, a rise rather than the decline a capital glut implies.

AI Summary. China has led record global central bank purchases of gold, as countries seek to hedge against inflation and reduce reliance on the dollar. The buying has helped bullion prices trade just under $2,000 a troy ounce despite rising bond yields and a strong dollar, even as gold demand excluding bilateral over-the-counter flows was 6% lower year-on-year at 1,147 tonnes.

Harry Dempsey Financial Times
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So far this year central banks have purchased 800 metric tons of gold, up 14% y/y. The People’s Bank of China has bought 181 metric tons taking gold to 4% of its reserves.

Are central banks buying record gold to hedge inflation and dollar reliance?

Core argument: China led record global central bank gold purchases in the first nine months of the year, as countries sought to hedge against inflation and reduce reliance on the dollar.

China has spearheaded record levels of central bank purchases of gold globally in the first nine months of the year, as countries seek to hedge against inflation and reduce their reliance on the dollar. The “voracious” rate of buying has helped bullion prices defy surging bond yields and a strong dollar to trade just shy of $2,000 a troy ounce. Overall, gold demand excluding bilateral over-the-counter flows was 6% weaker year-on-year at 1,147 tonnes.

Takeaways by Macro Roundup® AI

  1. China led record global central bank gold purchases in the first nine months of the year, as countries sought to hedge against inflation and reduce reliance on the dollar.
  2. Central banks' "voracious" gold buying helped bullion trade just shy of $2,000 a troy ounce despite surging bond yields and a strong dollar.
  3. Gold demand excluding bilateral over-the-counter flows fell 6% year-on-year to 1,147 tonnes.

Related Articles:

  • The New Gold Boom: How Long Can It Last? — Central banks bought 1,079 tonnes of gold bullion in a year, the most since records began in 1950, with prices hovering near the nominal all-time high of $2,072 per troy ounce. Developing countries wary of the US dollar have been diversifying reserves after the West froze $300bn of Russian foreign exchange holdings.
  • Shadow Reserves — How China Hides Trillions of Dollars of Hard Currency — Institutions reporting to China's central government likely hold closer to $6tn in foreign assets than the $3.12tn officially reported as reserves, with the state banking system the main vehicle for holding these uncounted foreign currency assets. China remains a massive global creditor whose foreign exchange accumulation is felt worldwide.
  • Setser On Chinese “De-Dollarizing” — There is no good evidence that China has reduced its dollar exposure; accounting for the higher dollar share of its hidden reserves, China's dollar holdings have likely increased. Rather than shifting out of dollars, China has moved from US-custodied Treasuries to offshore custodians and risk assets such as agency bonds and equities.

AI Summary. Analysis of Current Population Survey data finds that underpayment relative to the legal minimum rises for workers across all racial and ethnic groups following minimum wage increases, especially among those aged 16 to 21, offsetting the equivalent of 10–20% of realized wage gains. Among young workers, the authors find the burden falls disproportionately on African American workers.

Jeffrey Clemens and Michael Strain National Bureau of Economic Research
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Underpayment of workers relative to the minimum wage increases in the aftermath of minimum wage increases and disproportionately impacts workers aged 16-21. @MichaelRStrain @AEIecon

Do minimum wage increases lead to more underpayment for some groups?

Core argument: Using Current Population Survey data, the authors find that the rise in underpayment following minimum wage increases is equivalent to between 10 and 20% of realized wage gains across the full sample.

Using Current Population Survey data, we find evidence that the incidence of underpayment rises substantially for workers across all racial and ethnic groups, in particular among the young, in the wake of minimum wage increases. The overall rise in the underpayment in the wake of minimum wages is equivalent to between 10 and 20% of realized wage gains across the full sample. In addition, we find evidence of two sources of heterogeneity in the rise in underpayment experienced by members of different racial and ethnic groups. Among young workers (those ages 16 to 21), we find evidence that the burden of underpayment falls disproportionately on African American workers. Underpayment may thus blunt the impact of minimum wage increases on wage gaps between young African American workers and other groups of young workers.

Takeaways by Macro Roundup® AI

  1. Using Current Population Survey data, the authors find that the rise in underpayment following minimum wage increases is equivalent to between 10 and 20% of realized wage gains across the full sample.
  2. The authors find evidence that the incidence of underpayment rises substantially for workers across all racial and ethnic groups after minimum wage increases, particularly among young workers.
  3. Among workers ages 16 to 21, the authors find evidence that the burden of underpayment falls disproportionately on African American workers, which may blunt the impact of minimum wage increases on wage gaps among young workers.

Related Articles:

AI Summary. Times/Siena survey data indicate that Democrats and Biden voters were somewhat more likely than Republicans and Trump voters to skip the midterm election, implying the presidential electorate was more Democratic. Yet the same data indicate higher turnout would not help Biden now, even though it would bring more Democratic and Biden voters to the polls.

Nate Cohn New York Times
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The Democrats’ success in 2022 and 2023 special elections was driven by high-propensity voters. Currently, Trump is leading with lower-propensity voters who will likely vote in 2024. @Nate_Cohn

Does higher turnout still help Democrats in a presidential election?

Core argument: Times/Siena data indicate the 2020 general electorate was probably more Democratic and more supportive of Biden than the 2022 midterm electorate, as a slightly higher share of Democrats and Biden '20 voters skipped the midterms than Republicans or Trump '20 voters.

According to the Times/Siena data, the 2020 general electorate was probably more Democratic and more supportive of Mr. Biden in 2020 than the 2022 midterm electorate, since a slightly higher proportion of Democrats and Biden ’20 voters skipped the midterms than Republican or Trump ’20 voters. On that basis, one would ordinarily assume that a higher-turnout election in 2024 would help Mr. Biden and Democrats, by drawing those drop-off voters back to the polls. Yet according to the same data — the same survey respondents — a higher-turnout election would not help Mr. Biden today, even though it would draw more Biden ’20 and more Democratic voters to the polls.

Takeaways by Macro Roundup® AI

  1. Times/Siena data indicate the 2020 general electorate was probably more Democratic and more supportive of Biden than the 2022 midterm electorate, as a slightly higher share of Democrats and Biden '20 voters skipped the midterms than Republicans or Trump '20 voters.
  2. That turnout pattern would ordinarily imply that a higher-turnout 2024 election helps Biden and Democrats by drawing drop-off voters back to the polls.
  3. The same Times/Siena respondents indicate a higher-turnout election would not help Biden today, even though it would bring more Biden '20 and more Democratic voters to the polls.

Related Articles:

  • Consistent Signs of Erosion in Black and Hispanic Support for Biden — Polling shows the Democratic presidential candidate's support among nonwhite voters running well below his prior election standing across racial groups, with leads of 72-11 among Black voters, 47-35 among Hispanic registrants, and 40-39 among other nonwhite voters. About 5% of his former nonwhite voters now back the Republican candidate, including 8% of Hispanic voters.
  • How to Interpret Polling Showing Biden’s Loss of Nonwhite Support — Since 1980, the gap between white and Black voter turnout has been related to the share of Black registered voters backing Democrats in pre-election polls, meaning Black voters who don't support Democrats tend not to vote. Polls showing weaker Democratic support among Black voters may therefore signal a smaller Black share of the electorate.
  • Trump’s Electoral College Edge Seems to Be Fading — Polling suggests the demographic basis of the Republican candidate's Electoral College advantage may be eroding, with relative Democratic resilience among white voters and Republican strength among nonwhite voters. Because nonwhite voters are underrepresented in the most critical battleground states, such gains would tend to boost the national vote more than the battlegrounds.

Wednesday, November 1, 2023

AI Summary. The World Bank estimates that conflict-driven disruptions to Middle East oil supply of 2mn barrels a day would push oil to $93-$102, 3-5mn barrels a day to $109-$121, and 6-8mn barrels a day to $141-$157, with the largest scenario approaching historic real price peaks. Closure of the Strait of Hormuz would be far worse.

Martin Wolf Financial Times
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Even though the oil intensity of the global economy has declined by 60% since the 1970s, Martin Wolf writes that the world remains extremely vulnerable to an oil shock.

How much would Middle East supply disruptions raise oil prices?

Core argument: The World Bank's big-disruption scenario assumes oil supply falls 6–8mn barrels a day and prices reach $141–157, which would bring real oil prices toward their historic peaks.

The World Bank envisages scenarios with small, medium, and big disruptions to supplies: the first would, it assumes, reduce supply by up to 2mn barrels a day (about 2% of world supply), the second would reduce it by 3-5mn barrels a day and the last would reduce it by 6-8mn barrels a day. Corresponding oil prices are estimated at $93-$102, $109-$121 and $141-157, respectively. The last would bring real prices towards their historic peaks. If the Strait were to be closed, the outcomes would be far worse. We are still in the fossil fuel era. A conflict in the world’s biggest oil-supplying region could be very damaging.

Takeaways by Macro Roundup® AI

  1. The World Bank's big-disruption scenario assumes oil supply falls 6–8mn barrels a day and prices reach $141–157, which would bring real oil prices toward their historic peaks.
  2. The World Bank's small-disruption scenario assumes a supply loss of up to 2mn barrels a day, about 2% of world supply, with oil at $93–102, while a medium disruption of 3–5mn barrels a day implies $109–121.
  3. Closure of the Strait would produce outcomes far worse than the World Bank's disruption scenarios, and with the world still in the fossil fuel era, conflict in the biggest oil-supplying region could be very damaging.

Related Articles:

  • The Changing Nexus Between Commodity Prices and the Dollar: Causes and Implications — The shale boom turned the United States into a net exporter of natural gas and of oil, altering how commodity prices relate to US trade. Where higher oil prices were historically associated with a deterioration in US terms of trade, they now correspond to an improvement.
  • US Shale: The Marginal Supplier Matures — The responsiveness of US oil supply to prices has declined and is estimated to be much smaller for publicly traded producers than private ones, with a 10% price increase raising US liquids output by roughly 1%, or 200,000 barrels a day. That implies US supply would offset only about 20-25% of a geopolitical supply shock.
  • U.S. Oil Boom Blunts OPEC’s Pricing Power — U.S. shale drilling and fracking costs have fallen 36% since 2014 even as recovered oil volumes have risen, according to J.P. Morgan. One major producer can now earn as much from $42-a-barrel oil as it once did at $86, while Saudi Arabia's budget is estimated to require $81 a barrel.

AI Summary. Consumer sentiment has been more depressed than historic correlations with the "misery index"—the sum of inflation and unemployment—would predict, even as consumer-price inflation fell from a 9.1% peak to 3.7%. The author argues much of this pessimism is "referred pain," reflecting dissatisfaction with the country as a whole rather than the economy.

Greg Ip Wall Street Journal
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Noting a disconnect between consumer economic sentiment and the “misery index” of unemployment plus inflation, @greg_ip argues Americans’ pessimism “may reflect dissatisfaction with the country as a whole.”

Why is consumer sentiment weaker than inflation and unemployment predict?

Core argument: Plotted against the "misery index"—the sum of inflation and the unemployment rate—the University of Michigan sentiment index since 1978 shows sentiment more depressed this year than historic correlations would predict.

Some 69% of respondents to a Wall Street Journal survey in August said the country is headed in the wrong direction. Can inflation be the whole story? After all, since peaking at 9.1% in June last year, based on the consumer-price index, inflation has fallen to 3.7%. Some gauges put underlying inflation at around 3%, and the Federal Reserve thinks it is headed gradually to 2%, relieving it of any need to raise interest rates for now. And yet, sentiment is up only moderately since inflation began falling. The puzzle deepens when I plot the University of Michigan index since 1978 against the “misery index”—the simple sum of inflation and the unemployment rate. Based on historic correlations, sentiment has been more depressed this year than you would expect given the level of economic misery. I suspect a lot of pessimism about the economy is “referred pain.” Just as part of your body can hurt because of injury to another, pessimism about the economy may reflect dissatisfaction with the country as a whole.

Takeaways by Macro Roundup® AI

  1. Plotted against the "misery index"—the sum of inflation and the unemployment rate—the University of Michigan sentiment index since 1978 shows sentiment more depressed this year than historic correlations would predict.
  2. The author suspects much of the pessimism about the economy is "referred pain," in which dissatisfaction with the country as a whole shows up as negative views of the economy.

Related Articles:

  • Why Less Engaged Voters Are Biden’s Biggest Problem — Times/Siena survey data indicate that Democrats and Biden voters were somewhat more likely than Republicans and Trump voters to skip the midterm election, implying the presidential electorate was more Democratic. Yet the same data indicate higher turnout would not help Biden now, even though it would bring more Democratic and Biden voters to the polls.
  • Have Workers Gotten A Raise? — Measures of typical and aggregate pay adjusted by personal consumption inflation have grown since 2019 and kept pace with or exceeded longer-term trends, while results are more mixed when deflated by the consumer price index, with average hourly earnings and total compensation below trend.
  • The Unexpected Compression: Competition at Work in the Low Wage Economy — Wage inequality is falling for the first time in four decades as pay rises at the bottom, with real wages increasing among young high school graduates and workers in the lowest quartile. The authors argue this reflects intensified employer competition for workers rather than simply a tight labor market, implying wages better reflect productivity and higher aggregate productivity.

AI Summary. Inflation-adjusted US house prices are 3.1% below their peak. On an affordability index using the Case-Shiller National Index and Freddie Mac 30-year fixed mortgage rates, the monthly principal-and-interest payment on an equivalent home is up 25% over a year and 88% over two years as rates rose from 2.84% to 7.07%.

Bill McBride Calculated Risk
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According to @calculatedrisk, houses in October were the least “affordable” since 1982 when the 30-year mortgage rate was >14%.

How much have rising mortgage rates raised monthly housing payments?

Core argument: Inflation-adjusted U.S. house prices stand 3.1% below their peak, based on the Case-Shiller National Index, seasonally adjusted.

I’ve put together my own affordability index. I used median income from the Census Bureau (estimated 2023), assumed a 15% down payment, and used a 2% estimate for property taxes, insurance, and maintenance. For house prices, I used the Case-Shiller National Index, Seasonally Adjusted (SA). For mortgage rates, I used the Freddie Mac PMMS (30-year fixed rates). For August: a year ago, the payment on a $500,000 house, with a 20% down payment and 5.22% 30-year mortgage rates, would be around $2,201 for principal and interest. The monthly payment for the same house, with house prices up 2.6% YoY and mortgage rates at 7.07% in August 2023, would be $2,749 - an increase of 25%. However, if we compare to two years ago, there is huge difference in monthly payments. In August 2021, the payment on a $500,000 house, with a 20% down payment and 2.84% 30-year mortgage rates, would be around $1,652 for principal and interest. The monthly payment for the same house, with house prices up 15.9% over two years and mortgage rates at 7.07% in August 2023, would be $3,107 - an increase of 88%!

Takeaways by Macro Roundup® AI

  1. Inflation-adjusted U.S. house prices stand 3.1% below their peak, based on the Case-Shiller National Index, seasonally adjusted.
  2. The monthly principal-and-interest payment on a $500,000 house with 20% down rose 25% over a year to $2,749 in August 2023, as prices rose 2.6% year-over-year and 30-year mortgage rates went from 5.22% to 7.07%.
  3. Compared with August 2021, when 30-year mortgage rates were 2.84%, the payment on a $500,000 house rose 88% from $1,652 to $3,107, with house prices up 15.9% over the two years.

Related Articles:

  • US Housing Market Crash Turns Not-So-Sweet 16 — The median existing-home sale price exceeds what a buyer spending 25% of gross household income with a 15% down payment and a 30-year fixed mortgage could afford, leaving affordability more strained than in 2004-07. With for-sale supply very low and most existing mortgages carrying below-market rates, the authors expect home prices to rise slowly.
  • The “New Normal” Mortgage Rate Range — Goldman Sachs economists expect the federal funds rate to eventually stabilize at 3–3.25%, above what the Federal Reserve currently projects for the neutral rate. With a funds rate near 3.25% and a 10-year Treasury yield of 4.45%, 30-year fixed mortgage rates would sit in the low-to-mid 6% range.
  • Could 6% to 7% 30-Year Mortgage Rates be the “New Normal”? — Goldman Sachs economists estimate that if inflation is brought down without a recession, the federal funds rate will stabilize near 3–3.25% rather than the Federal Reserve's 2.5% longer-run median projection. At that neutral rate, 30-year fixed mortgage rates would sit in the low-to-mid 6% range, around 6.45% with a 4.45% 10-year Treasury yield.

AI Summary. Emerging markets have built resilience by accumulating large foreign exchange reserves—roughly $600bn in India, $300bn in Brazil, and $50bn in South Africa—and by extending debt maturities while interest rates were ultra-low. The single biggest factor has been greater central-bank independence, which let many emerging-market central banks raise policy rates before advanced-economy peers.

Kenneth Rogoff Project Syndicate
Date Posted:

Despite rising interest rates, @krogoff attributes the resilience of emerging markets to large foreign exchange reserves and increased central bank independence.

Despite rising interest rates, @krogoff attributes the resilience of emerging markets to large foreign exchange reserves and...

How have emerging markets become more resilient to higher interest rates?

Core argument: India holds $600 billion in foreign exchange reserves, Brazil roughly $300 billion, and South Africa $50 billion, accumulations identified as an innovation to fend off liquidity crises in a dollar-dominated world.

One notable innovation has been the accumulation of large foreign exchange reserves to fend off liquidity crises in a dollar-dominated world. India’s forex reserves, for example, stand at $600 billion, Brazil’s hover around $300 billion, and South Africa has amassed $50 billion. Crucially, emerging-market firms and governments took advantage of the ultra-low interest rates that prevailed until 2021 to extend the maturity of their debts, giving them time to adapt to the new normal of elevated interest rates. But the single biggest factor behind emerging markets’ resilience has been the increased focus on central-bank independence. Once an obscure academic notion, the concept has evolved into a global norm over the past two decades. This approach, which is often referred to as “inflation targeting,” has enabled emerging-market central banks to assert their autonomy, even though they frequently place greater weight on exchange rates than any inflation-targeting model would suggest. Owing to their enhanced independence, many emerging-market central banks began to hike their policy interest rates long before their counterparts in advanced economies. This put them ahead of the curve for once, instead of lagging behind. Moreover, emerging markets never bought into the notion that debt is a free lunch, which has thoroughly permeated the US economic-policy debate, including in academia. The idea that sustained deficit finance is costless due to secular stagnation is not a product of sober analysis, but rather an expression of wishful thinking.

Takeaways by Macro Roundup® AI

  1. India holds $600 billion in foreign exchange reserves, Brazil roughly $300 billion, and South Africa $50 billion, accumulations identified as an innovation to fend off liquidity crises in a dollar-dominated world.
  2. The single biggest factor behind emerging markets' resilience has been increased central-bank independence, with inflation targeting evolving from an obscure academic notion into a global norm over the past two decades.
  3. Emerging-market firms and governments used the ultra-low interest rates prevailing until 2021 to extend debt maturities, and their more independent central banks began hiking policy rates long before advanced-economy counterparts.

Related Articles:

  • BIS International Banking Statistics and Global Liquidity Indicators at End December 2022 — The Bank for International Settlements reported that banks' cross-border claims fell by $1.4tn in a single quarter, slowing year-on-year growth to 6%, driven by lower bank credit and a drop in the market value of banks' derivatives. Dollar credit to emerging market and developing economies shrank by 4%.
  • Dollar Deleveraging — Offshore dollar bank lending has contracted outright, with a year-over-year decline of $325bn concentrated in loans to emerging markets, while lending inside the US has plateaued. The pullback is attributed to borrowers facing higher rates and banks facing lower profitability, and is described as a headwind to global growth.

AI Summary. Chinese researchers report developing a chip that performs certain AI tasks, such as image recognition and autonomous driving, faster and more energy efficiently than current high-performance AI chips. The authors write that while it cannot replace chips in computers or smartphones, it may be used in wearable devices, electric cars, or smart factories.

Zhang Tong South China Morning Post
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.@SCMPNews reports that Chinese scientists have created a light-based chip that can perform some select task up to 3000 times faster than a Nvidia A100 chip.

.@SCMPNews reports that Chinese scientists have created a light-based chip that can perform some select task up to 3000...

Has China built a chip outperforming top AI chips on some tasks?

Core argument: Chinese scientists report a chip that performs an AI task 3,000 times faster than Nvidia's A100 and with greater energy efficiency on tasks such as image recognition and autonomous driving, according to a study published in Nature.

Chinese scientists have produced a chip that is significantly faster and more energy efficient than current high-performance AI chips when it comes to performing some tasks such as image recognition and autonomous driving, according to a new study. Although the new chip cannot immediately replace those used in devices such as computers or smartphones, it may soon be used in wearable devices, electric cars, or smart factories and help boost China’s competitiveness in the mass application of artificial intelligence, researchers wrote in a paper published in the journal Nature.

Takeaways by Macro Roundup® AI

  1. Chinese scientists report a chip that performs an AI task 3,000 times faster than Nvidia's A100 and with greater energy efficiency on tasks such as image recognition and autonomous driving, according to a study published in Nature.
  2. The researchers write that the chip cannot immediately replace chips used in computers or smartphones, but may soon be used in wearable devices, electric cars, or smart factories.
  3. The researchers argue the chip could help boost China's competitiveness in the mass application of artificial intelligence.

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