Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
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  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…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
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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
  • “…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 comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Monday, September 15, 2025

AI Summary. Bond yields for French companies including L'Oréal, Airbus and Axa have fallen below those on French government debt of similar maturity, with 10 French firms trading at a negative spread to the sovereign — the most in data going back to 2006, according to Goldman Sachs. Sovereign yields typically set a baseline for corporate bonds.

Ian Smith, Emily Herbert, and Olaf Storbeck Financial Times
Date Posted:
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GS data show that at least 10 French firms are trading at a negative spread to the French sovereign. “Sovereign borrowing costs typically act as a baseline for yields on corporate bonds.”

Are corporate borrowing costs now falling below government yields?

Core argument: Goldman Sachs data show 10 French companies, including L'Oréal, Airbus and Axa, recently traded at a negative spread to French government bonds of similar maturity, the most in data going back to 2006.

Yields on the bonds of groups including L’Oréal, Airbus and Axa have sunk below those on French government debt of similar maturity in recent weeks [according to data compiled by Goldman Sachs]. Sovereign borrowing costs typically act as a baseline for yields on corporate bonds. This pattern has occasionally inverted in the Eurozone — where German bonds serve as the true risk-free benchmark and other member states’ trade at an additional “spread” — particularly during the bloc’s debt crisis a decade and a half ago. But the Goldman Sachs data shows that 10 French companies were recently trading at a negative spread to the French sovereign — which as one of the region’s biggest, wealthiest economies has usually enjoyed relatively low yields — the most in data going back to 2006. Across the euro area as a whole, more than 80 companies had bond yields below France’s, according to Goldman.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs data show 10 French companies, including L'Oréal, Airbus and Axa, recently traded at a negative spread to French government bonds of similar maturity, the most in data going back to 2006.
  2. More than 80 companies across the euro area had bond yields below France's, according to Goldman Sachs, even though France has usually enjoyed relatively low yields as one of the region's biggest, wealthiest economies.
  3. Sovereign borrowing costs typically act as a baseline for corporate bond yields, and this pattern has inverted in the Eurozone only occasionally, particularly during the bloc's debt crisis a decade and a half ago.

Related Articles:

  • Back to the Barricades, and the Bond Spreads — The gap between French and German 10-year government bond yields is near the highs reached during France's political crises, and French stocks have resumed sharp underperformance versus the rest of Europe. France's finance minister warned the country might need assistance from the International Monetary Fund.
  • Global Debt Report 2025 — About 60% of fixed-rate government debt in advanced economies maturing by 2027 — roughly $9tn — was issued before the recent interest-rate tightening, with weighted average yields below 2% versus projected 10-year rates near 3.6%, implying refinancing at nearly double the original cost. France, Spain, the UK, and the US face heightened vulnerability, with maturing debt exceeding 15% of GDP.
  • Brazil’s Slow-Burning Economic Crisis Might Be the U.S. Future — Brazil illustrates a feedback loop in which higher interest rates raise debt-servicing costs—now over 7% of GDP—which in turn lift risk premia and inflation expectations, making fiscal policy less sustainable still. U.S. long-term rates have not fallen despite Federal Reserve cuts, partly reflecting an $11tn debt increase and markets pricing the risk that debt is managed through higher inflation.

AI Summary. Japan's long-dated forward government bond yields have risen, which the author attributes partly to the Bank of Japan's efforts to unwind its large holdings of Japanese government debt. With exceptionally high government debt, keeping interest rates low risks further yen depreciation and uncontrolled inflation, while allowing yields to rise risks debt sustainability.

Robin Brooks Robin Brooks Substack
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If Japan sticks with low interest rates, it faces a further drop in the yen and worsening inflation. Rising yields put Japan’s debt sustainability at risk. “This catch-22 means a debt crisis is much closer than people think,” Brooks argues.

Does a central bank's bond unwind trap a heavily indebted government?

Core argument: Japan's 10y20y forward yield, backed out from 10-, 20- and 30-year government bond yields, has risen markedly, partly because the Bank of Japan is attempting to extricate itself from its massive holdings of Japanese government debt.

The [left] chart above shows what’s going on with Japan’s yield curve. It shows the 2-year yield (black line), the 10-year yield (blue line), the 10y10y forward yield (orange line) and the 10y20y forward yield (red line). The latter two are backed out from 10-, 20- and 30-year government bond yields and reflect what markets price for 10-year in 10 and 20 years’ time. What’s striking is how much the 10y20y forward yield has risen, which - as the [right] chart shows - is partly due to the Bank of Japan trying to extricate itself from its massive holdings of Japanese government debt. Indeed, given how little progress the Bank of Japan has made in this regard, the rise in [the] 10y20y forward yield is quite shocking. The bottom line is that exceptionally high government debt is putting Japan in a terrible bind. If Japan sticks with low interest rates, it risks further Yen depreciation, which could cause inflation to run out of control. If it anchors the Yen by allowing yields to rise further, this could put Japan’s debt sustainability at risk.

Takeaways by Macro Roundup® AI

  1. Japan's 10y20y forward yield, backed out from 10-, 20- and 30-year government bond yields, has risen markedly, partly because the Bank of Japan is attempting to extricate itself from its massive holdings of Japanese government debt.
  2. The Bank of Japan has made little progress unwinding its Japanese government bond holdings, which makes the rise in the 10y20y forward yield striking.
  3. Japan's exceptionally high government debt creates a bind: sticking with low interest rates risks further yen depreciation and inflation running out of control, while letting yields rise to anchor the yen could put debt sustainability at risk.

Related Articles:

  • Global Debt Report 2025 — About 60% of fixed-rate government debt in advanced economies maturing by 2027 — roughly $9tn — was issued before the recent interest-rate tightening, with weighted average yields below 2% versus projected 10-year rates near 3.6%, implying refinancing at nearly double the original cost. France, Spain, the UK, and the US face heightened vulnerability, with maturing debt exceeding 15% of GDP.
  • 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.
  • How A Global Debt Crisis Starts — Far-forward government bond yields — what markets price for the 10-year yield 10 and 20 years ahead — have risen in Japan, the UK, France and Germany, with Japan's 10-year yield 20 years forward at 4.5%. The US 10y20y forward yield has fallen slightly, which the author attributes to safe-haven inflows.

AI Summary. French pensioners receive larger government payments than in any other western country and begin receiving them several years earlier, leaving over-65s with higher average incomes than the working-age population — a situation without precedent internationally or in France's own history. Proposals to raise the retirement age or delay pension increases have triggered nationwide protests and government collapses.

John Burn-Murdoch Financial Times
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Since 1970, cumulative real income growth for pensioners in France and the UK has outpaced that of the workers who support them. French pensioners over the age of 65 have higher incomes than working-age adults.

Do generous pension payments leave retirees with higher incomes than workers?

Core argument: French pensioners receive larger government payments than pensioners anywhere else in the West and begin collecting them several years earlier, leaving over-65s with higher average incomes than the working-age population — a situation unique internationally and in France's own history.

French pensioners receive larger cheques from the government than their counterparts anywhere else in the west, and they start getting them several years earlier. The result is a situation in which over-65s now have higher average incomes than the working age population — unique both internationally and in France’s own history. Even the rumour of threats to this arrangement is met with mass public outrage and opposition from left and right. Macron’s proposal to nudge the retirement age up towards the lower end of western norms was met with nationwide protests. Barnier’s suggestion of a six-month delay to the latest scheduled increase in pension payments led to the first of two collapsed governments in the past 10 months. Bayrou’s refusal to scrap the same pledges brought about the second.

Takeaways by Macro Roundup® AI

  1. French pensioners receive larger government payments than pensioners anywhere else in the West and begin collecting them several years earlier, leaving over-65s with higher average incomes than the working-age population — a situation unique internationally and in France's own history.
  2. Macron's proposal to raise France's retirement age toward the lower end of Western norms triggered nationwide protests, with opposition to any threat to pension arrangements coming from both left and right.
  3. Barnier's proposed six-month delay to a scheduled pension payment increase and Bayrou's refusal to scrap the same pledges each brought down a French government, accounting for two collapses in the past 10 months.

Related Articles:

  • How A Global Debt Crisis Starts — Far-forward government bond yields — what markets price for the 10-year yield 10 and 20 years ahead — have risen in Japan, the UK, France and Germany, with Japan's 10-year yield 20 years forward at 4.5%. The US 10y20y forward yield has fallen slightly, which the author attributes to safe-haven inflows.
  • Europeans ‘Less Hard-Working’ Than Americans, Says Norway Oil Fund Boss — Norway's sovereign wealth fund argues that American companies are outpacing European rivals on innovation and technology because the US more readily accepts failure and risk and because Americans work harder and are more ambitious. US shares now make up almost half of the fund's equity holdings, up from 32% a decade earlier, while UK holdings fell from 15% to 6%.
  • The Future of European Competitiveness – A Competitiveness Strategy for Europe — A European Union competitiveness report attributes the EU's labour productivity growth gap with the US largely to weaker activity in information and communications technology and large-scale digital services; excluding main ICT sectors, EU productivity was broadly at par with the US from 2000-2019. It estimates Europe's investment share must rise about 5 percentage points of GDP.

AI Summary. ChatGPT had been adopted by around 10% of the world's adult population, with non-work messages growing from 53% to more than 70% of usage; work usage is more common among educated users in highly paid professional occupations. The authors find "Practical Guidance," "Seeking Information," and "Writing" account for nearly 80% of conversations.

Aaron Chatterji, Thomas Cunningham, David Deming, Zoe Hitzig, et al. National Bureau of Economic Research
Date Posted:

As of July 2025, ChatGPT was used at least weekly by ~10% of the global adult population. 70% of usage was non-work related. Work usage was most common for educated users in high-pay professional occupations.

How do people actually use ChatGPT?

Core argument: ChatGPT had been adopted by around 10% of the world's adult population by July 2025, less than three years after its November 2022 launch, with an early male skew that has narrowed dramatically.

We document the growth of ChatGPT’s consumer product from its launch in November 2022 through July 2025, when it had been adopted by around 10% of the world’s adult population. Early adopters were disproportionately male but the gender gap has narrowed dramatically. Using a privacy-preserving automated pipeline, we classify usage patterns within a representative sample of ChatGPT conversations. We find steady growth in work-related messages but even faster growth in non-work-related messages, which have grown from 53% to more than 70% of all usage. Work usage is more common for educated users in highly-paid professional occupations. We classify messages by conversation topic and find that “Practical Guidance,” “Seeking Information,” and “Writing” are the three most common topics and collectively account for nearly 80% of all conversations. Writing dominates work-related tasks, highlighting chatbots’ unique ability to generate digital outputs compared to traditional search engines. Computer programming and self-expression both represent relatively small shares of use. Overall, we find that ChatGPT provides economic value through decision support, which is especially important in knowledge-intensive jobs.

Takeaways by Macro Roundup® AI

  1. ChatGPT had been adopted by around 10% of the world's adult population by July 2025, less than three years after its November 2022 launch, with an early male skew that has narrowed dramatically.
  2. Non-work-related messages grew from 53% to more than 70% of all ChatGPT usage, outpacing steady growth in work-related messages, with work usage more common among educated users in highly-paid professional occupations.
  3. "Practical Guidance," "Seeking Information," and "Writing" account for nearly 80% of ChatGPT conversations, with Writing dominating work-related tasks while computer programming and self-expression represent relatively small shares.

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.
  • The Rapid Adoption of Generative AI — A nationally representative U.S. survey found 39% of people aged 18-64 used generative AI, with more than 24% of workers using it in the prior week and nearly one in nine using it every workday. The authors estimate 0.5-3.5% of U.S. work hours are currently assisted by generative AI.

AI Summary. U.S. household and nonprofit net worth equals roughly 8.5 years of personal consumption spending, down from a peak of 9 years but above the 7.7-year average of 2018-2019. The author argues that cutting interest rates with inflation persistent risks unleashing this untapped financial firepower as additional consumer spending that would largely show up in higher prices rather than higher output.

Matthew Klein The Overshoot
Date Posted:

Since 2019, American households have accumulated $59T in net wealth. Overall household net worth could finance 8.5 years of current spending. “Lowering interest rates would be…particularly risky given the financial position of American consumers.”

Does high household net worth make rate cuts inflationary?

Core argument: U.S. household and nonprofit net worth in mid-2025 equaled about 8.5 years of personal consumption spending, down from a 2021 peak of 9 years but above the 2018–2019 average of 7.7 years.

Based on the latest numbers, inflation in the recent past will be revised up, but the current inflation rate will probably not change very much. Lowering interest rates in these conditions would be dangerous even under normal circumstances. But it is particularly risky given the financial position of American consumers. The value of household (and nonprofit) assets minus liabilities as of mid-2025 was worth about 8.5 years worth of personal consumption spending as of 2025Q2. That is down from the peak of 9 years of consumption in 2021, but notably higher than the 2018-2019 average of 7.7 years. American households have enormous untapped financial firepower at their disposal, which, so far, they have largely refrained from using. Any attempt to meaningfully open the taps risks unleashing a massive flood of additional consumer spending, much of which would probably get translated into higher prices rather than higher output.

Takeaways by Macro Roundup® AI

  1. U.S. household and nonprofit net worth in mid-2025 equaled about 8.5 years of personal consumption spending, down from a 2021 peak of 9 years but above the 2018–2019 average of 7.7 years.
  2. The latest numbers imply inflation in the recent past will be revised up while the current inflation rate probably changes little.
  3. Lowering interest rates amid persistent inflation would be dangerous and is particularly risky because American households hold untapped financial firepower whose release would likely translate into higher prices rather than higher output.

Related Articles:

  • Gold Surpasses Inflation-Adjusted Record High Set in 1980 — Gold's spot price reached an all-time high of $3,674.27 an ounce, surpassing the inflation-adjusted peak set when gold topped out at $850 in January 1980. That earlier peak came amid a collapsing US currency, an inflation spike, and a recession.
  • U.S. Job Market Still (Surprisingly?) Good. Inflation Risk Is Paramount — 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.

AI Summary. Wage growth for the lowest-paid quartile of US workers has slowed to just above the headline inflation rate, consistent with the view that companies are holding onto staff while showing little interest in bidding up pay for lower-skilled workers. With inflation not tamed and tariffs yet to feed through to employment and production decisions, the risk ahead is stagflation.

John Authers Bloomberg
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As the Fed’s cutting cycle likely renews amid indicators of labor market weakening, measures of core inflation remain above 3%. John Authers notes, “The Fed is going to cut, and there is a strong case for it to do so…the risk ahead is stagflation.”

Is wage growth for the lowest-paid workers falling toward inflation?

Core argument: Wage increases for the lowest-paid quartile in the Atlanta Fed's wage tracker have slowed sharply and now sit only just above headline inflation, consistent with the view that firms are hoarding labor while declining to bid up pay for lower-skilled workers.

The Atlanta Fed’s wage tracker, based on census data, slices and dices pay rises several ways. Wage increases for the first quartile, the 25% of the population who are paid the least, have pegged back sharply and are now only just above the headline rate of inflation. This is in line with the theory that companies are hoarding labor and reluctant to make layoffs, but have very little interest in bidding up for lower-skilled workers. It’s not a coincidence that the two times real pay rises for the lowest paid went negative in recent history came during the administrations of Barack Obama and Joe Biden — and both times they were followed by a Trump election victory. The Fed is going to cut, and there is a strong case for it to do so. With inflation not tamed and tariffs still to filter through into employment and production decisions, the risk ahead is stagflation.

Takeaways by Macro Roundup® AI

  1. Wage increases for the lowest-paid quartile in the Atlanta Fed's wage tracker have slowed sharply and now sit only just above headline inflation, consistent with the view that firms are hoarding labor while declining to bid up pay for lower-skilled workers.
  2. The two occasions when real pay rises for the lowest paid turned negative in recent history came under the Obama and Biden administrations, and both were followed by a Trump election victory.
  3. With inflation not tamed and tariffs still to filter through into employment and production decisions, the risk ahead is stagflation even as the Federal Reserve moves to cut rates.

Related Articles:

  • Mid-Year Outlook: At the Crossroads of Stagflation—What’s Next? — Foreign investors hold roughly $18.5tn in US equities (about 20% of the market), $7tn in Treasuries and $5tn in credit (about 30% of each), and foreign participation in 30-year Treasury auctions has trended down in recent months. Combined with US fiscal challenges, the authors argue this reliance on foreign demand is a vulnerability.
  • Income in the United States: 2024 — U.S. median household income was $83,730, not statistically different from the prior year's $82,690, according to Census Bureau estimates. Across most demographic subgroups, median household income was higher or not statistically different from the prior year, with the exception of Black households, which saw a decline.
  • Gold Surpasses Inflation-Adjusted Record High Set in 1980 — Gold's spot price reached an all-time high of $3,674.27 an ounce, surpassing the inflation-adjusted peak set when gold topped out at $850 in January 1980. That earlier peak came amid a collapsing US currency, an inflation spike, and a recession.

Tuesday, September 16, 2025

AI Summary. Excluding pharmaceuticals and gold — categories where trade is distorted by tax treatment and stockpiling ahead of tariffs — U.S. trade flows look largely normal despite tariff increases. Imports from China fell sharply, but imports from Taiwan and Southeast Asia rose, with electronics imports up on data center investment, leaving total Asian imports little changed.

Brad Setser Council On Foreign Relations
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Apart from initial volatility in gold and pharma imports, US tariffs have yet to impact net trade flows. Soaring imports from Taiwan and SE Asia led to growth in total imports from Asia to the US in spite of reduced trade with China.

Have tariffs disrupted US trade flows?

Core argument: The annualized monthly U.S. trade deficit peaked at $2 trillion in March, fell to $1 trillion, and rebounded to $1.2 trillion in July, roughly where it started, with most of the volatility coming from pharmaceuticals and gold.

The annualized monthly trade deficit rose to a peak of $2 trillion in March before dipping to $1 trillion and then rebounding to $1.2 trillion in July (which is where it started, more or less). But most of the volatility has come from two categories: pharmaceuticals (where trade is heavily distorted by tax and companies can easily front-run tariffs by stockpiling active ingredients) and gold. Take out pharmaceuticals and gold and U.S. trade looks, well, rather normal. To be sure, imports from China (where hefty tariffs were expected) tanked. But imports from Taiwan and Southeast Asia (which were only subject to a 10% tariff before Trump started delivering letters setting out his “deal” terms) soared. Imports of electronics are up substantially (imports from Taiwan are up over 50% YTD) on the back of booming investment in data centers for advanced statistical analysis to backstop large language models (“AI”). Total imports from Asia aren’t yet down in any significant way. So global trade has actually held up rather well. Let’s see what the data for the fall shows - there should be more of an impact than is now apparent.

Takeaways by Macro Roundup® AI

  1. The annualized monthly U.S. trade deficit peaked at $2 trillion in March, fell to $1 trillion, and rebounded to $1.2 trillion in July, roughly where it started, with most of the volatility coming from pharmaceuticals and gold.
  2. Excluding pharmaceuticals and gold, U.S. trade looks rather normal: imports from China tanked, while imports from Taiwan and Southeast Asia, subject to only a 10% tariff before Trump's "deal" letters, soared.
  3. U.S. imports from Taiwan are up over 50% year-to-date on booming data center investment tied to large language models, and total imports from Asia are not yet down in any significant way.

Related Articles:

  • Global Imbalances In A Shifting World — Current accounts of major economies diverged, with the US deficit widening by $228bn to $1.13tn (1% of world GDP) while China's surplus rose by $161bn to $424bn and the euro area's by $198bn to $461bn. Changes in investment rates drove the widening saving-investment gaps, with private saving offsetting only 10–50% of the investment change.
  • China Emerges From Trade Chaos With Record Exports, Surplus — China posted a record half-year trade surplus of about $586bn, with exports up 5.8% year-over-year to $325bn and imports up 1.1%. Shipments to the US fell 16.1% from a year earlier, while exports to the 10 Southeast Asian nations in the Asean group rose 17%.
  • China’s Stealth Trade Surplus — China's trade surplus has soared over the past five years, including a shift from a deficit to a large surplus in autos, with net vehicle exports exceeding 6m units, and dominance in renewables manufacturing. Its export volume growth has consistently exceeded global trade growth, consistent with economies leaning on exports after a real estate crisis weakens domestic demand.

AI Summary. Germany has lost its safe-haven status, with its far-forward 10-year government bond yield rising sharply during a period of elevated global uncertainty that would previously have pushed German yields down, while Switzerland's yields fall across the curve. The author argues that fewer places to hide may explain gold's large rally.

Robin Brooks Robin Brooks Substack
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A comparison of German and Swiss bond yields suggests the dramatic extent to which Germany has suffered a loss of both its safe haven status and its prestige, as its ability to confront its fiscal deterioration and that of its neighbors has declined.

Is the shrinking pool of safe havens driving gold's rally?

Core argument: Germany's 10y20y forward yield — the market-implied 10-year yield in 20 years' time, backed out from 20- and 30-year bond yields — has risen sharply this year, at a time of elevated global uncertainty that in the past would have pushed German yields down.

The universe of safe havens is shrinking, with Germany losing that status this year. The two charts above illustrate what’s going on. The left chart shows the 10-year government bond yield for Germany (blue line) and the 10y20y forward yield (red line) that I’ve backed out from 20- and 30-year bond yields. This 10y20y forward yield is what markets price for the 10-year yield in 20 years’ time. The right chart shows the same for Switzerland. The difference between the two is striking. A true safe haven like Switzerland is seeing yields fall sharply across the yield curve, even at the very long end. That’s no longer true for Germany, where the 10y20y forward yield is up very sharply this year, at a time of elevated global uncertainty that - in the past - would have seen German yields fall. The loss of safe haven status for Germany has a negative externality for the world. It means there’s one less place to hide when global uncertainty rises, which may explain why gold has seen such a massive rally this year. After all, there’s only so much hiding you can do in tiny Switzerland.

Takeaways by Macro Roundup® AI

  1. Germany's 10y20y forward yield — the market-implied 10-year yield in 20 years' time, backed out from 20- and 30-year bond yields — has risen sharply this year, at a time of elevated global uncertainty that in the past would have pushed German yields down.
  2. Switzerland remains a safe haven, with yields falling sharply across the yield curve including the very long end, in contrast to Germany's rising long-forward yields.
  3. Germany's loss of safe haven status leaves one less place to hide when global uncertainty rises, which may explain gold's rally this year, given how little capacity Switzerland offers.

Related Articles:

  • How A Global Debt Crisis Starts — Far-forward government bond yields — what markets price for the 10-year yield 10 and 20 years ahead — have risen in Japan, the UK, France and Germany, with Japan's 10-year yield 20 years forward at 4.5%. The US 10y20y forward yield has fallen slightly, which the author attributes to safe-haven inflows.
  • Global Debt Report 2025 — About 60% of fixed-rate government debt in advanced economies maturing by 2027 — roughly $9tn — was issued before the recent interest-rate tightening, with weighted average yields below 2% versus projected 10-year rates near 3.6%, implying refinancing at nearly double the original cost. France, Spain, the UK, and the US face heightened vulnerability, with maturing debt exceeding 15% of GDP.
  • Gold Surpasses Inflation-Adjusted Record High Set in 1980 — Gold's spot price reached an all-time high of $3,674.27 an ounce, surpassing the inflation-adjusted peak set when gold topped out at $850 in January 1980. That earlier peak came amid a collapsing US currency, an inflation spike, and a recession.

AI Summary. Markets are pricing interest-rate cuts about 70bps deeper than Federal Reserve officials' own projections, an outcome the author argues is unlikely with core inflation stabilized near 3%, wage growth at 4% versus 3% before the pandemic, and unemployment at a historically low 4.3%.

Joseph Wang Fed Guy Blog
Date Posted:

Joseph Wang argues the market is likely overestimating the pace of rate cuts, given that “core inflation appears to have stabilized at around 3%” and “the employment picture has not deteriorated enough for it to abandon its inflation concerns.”

Are markets pricing deeper rate cuts than inflation and employment justify?

Core argument: Markets are pricing Fed rate cuts 70bps below the 2026 dot-plot, a scenario the author deems very unlikely given core inflation stabilized near 3% and a labor market that has not yet broken.

The market is pricing a series of deep cuts that is 70bps lower than the dot-plot in 2026. That scenario is very unlikely as inflation looks to be stuck around 3% for the foreseeable future, the labor market has not yet broken, and Chair Powell still perceives policy to only be modestly restrictive. Core inflation appears to have stabilized at around 3%. Wage growth has stabilized at 4%, compared to 3% pre-pandemic. Market pricing also indicates that inflation will remain elevated in the coming months, Fed officials have attributed the lower job growth numbers to changes in immigration policy impacting both the supply and demand for labor, and pointed to the 4.3% unemployment rate, which remains historically low and also lower than the June dot-plot projection of 4.5% for the end of 2025. The labor market is clearly deteriorating, but it is still evolving according to forecast. Even Governor Waller, who dissented last meeting, is only calling for a 25bps cut and measured data dependency. The risk to both mandates is high.

Takeaways by Macro Roundup® AI

  1. Markets are pricing Fed rate cuts 70bps below the 2026 dot-plot, a scenario the author deems very unlikely given core inflation stabilized near 3% and a labor market that has not yet broken.
  2. Wage growth has stabilized at 4%, above the 3% pre-pandemic pace, while market pricing indicates inflation will remain elevated in the coming months.
  3. Unemployment at 4.3% remains historically low and below the June dot-plot's 4.5% projection for end-2025, with Fed officials attributing weaker job growth to immigration policy changes affecting both labor supply and demand.

Related Articles:

  • A Big, Not-So-Beautiful Inflation Picture — Wage growth for the lowest-paid quartile of US workers has slowed to just above the headline inflation rate, consistent with the view that companies are holding onto staff while showing little interest in bidding up pay for lower-skilled workers. With inflation not tamed and tariffs yet to feed through to employment and production decisions, the risk ahead is stagflation.
  • Mid-Year Outlook: At the Crossroads of Stagflation—What’s Next? — Foreign investors hold roughly $18.5tn in US equities (about 20% of the market), $7tn in Treasuries and $5tn in credit (about 30% of each), and foreign participation in 30-year Treasury auctions has trended down in recent months. Combined with US fiscal challenges, the authors argue this reliance on foreign demand is a vulnerability.
  • The Rising Tide of Government Interest Costs — A model of forward interest rate curves, projected deficits, and debt maturity structures estimates that government interest spending on marketable debt will rise across G10 economies by an average of 0.5 percentage points of GDP by 2029, with France, Japan, and the United States facing the largest increases.

AI Summary. The authors estimate that resuming required student loan payments cut household spending by $630 a year for every $10,000 in student debt, implying annualized cutbacks of $1,590 for the median borrower and $2,980 for the mean. With about $1.25tn of eligible student debt, they estimate an aggregate spending reduction of $20bn, roughly 0.3% of GDP.

Aditya Aladangady, Edmund Crawley, William Gamber, Patrick Moran, et al. Board of Governors of the Federal Reserve
Date Posted:

Resumption of student loan payments resulted in an estimated annualized cutback in spending of $2,980 for the mean borrower, reducing consumer spending in the first quarter of 2024 by $20 billion, roughly 0.3% of GDP.

How much does resuming student loan payments reduce household spending?

Core argument: The authors estimate the resumption of student loan payments cut spending by an annualized $630 for every $10,000 in student loan balances, implying $1,590 for the median borrower and $2,980 for the mean.

Following the announcement in June 2023 that student loan payments would resume in October 2023, we find that households began to significantly curtail spending in areas with higher exposure to student debt relative to those with lower exposure. The cutback in spending grows further following the actual resumption of required payments. Our estimate of the effect of resumption of student loan payments is an annualized reduction in spending of $630 per year for every $10,000 in student loan balances. These numbers imply an annualized cutback in spending of $1,590 for the median student loan borrower and $2,980 for the mean. Given that we find about $1.25 trillion of eligible student debt at the time the policy ended, our estimates imply that the resumption of student loan payments reduced consumer spending [by $20 billion], roughly 0.3% of GDP or 0.4% of personal consumption expenditures (PCE) in the first quarter of 2024. This finding indicates that the payment pause had supported consumption in those areas.

Takeaways by Macro Roundup® AI

  1. The authors estimate the resumption of student loan payments cut spending by an annualized $630 for every $10,000 in student loan balances, implying $1,590 for the median borrower and $2,980 for the mean.
  2. With about $1.25 trillion of eligible student debt outstanding when the pause ended, the authors estimate the payment restart reduced consumer spending by $20 billion, roughly 0.3% of GDP or 0.4% of personal consumption expenditures in the first quarter of 2024.
  3. Households in areas with higher student debt exposure curtailed spending relative to lower-exposure areas after the June 2023 announcement, with the cutback growing further once required payments resumed in October 2023.

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AI Summary. China's leadership has warned against "involution" — extreme price competition arising from industrial overcapacity — questioning whether every province needs electric-vehicle factories, and BYD's executive vice-president says the crackdown on aggressive discounting could push out as many as 100 of China's more than 120 carmakers.

Edward White, Gloria Li, and Kana Inagaki Financial Times
Date Posted:
Is Database:
Database

Price wars left 8 Chinese carmakers profitable in the first half of the year. A senior executive at BYD expects 80% of China’s 120 carmakers to be “pushed out” of the market as the government’s “involution” campaign takes hold.

Can government pressure curb extreme price competition among electric vehicle makers?

Core argument: BYD executive vice-president Stella Li said Beijing's crackdown on aggressive discounting could push out as many as 100 of China's more than 120 carmakers.

Chinese President Xi Jinping in July gave his clearest warning yet against “involution” — extreme price competition stemming from industrial overcapacity — when he pointed to reckless investment plans and questioned whether every province needed EV factories. Stella Li, the executive vice-president of BYD, China’s dominant EV maker, last week said Beijing’s crackdown on aggressive discounting could see as many as 100 carmakers out of more than 120 being “pushed out”. She was speaking on the sidelines of the Munich motor show. In recent months, carmakers have responded to the government’s so-called anti-involution campaign by accelerating payments to suppliers and moderating some of their most extreme retail discounts. But there are few signs of a deeper U-turn under way as the companies, which see themselves as pioneers of an energy transition, fear falling behind on scale and technology and are willing to sacrifice short-term profitability.

Takeaways by Macro Roundup® AI

  1. BYD executive vice-president Stella Li said Beijing's crackdown on aggressive discounting could push out as many as 100 of China's more than 120 carmakers.
  2. Xi Jinping warned against "involution" — extreme price competition stemming from industrial overcapacity — citing reckless investment plans and questioning whether every Chinese province needed EV factories.
  3. Chinese carmakers have responded to the anti-involution campaign by accelerating payments to suppliers and moderating some of their most extreme retail discounts, with few signs of a deeper reversal as firms fear falling behind on scale and technology.

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AI Summary. China's cyber security regulator says the US spin-off of TikTok, to be sold to American investors, will license parent company ByteDance's Chinese algorithm and other intellectual property, with ByteDance entrusting the operation of TikTok's US user data and content security. The US Treasury says the app will be controlled by American investors while preserving some "Chinese characteristics".

Ryan McMorrow, Hannah Murphy, Zijing Wu, and Demetri Sevastopulo Financial Times
Date Posted:

The Chinese government said the US spin-off of TikTok will still use ByteDance’s algorithm. It remains unclear if ByteDance would retain control of the algorithm in the US under the proposed licensing agreement.

Will the US version of TikTok still license China's algorithm?

Core argument: China's cyberspace regulator says the US spin-off of TikTok, to be sold to American investors in a deal orchestrated by President Donald Trump, will use ByteDance's Chinese algorithm under a licensing arrangement.

Beijing has said the US spin-off of TikTok to be sold to American investors in a deal orchestrated by President Donald Trump will use parent company ByteDance’s Chinese algorithm. Wang Jingtao, deputy head of China’s powerful cyber security regulator, told reporters on Monday night that US and Chinese officials had agreed to a framework that included “licensing the algorithm and other intellectual property rights”. He said ByteDance would “entrust the operation of TikTok’s US user data and content security”, without elaborating. US Treasury secretary Scott Bessent separately told reporters that the spun-off app would be controlled by American investors but preserve some “Chinese characteristics”, according to Reuters.

Takeaways by Macro Roundup® AI

  1. China's cyberspace regulator says the US spin-off of TikTok, to be sold to American investors in a deal orchestrated by President Donald Trump, will use ByteDance's Chinese algorithm under a licensing arrangement.
  2. Wang Jingtao, deputy head of China's cyber security regulator, said US and Chinese officials agreed to a framework covering "licensing the algorithm and other intellectual property rights," with ByteDance entrusting the operation of TikTok's US user data and content security.
  3. US Treasury secretary Scott Bessent said the spun-off TikTok app would be controlled by American investors while preserving some "Chinese characteristics," according to Reuters.

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