Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard 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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “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
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Wednesday, March 5, 2025

AI Summary. Germany's incoming governing partners agreed to exempt defense spending above 1% of GDP from the constitutional borrowing limit, create a €500bn off-budget vehicle for debt-funded infrastructure, and loosen borrowing rules for states. Goldman Sachs estimated the package could lift German growth to as much as 2%, versus its 0.8% forecast, if approved and implemented quickly.

Ian Smith, Mari Novik, Olaf Storbeck and Laura Pitel Financial Times
Date Posted:

German borrowing costs surged after parties hoping to form Germany’s next government agreed on a €500B infrastructure fund and overhaul of borrowing rules. The yield on the 10-year Bund rose 31bps to 2.79% in the largest one-day move since 1997.

How much would loosening German borrowing limits boost growth?

Core argument: German borrowing costs rose by the most since 1997 after Friedrich Merz and the Social Democrats agreed to exempt defence spending above 1% of GDP from the constitutional borrowing limit and create a €500bn off-balance sheet infrastructure vehicle.

Chancellor-in-waiting Friedrich Merz agreed with the rival Social Democrats to exempt defence spending above 1% of GDP from Germany’s strict constitutional borrowing limit, set up a €500bn off-balance sheet vehicle for debt-funded infrastructure investment and loosen debt rules for states. Deutsche Bank economists described the deal as “one of the most historic paradigm shifts in German postwar history”, adding that both the “speed at which this is happening and the magnitude of the prospective fiscal expansion is reminiscent of German reunification”. Analysts at Goldman Sachs said the package could boost German economic growth to as much as 2% next year — up from the bank’s current forecast of 0.8% — if it is approved and implemented quickly. The euro rose 0.7% against the dollar to $1.070, its highest since November, and German stocks surged. Europe’s defence sector extended a blistering rally. Shares in Rheinmetall, Germany’s largest defence company, were up 7.2% while Paris-listed Thales rose 7.6%.

Takeaways by Macro Roundup® AI

  1. German borrowing costs rose by the most since 1997 after Friedrich Merz and the Social Democrats agreed to exempt defence spending above 1% of GDP from the constitutional borrowing limit and create a €500bn off-balance sheet infrastructure vehicle.
  2. Goldman Sachs analysts said the fiscal package could lift German growth to as much as 2% next year, up from the bank's forecast of 0.8%, if approved and implemented quickly.
  3. The euro rose 0.7% against the dollar to $1.070, its highest since November, while shares in Rheinmetall gained 7.2% and Paris-listed Thales rose 7.6%.

Related Articles:

  • What Military Catch-Up? — Years of European defence underspending have created a stock problem—depleted weapons, hardware, and technology, plus gaps in operational capacity, full-spectrum battlefield capability, and personnel—that higher spending can only fill slowly. Europe's cumulative shortfall against NATO's 2% of GDP target is about €850bn, and exceeds €2,650bn measured against US spending near 3.5% of GDP.
  • European Defence Shares Jump As Blistering Rally Gathers Pace — European defence stocks and the euro rose as investors bet governments will increase military spending and take on more responsibility for the continent's security, with shares in major contractors including Rheinmetall, Leonardo, Thales, BAE Systems and Saab gaining. European government bonds sold off on expectations of higher spending.
  • Can Europe Defend Itself Without America? — European members of NATO have increased defense spending by almost a third in real terms to $476bn, with 23 of NATO's 32 members meeting the alliance's target of spending 2% of GDP on defense, according to NATO. NATO's secretary-general argues the 2% target is insufficient, though tight budgets, high public debt, and competing priorities constrain further increases.

AI Summary. A trade war is by definition a stagflation shock, raising prices while lowering sales, and persistent policy uncertainty could lead consumers and firms to hold back spending and hiring. If tariffs on Canada and Mexico persist for months, the Federal Reserve is likely to focus on a rising unemployment rate and begin cutting rates.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk argues that policy uncertainty “could create a sudden stop in the economy where consumers stop buying cars, stop going to restaurants, and stop going on vacation, and companies stop hiring and stop doing capex.”

Does a trade war create a stagflation shock that forces rate cuts?

Core argument: A trade war is by definition a stagflation shock, since tariffs raise prices while sales fall, leaving the Fed facing higher inflation alongside a rising unemployment rate.

The bigger risk to markets is sentiment. We are already seeing consumer sentiment and corporate sentiment being impacted. If policy uncertainty persists, consumers and firms may begin to hold back spending decisions. Combined with DOGE-driven layoffs, this will put upward pressure on the unemployment rate. From a Fed perspective, the biggest problem is that tariffs increase prices and hence inflation. That is why a trade war, by definition, is a stagflation shock: Higher prices and lower sales. If tariffs on Canada and Mexico continue for several months, then the Fed will focus on the rising unemployment rate and start cutting rates soon. The biggest downside risk is that policy uncertainty could create a sudden stop in the economy where consumers stop buying cars, stop going to restaurants, and stop going on vacation, and companies stop hiring and stop doing capex. The key indicator to watch over the coming weeks is jobless claims.

Takeaways by Macro Roundup® AI

  1. A trade war is by definition a stagflation shock, since tariffs raise prices while sales fall, leaving the Fed facing higher inflation alongside a rising unemployment rate.
  2. Consumer and corporate sentiment are already being affected, and if policy uncertainty persists, consumers and firms may hold back spending decisions, which combined with DOGE-driven layoffs would push the unemployment rate higher.
  3. If tariffs on Canada and Mexico continue for several months, the Fed will focus on the rising unemployment rate and start cutting rates soon, with jobless claims the key indicator to watch.

Related Articles:

  • Downside Risks Intensifying — Federal workforce layoffs and contract cuts are projected by consensus to eliminate 300,000 jobs, but with studies showing two contractors for every federal employee, total job losses could approach 1mm. Economic policy uncertainty is spiking while credit spreads have not widened and incoming data remain strong.
  • Microsoft Dropped Some AI Data Center Leases, TD Cowen Says — Microsoft has voided data center leases totaling a couple of hundred megawatts of capacity and stopped converting preliminary agreements into formal leases, according to brokerage TD Cowen's checks with supply chain providers. TD Cowen also says Microsoft is redirecting some planned international spending to the US, suggesting a material slowdown in international leasing.
  • 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.

AI Summary. Tariffs do not necessarily shift the balance between national income and spending, so they are unlikely to improve the trade balance or expand manufacturing employment. Tariffs strengthen the currency, which raises imports and harms exports, while also raising the cost of critical intermediate goods used by exporters.

Maurice Obstfeld Financial Times
Date Posted:

Maurice Obstfeld argues trade policies, including tariffs, cannot close chronic American trade deficits unless the US increases net national saving, particularly reducing its unsustainable federal deficits.

Can tariffs improve the trade balance and expand manufacturing employment?

Core argument: Tariffs do not necessarily shift the balance between US income and spending in either direction, which is why they fail to improve either the trade balance or manufacturing employment.

Tariffs do not necessarily push the balance between income and spending in one direction or the other, which is why they don’t improve the trade balance or manufacturing employment. Tariffs will cause the currency to strengthen, as we have seen in the dollar’s gyrations in response to levies threatened against imports from Mexico, Canada, China and now Europe. This both raises imports and harms exports. Tariffs also hurt exports by raising the prices of critical intermediate goods. The post-tariff trade balance will be little changed and possibly even lower. And if US spending beyond its income is roughly unaffected, the need to shift resources into services and import goods from abroad remains unchanged. Manufacturing employment will not expand. Some foreign debts can be attributed to “short-sighted” consumption. Borrowing temporarily palliates the challenges of lower-income households. US household debt, at 62 per cent of GDP at the end of 2024, is a disproportionate burden on the poor and is growing. The US federal government continues to live unsustainably beyond its means.

Takeaways by Macro Roundup® AI

  1. Tariffs do not necessarily shift the balance between US income and spending in either direction, which is why they fail to improve either the trade balance or manufacturing employment.
  2. Tariffs strengthen the dollar, as seen in its gyrations in response to levies threatened on imports from Mexico, Canada, China and Europe, which raises imports and harms exports, while tariffs also raise prices of critical intermediate goods.
  3. US household debt stood at 62 per cent of GDP at the end of 2024 and is growing, falling disproportionately on the poor, while the federal government continues to live unsustainably beyond its means.

Related Articles:

  • Budget Cuts Can Solve Trump’s Trade Deficit Problem — An International Monetary Fund study of 33 countries found that for a large economy like the U.S., each dollar of deficit reduction shifts the current account—trade in goods, services and investment income—by 30 to 50 cents. Applying that math, cutting the U.S. federal deficit from 6.4% of GDP to 3% would trim $300bn–$500bn from the roughly $900bn goods-and-services trade deficit.
  • A User’s Guide to Restructuring the Global Trading System — During the 2018–2019 U.S.–China trade war, the effective tariff rate on Chinese imports rose 17.9 percentage points while the renminbi depreciated 13.7% against the dollar, leaving after-tariff import prices in dollars up just 4.1%. The author argues this currency offset of more than three-fourths of the tariff explains why inflation pressure was negligible.
  • How Tariffs Can Help America — Tariffs raise the price of imported goods, transferring income from net importers to net exporters and taxing consumers to subsidize domestic producers. The author argues that tariffs on final goods would redirect U.S. demand toward domestic production, raising GDP, employment, and wages while lowering debt.

AI Summary. Pettis argues that saving rates in China, Japan, South Korea, Germany, Russia and Saudi Arabia are driven by their own domestic policies and conditions, and in turn drive the US saving rate. He notes the US has an open capital account, deep financial markets, and limited intervention in credit allocation.

Mike Pettis @michaelxpettis
Date Posted:

Responding to Maurice Obstfeld, @michaelxpettis argues that the chronic US current account deficit reflects deep and open US capital markets, which encourage chronic surplus countries to export their excess savings to the United States.

Do foreign saving policies determine the US saving rate?

Core argument: Pettis argues that Obstfeld assumes high saving rates in China, Japan, South Korea, Germany, Russia and Saudi Arabia are forced up by Americans' "refusal" to save, rather than by those countries' own domestic policies and conditions.

As a good American, Obstfeld cannot imagine that foreigners could determine US saving rates. He must instead assume that Chinese saving rates are forced up by the "refusal" of Americans to save, and not just Chinese saving rates, but also Japanese, South Korean, German, Russian and Saudi Arabian saving rates. He cannot consider the idea that domestic saving rates in these countries can be driven by domestic policies and conditions, and can in turn drive the savings rates of the US, even though it is an economy with a totally open capital account, a very flexible and deep financial sector, a rules-based system of governance, and very limited intervention in credit allocation and in the domestic economy – and one that has wanted to reduce its trade deficit for decades but has been unable to do so.

Takeaways by Macro Roundup® AI

  1. Pettis argues that Obstfeld assumes high saving rates in China, Japan, South Korea, Germany, Russia and Saudi Arabia are forced up by Americans' "refusal" to save, rather than by those countries' own domestic policies and conditions.
  2. Pettis contends that domestic saving rates abroad can drive the US saving rate, despite the US having a totally open capital account, a deep and flexible financial sector, rules-based governance, and very limited intervention in credit allocation.

Related Articles:

  • A User’s Guide to Restructuring the Global Trading System — During the 2018–2019 U.S.–China trade war, the effective tariff rate on Chinese imports rose 17.9 percentage points while the renminbi depreciated 13.7% against the dollar, leaving after-tariff import prices in dollars up just 4.1%. The author argues this currency offset of more than three-fourths of the tariff explains why inflation pressure was negligible.
  • Pettis On Krugman — The author argues that capital inflows to the US are driven more by conditions abroad than by US economic performance, since the US attracts capital and runs deficits in both good times and bad. China grew faster than the US yet exported capital, a result of capital controls, an undervalued currency, and government-managed credit.
  • The Dangers of a US Capital Inflow Tax — A tax on foreign capital inflows large enough to balance US trade would raise real interest rates for all US borrowers, domestic and foreign-funded alike, since some foreign funding is needed whenever a trade deficit exists. The argument holds the deficit would shrink mainly through lower investment, reducing demand, growth, and innovation.

AI Summary. Using Texas administrative records, researchers estimate that program rank matters for business and law degrees: a 20-place ranking improvement is associated with returns higher by 0.026 for an MBA (average return 0.125) and 0.07 for a law degree (average return 0.453). Returns to nursing, social work, and pharmacy degrees show no such ranking dependence.

Joseph Altonji and Zhengren Zhu National Bureau of Economic Research
Date Posted:
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Controlling for student quality, Altonji et al. estimate school rank has a moderate, statistically significant effect on returns to Texas MBA and JD degrees, but little impact on earnings from graduate nursing, social work, and pharmacy degrees.

Does program ranking affect the financial return to graduate degrees?

Core argument: Using Texas administrative records, the authors estimate that a 20-place improvement in MBA program ranking raises the return to the degree by 0.026 (s.e. 0.014), against an average MBA return of 0.125.

We estimate school-specific returns to a JD, an MBA, and degrees in nursing, pharmacy, and social work, the graduate degrees for which there are significant numbers of Texas programs that have been ranked by US News and World Report. We address selection into specific institutions by controlling for the programs to which a student applied and was admitted. We treat JDs from different schools as different degrees and in addition add controls for selection into different law schools based on students’ application and admission records. We then regress the school specific returns on a measure of program rank from US News & World Reports. We find that the institution has a substantial effect on the return to an MBA. An increase of 20 places in rankings increases the return by 0.026 (0.014) [st errors in parentheses] which is economically significant relative to the average return of 0.125. The average of the returns to a set of unranked MBA programs is close to zero (0.034). The return to a JD increases by 0.07 (0.014) for a 20-spot increase in program ranking. In comparison the average return to JD is 0.453, significant at the 1% level. We do not find that the returns to nursing, social work, and PharmD programs depend on the ranking.

Takeaways by Macro Roundup® AI

  1. Using Texas administrative records, the authors estimate that a 20-place improvement in MBA program ranking raises the return to the degree by 0.026 (s.e. 0.014), against an average MBA return of 0.125.
  2. The authors estimate the return to a JD rises by 0.07 (s.e. 0.014) per 20-spot gain in program ranking, compared with an average JD return of 0.453, significant at the 1% level.
  3. The authors find no evidence that returns to nursing, social work, and PharmD programs depend on US News & World Report rankings, while the average return across a set of unranked MBA programs is close to zero (0.034).

Related Articles:

  • Do Liberal Arts Colleges Pay Off? What the Data Say — 35% of bachelor's degree programs at liberal arts colleges have a negative return on investment, versus 23% elsewhere, meaning students are typically worse off than not attending college. The gap reflects higher tuition and slightly lower alumni earnings, but engineering, computer science, nursing, and economics majors there beat national averages.
  • Diversifying Society’s Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges — Children from top-1% families are more than 2x as likely as middle-class students with comparable SAT/ACT scores to attend an Ivy-Plus college, with two-thirds of the gap attributable to higher admissions rates. The authors attribute this advantage to legacy preferences, weight on non-academic credentials, and athlete recruitment.
  • Marginal Returns to Public Universities — Using admission-score cutoffs across all 35 Texas public universities, the author estimates that marginally admitted students complete an additional year of four-year education, are 12 percentage points more likely to earn a bachelor's degree, and earn 5–10% more than marginally rejected peers, with gains driven by students who otherwise would not attend a four-year school.

AI Summary. Estimates of immigrants' fiscal impact depend heavily on the assumptions used: the lifetime fiscal impact of a 22-year-old high school dropout shifts from negative $315,000 under one set of assumptions to a small negative number under another. The author argues the accounting approach common in this literature understates immigrants' contribution to fiscal sustainability.

Stan Veuger American Enterprise Institute
Date Posted:
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Adjudicating the debate between @DanielDiMartino and @David_J_Bier, @stanveuger argues the likely fiscal impact of a 22-year-old high school dropout immigrant is “a small negative number.”

Do assumptions drive estimates of immigrants' fiscal impact?

Core argument: Substituting Bier's assumptions for Di Martino's shifts the estimated fiscal impact of a 22-year-old high school dropout from negative $315,000 to a small negative number.

My sense is that the “accounting” approach commonly adopted in this literature consistently underrates the contribution immigrants make to fiscal sustainability. Were one to adopt Bier’s assumptions instead of Di Martino’s, the fiscal impact of a 22-year-old high school dropout changes from a negative $315,000 to a small negative number. My own preferred set of assumptions would assign both more public-good spending and more business tax revenue to immigrants than Bier does but would generate a significantly more positive estimate in this case than Di Martino’s set of assumptions.

Takeaways by Macro Roundup® AI

  1. Substituting Bier's assumptions for Di Martino's shifts the estimated fiscal impact of a 22-year-old high school dropout from negative $315,000 to a small negative number.
  2. The "accounting" approach commonly adopted in the fiscal-impact-of-immigration literature arguably underrates the contribution immigrants make to fiscal sustainability.
  3. A set of assumptions assigning immigrants both more public-good spending and more business tax revenue than Bier does would still generate a significantly more positive estimate in this case than Di Martino's assumptions.

Related Articles:

  • The Lifetime Fiscal Impact of Immigrants — A report estimates that a selectionist U.S. immigration policy—securing the border, reducing low-skilled immigration, and expanding high-skilled immigration—would cut future federal debt by trillions of dollars, providing over $2tn in net present value in the first year and over $200bn annually thereafter. Under the proposal, annual legal immigration falls from about 1m to roughly 860,000.
  • Manhattan Institute’s “Lifetime Fiscal Impact of Immigrants” Report Shows Upside to Immigration — A review of the Manhattan Institute's model estimating that the average immigrant adds $10,000 in lifetime present value to the federal budget while less-educated immigrants are fiscally negative finds the result hinges on assumptions such as large immediate defense spending increases and no added corporate tax payments.
  • Recent Immigration Surge Has Been Largest in U.S. History — An analysis of government data finds the recent U.S. immigration surge is the largest on record, with net migration averaging 2.4m people a year from 2021 to 2023 and the foreign-born share of the population reaching 15.2% in 2023, up from 13.6% in 2020. About 60% of immigrants arriving since 2021 entered without legal authorization.

Thursday, March 6, 2025

AI Summary. Companies worldwide returned $4.09tn in cash to shareholders in a recent year, comprising $2.56tn in dividends and $1.53tn in stock buybacks. Most of that cash is reinvested in other companies, with older, slower-growth firms returning capital that flows to growth businesses needing it.

Aswath Damodaran Musing On Markets
Date Posted:
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In 2024, American firms returned more than $1.7T to investors in buybacks and dividends. @AswathDamodaran

Does cash returned to shareholders leave the market?

Core argument: Companies worldwide returned $4.09 trillion in cash to shareholders in 2024, comprising $2.56 trillion in dividends and $1.53 trillion in stock buybacks.

In 2024, companies across the globe returned $4.09 trillion in cash to their shareholders, with $2.56 trillion in dividends and $1.53 trillion taking the form of stock buybacks. If you are wondering how the market can withstand this much cash being withdrawn, it is worth emphasizing an obvious, but oft overlooked fact, which is that the bulk of this cash found its way back into the market, albeit into other companies. In fact, a healthy market is built on cash being returned by some businesses (older, lower growth) and being plowed back into growth businesses that need that capital. Not surprisingly, the bulk of the cash being returned is from money making firms, but the percentages of firms that are money making does vary widely across sectors.

Takeaways by Macro Roundup® AI

  1. Companies worldwide returned $4.09 trillion in cash to shareholders in 2024, comprising $2.56 trillion in dividends and $1.53 trillion in stock buybacks.
  2. The bulk of the cash returned to shareholders in 2024 found its way back into the market, into other companies, rather than leaving equities.
  3. Most of the cash returned to shareholders comes from money-making firms, though the percentage of firms that are profitable varies widely across sectors.

Related Articles:

  • Cicadian Rhythms — The authors see limited signs of the profit or capital spending declines that often accompany recessions, noting that unlike prior yield-curve inversions the corporate sector is running a surplus with stable interest expense. They flag fading disinflationary-boom prospects as a risk to price-to-earnings multiples, particularly for technology stocks.
  • Which One Is It? Equity Issuance and Retirement — U.S. public companies issued nearly $10tn in equity and retired just over $14tn, with equity-financed mergers and acquisitions making up 58% of issuance, stock-based compensation 22%, and other non-IPO share sales 20%. Firms with low stock-based compensation and high buybacks had the highest average and median total shareholder returns, though the authors note other factors likely drove these returns.
  • Data Update 6 for 2025: From Macro to Micro – The Hurdle Rate Question — Valuation errors stem mainly from mistaken forecasts of growth, profitability, or reinvestment rather than from the discount rate, and no great company achieved greatness by finessing its cost of capital. The author suggests valuing a mature US company using the 8.35% median cost of capital and focusing analysis on growth and profit prospects.

AI Summary. New "synthetic real-time" estimates of the U.S. neutral real interest rate, built from data available at each point in time, show two large swings: a roughly 1.75 percentage point rise and reversal around the late-1990s productivity boom, and a 1.5 point decline after the financial crisis. The latest estimate sits slightly above pre-pandemic levels.

Sophia Cho and John Williams Federal Reserve Bank of New York
Date Posted:
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The authors reestimate Williams’ models using vintage data. From 1995-2011, estimated trend growth explains most of the drift in this “real-time” R-star. From 2012-2019, the rise in trend growth was offset by a falling trend in other factors.

How has the U.S. neutral real interest rate shifted over time?

Core argument: Synthetic real-time estimates of r-star from the Holston-Laubach-Williams model show two large moves: a 1-3/4 percentage point rise and subsequent reversal during the late-1990s and early-2000s productivity boom, and a 1-1/2 percentage point decline following the global financial crisis and Great Recession.

[We present] new “synthetic real-time” estimates of r-star in the U.S. for the Holston-Laubach-Williams model, using vintage datasets. Real-time estimates answer the question: “What is the value of r-star based on the information available at the time?” Changes in real-time estimates of trend growth explain most of the persistent movements in HLW real-time estimates of r-star from the mid-1990s to 2011. From 2012 to 2019, estimates of z trended lower, offsetting the rise in estimates of trend growth. This pattern of rising estimates of trend growth and declining estimates of z has continued since the onset of the pandemic. The net effect is that the most recent estimate of r-star is slightly above estimates from 2019. The estimates reveal two episodes of large movements in r-star: a 1-3/4 percentage point rise and subsequent reversal during the productivity boom of the late 1990s and early 2000s and a sharp 1-1/2 percentage point decline following the global financial crisis and Great Recession. In between these two episodes, real-time estimates of r-star are remarkably stable, at around 2-1/4 percent during the mid-2000s and ½ percent during the 2010s.

Takeaways by Macro Roundup® AI

  1. Synthetic real-time estimates of r-star from the Holston-Laubach-Williams model show two large moves: a 1-3/4 percentage point rise and subsequent reversal during the late-1990s and early-2000s productivity boom, and a 1-1/2 percentage point decline following the global financial crisis and Great Recession.
  2. Between those two episodes, real-time r-star estimates were stable at around 2-1/4 percent during the mid-2000s and around 1/2 percent during the 2010s.
  3. Changes in real-time estimates of trend growth explain most persistent movements in HLW real-time r-star from the mid-1990s to 2011, while from 2012 to 2019 and since the pandemic's onset declining estimates of z offset rising trend growth, leaving the most recent r-star slightly above 2019 estimates.

Related Articles:

  • Data Update 4 for 2025: Interest Rates, Inflation and Central Banks! — 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.
  • 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.
  • Recent Movements in R*: The Most Important Interest Rate That You Have Never Heard Of — The natural rate of interest — the inflation-adjusted rate prevailing when the economy grows at trend with inflation at target — is unobservable and uncertain, but most estimates have risen and sit above pre-pandemic levels. The data lean toward a long-run natural rate higher than pre-pandemic and possibly above Federal Reserve projections.

AI Summary. The US said it will exempt Mexico from new 25% tariffs on goods and services covered by the US-Mexico-Canada trade agreement, and has already said Canadian autos and auto parts imported under the deal would be exempt.

Josh Wingrove Bloomberg
Date Posted:

Trump will exempt Mexico from his 25% tariff until April; Trump is weighing a broader exemption to the tariff for goods covered by the USMCA.

Are goods under the North American trade deal exempt from tariffs?

Core argument: President Trump said he will exempt Mexico from his 25% tariffs on goods and services covered by the USMCA trade agreement until April 2, describing the move as an accommodation following a call with Mexican President Claudia Sheinbaum.

President Trump said he will exempt Mexico from his new 25% tariffs on any goods and services that fall under the North American trade agreement known as USMCA, offering a reprieve for a major US trading partner. “This Agreement is until April 2nd,” Trump said in a social media post Thursday after speaking with Mexican President Claudia Sheinbaum. “I did this as an accommodation, and out of respect for, President Sheinbaum.” The decision came shortly after Commerce Secretary Howard Lutnick said Trump was weighing an exemption for both Mexican and Canadian goods under the agreement, saying he expected Trump to officially decide the scope of the delay on Thursday. “If you lived under Donald Trump’s US, Mexico and Canada agreement, you will get a reprieve from the tariffs now. And if you do choose to go outside of that, you did so at your own risk, and today is when that reckoning comes,” Lutnick said in an interview with CNBC. It’s not clear that Trump will extend the full USMCA pause to Canada, though he has already said he would exempt Canadian autos and auto parts that are imported under the trade deal.

Takeaways by Macro Roundup® AI

  1. President Trump said he will exempt Mexico from his 25% tariffs on goods and services covered by the USMCA trade agreement until April 2, describing the move as an accommodation following a call with Mexican President Claudia Sheinbaum.
  2. Commerce Secretary Howard Lutnick said goods traded under the USMCA will get a reprieve from the tariffs, while those falling outside the agreement face a "reckoning," and said he expected Trump to decide the delay's scope.
  3. Trump has not said whether the full USMCA tariff pause will extend to Canada, though he already said he would exempt Canadian autos and auto parts imported under the agreement.

Related Articles:

  • A User’s Guide to Restructuring the Global Trading System — During the 2018–2019 U.S.–China trade war, the effective tariff rate on Chinese imports rose 17.9 percentage points while the renminbi depreciated 13.7% against the dollar, leaving after-tariff import prices in dollars up just 4.1%. The author argues this currency offset of more than three-fourths of the tariff explains why inflation pressure was negligible.
  • The Fiscal, Economic, and Distributional Effects of 20% Tariffs on China and 25% Tariffs on Canada and Mexico — The authors estimate that 25% tariffs on Canada and Mexico plus 20% tariffs on China raise the US effective tariff rate by 7 percentage points to its highest since 1943, lifting the price level 1.0–1.2% and costing households an average $1,600–2,000. They project the economy is persistently 0.3–0.4% smaller.
  • From Here to Eternity — US policy shifts can reverse quickly: an Eisenhower-era deportation surge reached 1.1m people before funding and political support collapsed, cutting deportations over 90% to 90,000 within two years. McKinley-era tariffs were followed by an inflation spike and a 100-seat Republican loss, the third largest House defeat since the Civil War.

AI Summary. A widely used index of U.S. economic policy uncertainty, built from news coverage and disagreement among professional forecasters, has reached its highest recorded level outside the pandemic. Regional Federal Reserve surveys of manufacturers point to less investment and higher prices, and the author argues constant policy volatility raises the cost of capital and discourages hiring and investment.

Matt Klein The Overshoot
Date Posted:

.@M_C_Klein argues that “policy arbitrariness” is already “contributing to faster inflation and a deteriorating growth outlook in the US.” He is concerned uncertainty will compound.

Does policy uncertainty reduce investment and raise prices?

Core argument: U.S. Economic Policy Uncertainty, estimated by economists Scott Baker, Nick Bloom, and Steve Davis from news articles, forecaster disagreement, and other sources, has soared since the election to its highest level recorded outside the pandemic.

People can adapt to bad policies, but it is impossible to adapt when both the business environment changes on a daily or even hourly basis. In this world, the most rational choice is to hoard and wait. The costs of this constant policy volatility will cumulate over time, raising the cost of capital and discouraging hiring and investment. Since the election, U.S. “Economic Policy Uncertainty” estimated by the economists Scott Baker, Nick Bloom, and Steve Davis from news articles, professional forecasters’ disagreements, and other sources has soared to the highest level ever recorded outside of the pandemic. Five of the regional Federal Reserve Banks have been running detailed surveys of manufacturers in their district for at least two decades. They ask questions on everything from employment to capital spending plans to inventories and more. The latest surveys, which are from early-to-mid February, and therefore do not even capture the latest spikes in policy volatility, are painting a consistent and unwelcome picture: less investment and higher prices.

Takeaways by Macro Roundup® AI

  1. U.S. Economic Policy Uncertainty, estimated by economists Scott Baker, Nick Bloom, and Steve Davis from news articles, forecaster disagreement, and other sources, has soared since the election to its highest level recorded outside the pandemic.
  2. Surveys of manufacturers run by five regional Federal Reserve Banks for at least two decades point, in their early-to-mid February readings, to less investment and higher prices, before the latest spikes in policy volatility.
  3. Constant policy volatility makes hoarding and waiting the rational choice, with costs that cumulate over time, raising the cost of capital and discouraging hiring and investment, the article argues.

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AI Summary. New US tariff actions cover $1.3tn in imports, or roughly 42% of all goods entering the United States, and would impose an effective tariff rate of 11.5%, or more than $370bn, if households and firms imported the same goods from the same countries as the prior year. Combined, they represent the largest tariff increase since the Smoot-Hawley Act.

Apricitas Economics Joseph Politano
Date Posted:

Trump’s latest proposed tariffs, including the lagging tariffs on autos, cover 42% of American imports, with an effective tariff rate of 11.5%, “the single-largest tariff hike since the infamous Smoot-Hawley Act of nearly a century ago.” @JosephPolitano

How large is the new tariff increase on US imports?

Core argument: Trump's tariff actions cover $1.3T in US imports, roughly 42% of all goods brought into the United States.

The costs of these actions are enormous, covering $1.3T in US imports or roughly 42% of all goods brought into the United States. If households and companies tried simply to import the same goods from the same countries as last year, they would now be forced to pay an 11.5% effective tariff or more than $370B in total. Sustained, any one of these actions would exceed the total impact of Trump’s entire first-term trade wars, but combined they represent the single-largest tariff hike since the infamous Smoot-Hawley Act of nearly a century ago.

Takeaways by Macro Roundup® AI

  1. Trump's tariff actions cover $1.3T in US imports, roughly 42% of all goods brought into the United States.
  2. Importing the same goods from the same countries as last year would now carry an 11.5% effective tariff, or more than $370B in total.
  3. Sustained, any one of Trump's tariff actions would exceed the total impact of his entire first-term trade wars, and combined they represent the single-largest tariff hike since the Smoot-Hawley Act of nearly a century ago.

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AI Summary. Young women use social media more than young men and are more likely to encounter accounts featuring LGBTQ topics, and research finds young women identifying as gay, lesbian, bisexual or queer are much more active on these platforms than straight women of the same age.

Daniel Cox, Jae Grace and Avery Shields American Storylines
Date Posted:

31% of US women ages 18-29 now identify as LGBTQ up from 9% a decade ago. @dcoxpolls notes that young women are significantly more active on social media and exposed to LGBTQ topics, which may lead them to adopt more fluid sexual identities.

Does social media use help explain rising LGBTQ identification among young women?

Core argument: Young women are significantly more active on social media than young men and, given gendered habits online, are more likely to encounter accounts featuring LGBTQ topics, which the author finds a compelling explanation.

Young women are significantly more active on social media than young men, and given gendered habits online, they are more likely to be exposed to accounts that feature LGBTQ topics. Our research also shows that young women who identify as gay, lesbian, bisexual or queer are much more active on social media platforms than women of the same age who are straight. For me, this is a compelling explanation. One recent study found that repeated exposure to information describing “sexual orientation existing on a continuum” led respondents to adopt more fluid sexual identities or to express greater uncertainty about their sexual orientation.

Takeaways by Macro Roundup® AI

  1. Young women are significantly more active on social media than young men and, given gendered habits online, are more likely to encounter accounts featuring LGBTQ topics, which the author finds a compelling explanation.
  2. The author's research shows young women who identify as gay, lesbian, bisexual, or queer are much more active on social media platforms than straight women of the same age.
  3. One study found that repeated exposure to information describing sexual orientation as existing on a continuum led respondents to adopt more fluid sexual identities or express greater uncertainty about their sexual orientation.

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AI Summary. Ukraine reported making over one million first-person-view drones in a year while Russia claims output of 4,000 daily, with both aiming for three to four million annually. Drones now hunt other drones, act as motherships for swarms, and explosive-laden naval vessels target ships hundreds of miles away.

Marc Santora, Lara Jakes, Andrew Kramer, Marco Hernandez and Liubov Sholudko New York Times
Date Posted:

Drones have displaced artillery as the primary cause of casualties in the Russo-Ukrainian War, with 70% of all Russian and Ukrainian casualties inflicted by drones according to some Ukrainian estimates. US military leaders are taking note.

How are mass-produced drones reshaping modern warfare?

Core argument: Ukrainian officials said they produced more than one million first-person-view drones in 2024, while Russia claims output of 4,000 per day, with each country aiming to make three to four million drones in 2025.

Ukrainian officials said they had made more than one million first-person-view drones in 2024. Russia claims it can churn out 4,000 every day. Both countries say they are still scaling up production, with each aiming to make three to four million drones in 2025. Drones armed with shotguns are now shooting down other drones. Antiaircraft drones are being designed to take out surveillance drones flying higher in the sky. Larger drones are being developed to serve as motherships for swarms of small drones, increasing the distance they can fly and kill. Crude Ukrainian robotic vessels packed with explosives sail hundreds of miles across choppy waters to target enemy ships. The commander of Ukraine’s naval forces said, “This is not just a tactical tool but a strategic shift in the approach to naval warfare,” [he] crediting the drones with “altering the balance of power in the Black Sea.” American military leaders have noted the Ukrainian approach to see if there are lessons should China make a move to attack Taiwan.

Takeaways by Macro Roundup® AI

  1. Ukrainian officials said they produced more than one million first-person-view drones in 2024, while Russia claims output of 4,000 per day, with each country aiming to make three to four million drones in 2025.
  2. Drones armed with shotguns are shooting down other drones in Ukraine, antiaircraft drones are being designed to hit higher-flying surveillance drones, and larger mothership drones are being developed to extend the range of small-drone swarms.
  3. The commander of Ukraine's naval forces called explosive-packed robotic vessels that sail hundreds of miles "not just a tactical tool but a strategic shift in the approach to naval warfare," crediting the drones with "altering the balance of power in the Black Sea.".

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