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


Thursday, February 19, 2026

AI Summary. The US goods and services trade deficit reached $901.5bn for the year, one of the largest in data going back to 1960. US companies increased imports of computers and accessories by nearly $145bn from the prior year, an acceleration in demand that reflects large-scale artificial intelligence investment.

Vince Golle and Mark Niquette Bloomberg
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The US trade deficit was $901.5B in 2025, effectively unchanged from 2024 despite the new tariff regime. The US bilateral deficit with China fell to $202B, the smallest in 20 years, while the gap with Taiwan widened to a record $146.8B.

Is artificial intelligence investment driving a larger US trade deficit?

Core argument: The US goods and services trade deficit totaled $901.5 billion for the full year, one of the largest in Commerce Department data going back to 1960.

The US trade deficit widened in December, capping a turbulent year of erratic tariff policy. The goods and services trade gap expanded from the prior month to $70.3 billion, Commerce Department data showed Thursday. The shortfall culminated in a full-year deficit of $901.5 billion, still one of the largest in data back to 1960. Last year, US companies imported nearly $145 billion worth of computers and accessories more than they did in 2024. The acceleration in demand reflected the massive investment underway in artificial intelligence.

Takeaways by Macro Roundup® AI

  1. The US goods and services trade deficit totaled $901.5 billion for the full year, one of the largest in Commerce Department data going back to 1960.
  2. The monthly US trade gap widened to $70.3 billion in December from the prior month, according to Commerce Department data, capping a year of erratic tariff policy.
  3. US companies imported nearly $145 billion more in computers and accessories than in 2024, an acceleration in demand that reflected the investment underway in artificial intelligence.

Related Articles:

  • The Dangerous Triumph Of Neo-Mercantilism — Neo-mercantilism is thriving in both China, which pairs infant-industry promotion with large trade surpluses, and in a United States focused on external deficits and protecting domestic markets. The author argues this will likely fracture the world economy, and that a new multilateral treaty could include a mechanism to combat large structural trade surpluses.
  • China Blames US For Trade Imbalances As Surplus Hits Record $1.2tn — China reported a record annual goods trade surplus of $1.2tn, with monthly exports growing 6.6% year over year in dollar terms, more than double analysts' average forecast of 3.1%. Chinese customs officials argue that other countries' restrictions on high-tech exports to China are holding down China's imports.
  • The Budget and Economic Outlook: 2026 to 2036 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (5.8% of GDP) to $3.1tn (6.7%) over a decade, above the 3.8% averaged over the past 50 years, with rising net interest costs driving much of the increase. Federal debt held by the public is projected to rise from 101% to 120% of GDP.

AI Summary. Average US weekly pay has risen 31% over six years, outpacing prices, but inflation erased most of those gains. Grocery prices are up about 30% since early 2020, a young married couple now needs 70% of annual household income for an average down payment versus 58% in 2019.

Mark Niquette, Jennah Haque and Jade Khatib Bloomberg
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The US price level has risen 26% since January 2020, leaving Americans’ average weekly real wages up only 3.7% over five years.

Why do Americans feel squeezed when wages outpaced prices?

Core argument: Average American weekly pay has risen 31% over the past six years, outpacing prices in the aggregate, but inflation wiped out most of those income gains, and low earners now lag after leading wage growth following the pandemic.

The average American’s weekly pay has risen 31% over the past six years. That’s faster than prices across that period, so Americans in the aggregate aren’t losing ground — but inflation wiped out most of their income gains. For low earners, who saw the fastest wage growth after the pandemic, the last year or so has been tougher and they’re now lagging behind. [Grocery] prices are up about 30% since January 2020, about in line with average wage growth. But Americans had gotten used to paying roughly the same at the supermarket each week in the pre-pandemic years. Lately, they’ve been forced to stomach a bigger bill with almost every visit. A double-punch has pushed homeownership out of reach for many Americans: First the pandemic-era surge in prices, and then a steep run-up in mortgage rates. A young married couple now needs 70% of their annual household income to afford the average down payment, according to Goldman Sachs economist Elsie Peng, up from 58% in 2019 and 45% in 2000. [Further], the average principal and interest payment has doubled since early 2020, according to the National Association of Realtors. Employee premiums for family health insurance have risen 23% in the past five years to almost $6,900 on average. And more than 20 million people who rely on Affordable Care Act plans face a hike in their premiums after Congress let Covid-era subsidies expire.

Takeaways by Macro Roundup® AI

  1. Average American weekly pay has risen 31% over the past six years, outpacing prices in the aggregate, but inflation wiped out most of those income gains, and low earners now lag after leading wage growth following the pandemic.
  2. A young married couple needs 70% of annual household income to afford the average down payment, up from 58% in 2019 and 45% in 2000, according to Goldman Sachs economist Elsie Peng, while the average principal and interest payment has doubled since early 2020, per the National Association of Realtors.
  3. Employee premiums for family health insurance have risen 23% in the past five years to almost $6,900 on average, and more than 20 million people on Affordable Care Act plans face premium increases after Congress let Covid-era subsidies expire.

Related Articles:

  • The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly — Variation in the University of Michigan consumer sentiment index that inflation and unemployment cannot explain is strongly correlated with growth in consumer borrowing costs, such as mortgage and car loan rates. The authors estimate that including interest payments and homeownership costs in the consumer price index would raise measured inflation from 3% to 9%.
  • Why Do We Dislike Inflation? — Survey evidence finds 80% of respondents believe prices rise faster than wages, though real weekly earnings for the median worker grew 1.7% between 2019 and 2023. About 40% think their nominal income would be higher had inflation been lower, and half expect wages to take over a year to catch up if inflation doubled.
  • A Mystery in Fixed Income — Long-term interest rates have drifted higher than short-term rates and oil prices would predict, an unusual pattern during Federal Reserve rate-cutting cycles. Proposed explanations include investor concern about growing Treasury debt issuance or an effective increase in the Federal Reserve's 2% inflation target.

AI Summary. The share of the U.S. population aged 65 and over has risen from 13% to 18%, and federal spending on elderly programs has climbed from 6.9% of gross domestic product to 9.4%, which the Congressional Budget Office projects will reach 11.3% in a decade. Elderly programs plus interest are the primary driver of the budget deficit.

Greg Ip Wall Street Journal
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Since 1989, the share of US household wealth has fallen for all age cohorts except those 55 and above. Further, Greg Ip notes fiscal consolidation will require higher taxes and/or lower future benefits, “both of which will largely spare today’s elderly.”

Are spending on elderly programs and interest driving the federal deficit?

Core argument: Federal spending on elderly programs rose from 6.9% of GDP in 2007 to 9.4% last year and will reach 11.3% within a decade, according to Congressional Budget Office projections.

What makes the wealth of today’s retirees truly formidable is their numbers. Since the first baby boomers qualified for Social Security in 2008, the share of the U.S. population 65 and over has risen from 13% to 18%. Federal spending on elderly programs has risen from 6.9% of gross domestic product in 2007 to 9.4% last year and will reach 11.3% in a decade, the Congressional Budget Office projects. That is where the real threat to intergenerational harmony lies. Elderly programs, plus interest, are the primary driver of the gaping budget deficit. By 2032, Social Security will no longer be able to pay full benefits. Fixing the deficit and Social Security requires some combination of higher taxes or lower future benefits, both of which will largely spare today’s elderly. If you think the young are anxious now, just wait.

Takeaways by Macro Roundup® AI

  1. Federal spending on elderly programs rose from 6.9% of GDP in 2007 to 9.4% last year and will reach 11.3% within a decade, according to Congressional Budget Office projections.
  2. The share of the U.S. population aged 65 and over has risen from 13% in 2008, when the first baby boomers qualified for Social Security, to 18%.
  3. Social Security will no longer be able to pay full benefits by 2032, and fixing that shortfall and the deficit requires higher taxes or lower future benefits, both of which would largely spare today's elderly.

Related Articles:

  • The Budget and Economic Outlook: 2026 to 2036 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (5.8% of GDP) to $3.1tn (6.7%) over a decade, above the 3.8% averaged over the past 50 years, with rising net interest costs driving much of the increase. Federal debt held by the public is projected to rise from 101% to 120% of GDP.
  • Social Security and Trends in Wealth Inequality — The authors estimate that including Social Security in household wealth leaves top wealth shares little changed over three decades, with the top 10% and top 1% shares rising 1.1 and 1.6 percentage points versus roughly 9 and 6 points for marketable wealth alone. Social Security wealth grew from $7tn to $39tn.
  • Life Under Two: Debt, Deficits, and the AI Discontinuity — The United States averaged annual GDP growth above 3% for decades, but 2% or less is now more likely. Over ten years, the author estimates that gap amounts to a $3.36tn larger economy, $3.7tn more tax revenue, and 6m more jobs, shifting public psychology from abundance toward scarcity.

AI Summary. In the US, increased redistribution has offset rising pre-tax inequality: Congressional Budget Office data show inequality of taxable income near record highs while inequality after taxes and transfers was lower than in several earlier years and only slightly above 1986. The top 1% of earners paid 40% of income tax in 2022, up from 33% in 2001.

Economist Staff The Economist
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Advanced economies have become increasingly redistributive. “While the share of US taxable income going to the top 1% of earners soared, their share of post-tax income has risen only slightly; the 1% paid 40% of income tax in 2022, up from 33% in 2001.”

Has redistribution offset rising pre-tax inequality in America?

Core argument: America's top 1% of earners paid 40% of income tax in 2022, up from 33% in 2001, leaving governments dependent on the wealthiest for revenue as pre-tax inequality and top tax rates both rose.

The vigour of the Robin Hood state varies across countries. In America more redistribution has merely offset rising pre-tax inequality. According to the Congressional Budget Office, for example, 2022—the most recent year for which detailed data are available—was the fourth-most unequal year on record, as measured by the Gini coefficient of taxable income, behind only 2021, 2020 and 2012. But inequality after taxes and transfers was lower than in 2000, 2005-07, 2012, 2014, and 2017-18 and 2021. It was also only a shade higher than in 1986. Even as the share of America’s taxable income going to the top 1% of earners has soared, their share of post-tax income has risen only slightly. Today’s combination of higher pre-tax inequality and higher tax rates on top earners has left governments astonishingly dependent on the wealthiest for their revenue. In America, the 1% paid 40% of income tax in 2022, up from 33% in 2001.

Takeaways by Macro Roundup® AI

  1. America's top 1% of earners paid 40% of income tax in 2022, up from 33% in 2001, leaving governments dependent on the wealthiest for revenue as pre-tax inequality and top tax rates both rose.
  2. According to the Congressional Budget Office, 2022 was the fourth-most unequal year on record by the Gini coefficient of taxable income, behind only 2021, 2020 and 2012.
  3. American inequality after taxes and transfers was lower in 2022 than in 2000, 2005-07, 2012, 2014, 2017-18 and 2021, and only a shade higher than in 1986, as more redistribution offset rising pre-tax inequality.

Related Articles:

  • Income Inequality in the United States: Using Tax Data to Measure Long-Term Trends — Using administrative tax data with the Survey of Consumer Finances, the authors estimate the top 1% pre-tax income share fell from 11.1% in 1962 to 9.4% in 1979, then rose to 13.8% by 2019, a 3 percentage point rise over the full period. Their after-tax measure shows increases of only 1.4 points since 1979 and 0.2 points since 1962.
  • Across The Rich World, Fiscal Crises Loom — An analysis estimates most rich countries could keep debt stable as a share of their economies with only small primary surpluses—Britain's required surplus is 0.3% of GDP—even if all debt were refinanced immediately at current rates, but the tightening needed to stabilize debt ratios exceeds 2% of GDP in Britain and America and 3% in France.
  • Ed Conard Debates Furman On “The Expected Value of Risk Taking” — A debate on U.S. fiscal policy argues that spending increases, rather than the tax increases needed to fund them, slow growth, and that higher taxes would reduce the expected value of America's innovative risk-taking. The argument holds that cutting debt below 100% of GDP is critical.

AI Summary. The authors find that prediction-market-implied distributions from Kalshi respond to news and match or statistically improve on federal funds futures and professional forecaster surveys in predicting the federal funds rate and consumer price inflation. They argue these markets supply continuously updated full distributions, including tail risks and asymmetries, unavailable from traditional forecasts.

Anthony Diercks, Jared Dean Katz, and Jonathan Wright Federal Reserve Board
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The Kalshi prediction market extends the series for which it is possible to infer market beliefs to GDP and labor market variables, as well as “providing continuously updated full distributions rather than infrequent point estimates” for CPI and the FFR.

Do prediction markets forecast interest rates and inflation better than traditional benchmarks?

Core argument: The mode of the Kalshi-implied distribution has matched the realized federal funds rate by the day of each FOMC meeting since 2022, a record neither surveys nor fed funds futures achieved.

Kalshi-implied distributions are well-behaved, responsive to news, and comparable in forecasting accuracy to established benchmarks such as the Survey of Market Expectations and the Bloomberg consensus. [They provide] market distributions for variables like GDP growth, core inflation, unemployment, and payrolls, for which no others currently exist - and, we argue, the only credible measures of distributional beliefs about decisions at specific FOMC meetings. Our results highlight several key advantages. First, Kalshi’s forecasts for the federal funds rate and CPI provide statistically significant improvements over fed funds futures and professional forecasters, all while providing continuously updated full distributions rather than infrequent point estimates. The mode of the Kalshi distribution, for example, has perfectly matched the realized federal funds rate by the day of each meeting since 2022, a feat not achieved by either surveys or futures. Second, these markets capture rich distributional dynamics—such as tail risks and asymmetries in higher moments—that are unavailable from traditional sources. For instance, we find that monetary policy press conference shocks tend to significantly reduce skewness in the Federal Funds rate distribution.

Takeaways by Macro Roundup® AI

  1. The mode of the Kalshi-implied distribution has matched the realized federal funds rate by the day of each FOMC meeting since 2022, a record neither surveys nor fed funds futures achieved.
  2. Kalshi's forecasts for the federal funds rate and CPI deliver statistically significant improvements over fed funds futures and professional forecasters while providing continuously updated full distributions rather than infrequent point estimates.
  3. Kalshi markets supply distributions for GDP growth, core inflation, unemployment, and payrolls for which no others currently exist, and the authors find that monetary policy press conference shocks significantly reduce skewness in the federal funds rate distribution.

Related Articles:

  • The Fed Is Set to Cut Rates, But How Confidently? — Headline inflation rose to 3%, the top of the Federal Reserve's target range, but shelter prices dipped far more than expected as the gap narrowed between official rental measures and private indexes based on recently signed leases. The direction of core goods and food prices, most exposed to tariffs, remains troubling.
  • Bond Traders Boost Bets US 10-Year Yield Will Dive Toward 4% — Bond traders have paid at least $38m in premiums for options positions that pay off if the 10-year US Treasury yield falls to 4% from roughly 4.3%. Interest-rate swaps price about 60 basis points of Federal Reserve easing across the year's remaining meetings, up from 45 basis points a week earlier.
  • Markets Think Inflation Will Be Too High For The Next 20 Years — Inflation expectations derived from the gap between regular Treasury yields and inflation-indexed Treasury yields show expected annual inflation over the next 10 and 20 years running considerably above expected inflation for the decade beginning 20 years out. Before the pandemic-era inflation surge, actual inflation and expected future inflation tracked each other closely.

Friday, February 20, 2026

AI Summary. The Budget Lab estimates that with tariffs imposed under the 1977 International Emergency Economic Powers Act struck down, US consumers face an average effective tariff rate of 9.1%, versus 16.9% had those tariffs remained. Remaining tariffs are projected to raise about $1.2tn over 2026-35, or $1tn accounting for slower growth.

John Iselin Yale University
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Without the IEEPA tariffs, the mean effective tariff rate is 9.1%, down from 16.9%. The previous tariff regime was projected to raise ~$2.7T over 2026–35 ($2.3T dynamically). The SCOTUS decision will cut revenue by about 50% to ~$1-1.2T with or without refunds.

How much do remaining tariffs cost consumers after emergency powers struck down?

Core argument: The Budget Lab estimates that without IEEPA tariffs, U.S. consumers face an average effective tariff rate of 9.1%, the highest since 1946 excluding 2025, versus 16.9% had IEEPA tariffs remained in effect.

The Budget Lab estimates the effects of all US tariffs and foreign retaliation implemented in 2025 after the decision by the Supreme Court of the United States that President Trump exceeded his authority to invoke the 1977 International Emergency Economic Powers Act (IEEPA) to impose reciprocal tariffs. Without IEEPA tariffs, consumers will face an overall average effective tariff rate of 9.1%, which remains the highest since 1946 excluding 2025. (If IEEPA tariffs had been allowed to stay in effect, this figure would have been 16.9%.) All tariffs to date as of February 2026 are projected to raise about $1.2 trillion over 2026-35, though slower economic growth reduces revenues and brings the net dynamic revenue to $1 trillion. (With IEEPA, these figures would be more than twice as large.) The economic implications of the SCOTUS decision are complicated by two major factors. First, in the short-term, firms will be aggressively seeking refunds on tariffs paid in 2025, which has large revenue effects and uncertain distributional effects. Second, the current Administration has stated its intent to replace IEEPA tariffs with tariffs using other authorities, but there remain timing and other questions regarding these steps.

Takeaways by Macro Roundup® AI

  1. The Budget Lab estimates that without IEEPA tariffs, U.S. consumers face an average effective tariff rate of 9.1%, the highest since 1946 excluding 2025, versus 16.9% had IEEPA tariffs remained in effect.
  2. All U.S. tariffs in place as of February 2026 are projected to raise about $1.2 trillion over 2026–35, falling to $1 trillion on a net dynamic basis as slower economic growth reduces revenues.
  3. The Budget Lab identifies two complications from the Supreme Court decision that President Trump exceeded his IEEPA authority: firms seeking refunds on tariffs paid in 2025, with uncertain distributional effects, and the Administration's stated intent to replace IEEPA tariffs using other authorities.

Related Articles:

  • US Notches One of Its Biggest Annual Trade Gaps Since 1960 — The US goods and services trade deficit reached $901.5bn for the year, one of the largest in data going back to 1960. US companies increased imports of computers and accessories by nearly $145bn from the prior year, an acceleration in demand that reflects large-scale artificial intelligence investment.
  • China Is Making Trade Impossible — Interviews with Chinese economists, technologists and business leaders yielded no clear answer to what products China would want to buy from the rest of the world in future, beyond commodities, luxury goods and higher education. The author argues China sees nothing it cannot eventually make better and cheaper itself, undermining trade as a two-way exchange.
  • Sticking with What Works: Raising GDP Forecast on China’s Manufacturing Push — Stronger Chinese growth driven by export-oriented manufacturing may not produce net positive spillovers: for every 1pp export-driven boost to China's GDP, other economies may see a 0.1–0.3pp drag, with high-tech producers such as Europe and Japan facing greater pressure. Cheaper Chinese goods continue to exert a disinflationary impulse.

AI Summary. After the US Supreme Court ruled the president cannot use a 1977 emergency law to impose import taxes, other statutes remain available, including Section 338 of the Smoot-Hawley Tariff Act of 1930, which permits tariffs on countries found to discriminate against US commerce without any agency investigation. Never previously used, invoking it could invite legal challenges.

Isabel Gottlieb Bloomberg
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Trump has at least five tools he can use to offset the IEEPA tariffs; however, none of them offer the latitude that Trump’s interpretation of IEEPA allowed. Section 338 of Smoot-Hawley, which has never been used, likely has the broadest scope.

What other laws allow tariffs after the emergency law ruling?

Core argument: The US Supreme Court ruled that President Donald Trump cannot use a 1977 emergency law to impose import taxes, leaving him to rely on alternative legislation to rebuild his tariff wall.

President Donald Trump can lean on alternative legislation to try to rebuild his tariff wall, after the US Supreme Court ruled that he can’t use a 1977 emergency law to impose import taxes. [Notably], Section 338 of the Smoot-Hawley Tariff Act of 1930. The Depression-era provision empowers the president to introduce tariffs on imports from nations “whenever he shall find as a fact” that these countries impose unreasonable charges or limitations, or engage in discriminatory behavior against US commerce. There’s no prerequisite for a federal agency to conduct an investigation before the president can apply tariffs. Section 338 has never been used before to impose tariffs. If Trump were to lean on this provision, such an unprecedented move may invite legal challenges. The possibility that Trump could tap Section 338 has alarmed some Democrats in the House of Representatives — five lawmakers introduced a resolution in March 2025 to repeal this section of the 1930 law.

Takeaways by Macro Roundup® AI

  1. The US Supreme Court ruled that President Donald Trump cannot use a 1977 emergency law to impose import taxes, leaving him to rely on alternative legislation to rebuild his tariff wall.
  2. Section 338 of the Smoot-Hawley Tariff Act of 1930 lets the president impose tariffs whenever he "shall find as a fact" that a country imposes unreasonable charges or limitations or discriminates against US commerce, with no prior federal agency investigation required.
  3. Section 338 has never been used to impose tariffs, and five House Democrats introduced a resolution in March 2025 to repeal the provision.

Related Articles:

  • Help for the Heartland? The Employment and Electoral Effects of the Trump Tariffs in the United States — The authors find that the combined effect of U.S.-China trade war import tariffs, retaliatory tariffs, and farm subsidies on employment in exposed U.S. locations was at best a wash and possibly mildly negative, while residents of tariff-protected areas became less likely to identify as Democrats and more likely to vote Republican.
  • The Incidence of Tariffs: Rates and Reality — The authors estimate that tariff pass-through into US import prices was 80% in 2018–2019 and 94% more recently, while exchange-rate pass-through was low in both periods. Because imported inputs matter for US manufacturing, they argue much of the tariff burden falls on US producers, roughly a 1–2 percentage-point tax on manufacturing.
  • Who Is Paying for the 2025 U.S. Tariffs? — The authors estimate that 94% of U.S. tariff costs were borne domestically over the first eight months of 2025, with a 10% tariff associated with only a 0.6 percentage point decline in foreign export prices. Pass-through into U.S. import prices later declined to 86%, shifting more of the burden to foreign exporters.

AI Summary. U.S. gross domestic product rose at a 1.4% inflation-adjusted annual rate in the fourth quarter, below the 2.5% economists surveyed expected, weighed down by a record-long government shutdown and slower consumer spending. Full-year growth was 2.2%, down from 2.4% the prior year and the weakest since 2022.

Harriet Torry Wall Street Journal
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The Q4 2025 real GDP numbers surprised to the downside; overall, real GDP growth in 2025 (measured from 2024:Q4) was 2.2%, down from 2.4% in 2024.

Did a government shutdown and slower consumer spending weaken economic growth?

Core argument: U.S. GDP rose at a 1.4% seasonally and inflation-adjusted annual rate in the fourth quarter, below the 2.5% expected by economists surveyed by The Wall Street Journal, the Commerce Department said.

The U.S. economy grew more slowly the fourth quarter of last year, weighed down by last fall’s record-long government shutdown and slower consumer spending. U.S. gross domestic product—the value of all goods and services produced across the economy—rose at a 1.4% seasonally and inflation-adjusted annual rate in the final quarter of last year, the Commerce Department said Friday. Economists surveyed by The Wall Street Journal expected a 2.5% reading. In 2025, the economy grew 2.2%, measured from the fourth quarter of the prior year. That was slower than 2.4% growth in 2024 and the weakest since 2022. Economists surveyed by the Journal last month expected growth of 2.3% for 2025.

Takeaways by Macro Roundup® AI

  1. U.S. GDP rose at a 1.4% seasonally and inflation-adjusted annual rate in the fourth quarter, below the 2.5% expected by economists surveyed by The Wall Street Journal, the Commerce Department said.
  2. The fourth-quarter slowdown reflected last fall's record-long government shutdown and slower consumer spending.
  3. The U.S. economy grew 2.2% in 2025, measured from the fourth quarter of the prior year, down from 2.4% in 2024 and the weakest since 2022.

Related Articles:

  • OECD Economic Outlook, Volume 2025 Issue 2: Resilient Growth but with Increasing Fragilities — U.S. real GDP grew at a 1.1% annualized rate over the first half of 2025, but excluding booming AI-related investment output contracted 0.1%, with non-AI investment weakening. The OECD identifies a correction in equity markets lifted by expectations of high AI returns as a key downside risk to its projections.
  • The Macro Implications of the AI Capex Boom — Artificial intelligence capital spending is estimated to add roughly 1.4 percentage points to US growth in one year and about 1.5 points the next, comparable to business investment's contribution during the tech bubble. A material part of that estimate reflects profits at Nvidia and a few other chipmakers that are unlikely to be recycled back into the economy.
  • SF FedViews: Solid Growth, but Small Cracks Have Emerged — Since the second half of 2023, four-quarter US productivity growth has averaged nearly 2.5%, well above the pre-pandemic trend of about 1% to 1.25%, supporting real GDP growth. It remains unclear whether this reflects a higher productivity regime fostered by rising AI use or a temporary post-pandemic reorganization surge.

AI Summary. An early estimate puts the floor contribution of artificial intelligence capital spending to fourth-quarter US GDP growth at about 64%, and likely closer to 80% including externalities and multipliers, though the calculation is not adjusted for imports. The author also notes that token price deflation persists and that US-China token price differences are immense and growing.

Paul Kedrosky Notes on Complexity
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Kedrosky’s back-of-the-envelope math suggests the AI buildout was responsible for btw 64 and 80% of US GDP growth last year. He notes that, as of December, China’s flagship Zhipu GLM-5’s output is 5.4x cheaper than that of OpenAI’s GPT-5.2.

How much of quarterly US growth comes from AI spending?

Core argument: Kedrosky's early estimate puts the floor contribution of AI capital expenditure to U.S. Q4 GDP growth at roughly 64%, rising to about 80% once externalities and multipliers are included, in a calculation not adjusted for imports.

Playing around with just-released (tepid) Q4 GDP figures, and my early estimate is that the floor contribution of AI capex to fourth quarter growth was on the order of 64%. And it is likely more like 80% with externalities and multipliers [note the calculation isn't adjusted for imports]. [Kedrosky also notes] a) token deflation persists, and b) the U.S/China [token] price differences are immense and growing.

Takeaways by Macro Roundup® AI

  1. Kedrosky's early estimate puts the floor contribution of AI capital expenditure to U.S. Q4 GDP growth at roughly 64%, rising to about 80% once externalities and multipliers are included, in a calculation not adjusted for imports.
  2. Kedrosky characterizes the just-released Q4 GDP figures as tepid.
  3. Kedrosky notes that token deflation persists and that token price differences between the U.S. and China are immense and growing.

Related Articles:

  • The Geopolitics of AI: Decoding the New Global Operating System — The performance gap between the top American and Chinese AI models narrowed from 9.3% to 1.7%, with Chinese firms relying on cheaper open-source models—DeepSeek prices usage 20-40x below OpenAI's ChatGPT. This price advantage could win adoption in developing countries and build dependency on Chinese AI ecosystems.
  • US Notches One of Its Biggest Annual Trade Gaps Since 1960 — The US goods and services trade deficit reached $901.5bn for the year, one of the largest in data going back to 1960. US companies increased imports of computers and accessories by nearly $145bn from the prior year, an acceleration in demand that reflects large-scale artificial intelligence investment.
  • The Macro Implications of the AI Capex Boom — Artificial intelligence capital spending is estimated to add roughly 1.4 percentage points to US growth in one year and about 1.5 points the next, comparable to business investment's contribution during the tech bubble. A material part of that estimate reflects profits at Nvidia and a few other chipmakers that are unlikely to be recycled back into the economy.

AI Summary. Measured productivity can rise from compositional effects when lower-wage, lower-productivity workers leave the labor force, as happened during Covid and 2009, and immigration policy changes could produce a similar effect. Much of the recent productivity boost appears to come from capital utilization tied to increased investment in AI rather than workers becoming more productive using AI.

Martha Gimbel Yale University
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Martha Gimbel notes that it will be hard to untangle potential AI-driven productivity gains from compositional gains as lower-skilled immigrants are removed from the labor market.

Does rising measured productivity reflect workers actually becoming more productive with AI?

Core argument: Measured productivity jumped during Covid and rose in 2009 because job losses fell disproportionately on low-wage workers, whose exit from the data raises average productivity without any worker becoming more productive.

Productivity can rise in response to compositional issues. In the graph, you can see productivity rising dramatically during Covid (and less dramatically in 2009). Did we all become more productive when we were stuck at home and others couldn’t go to work at all? You may be shocked to hear that we did not. Instead, since the people who lost their jobs were disproportionately low-wage workers (who show up as lower productivity in the data), productivity rose due to a compositional effect. (A similar thing happened in 2009). One reason job growth in 2025 was so low was because of changes in immigration policy. If the people being removed from the labor force were lower productivity workers, that will show up as an increase in productivity even though the productivity of the workers who remain behind has not changed. In fact, the same thing skewing job growth down may be skewing productivity growth up. If you look at the productivity data, it appears that much of the boost is coming from capital utilization due to increased productive investment. That would [appear to be] consistent with an increase in productivity due to AI. But at this point it is people investing in AI, not people becoming more productive by using AI.

Takeaways by Macro Roundup® AI

  1. Measured productivity jumped during Covid and rose in 2009 because job losses fell disproportionately on low-wage workers, whose exit from the data raises average productivity without any worker becoming more productive.
  2. Changes in immigration policy were one reason job growth in 2025 was so low, and if the workers removed from the labor force were lower-productivity, measured productivity growth is skewed upward even with no change among remaining workers.
  3. Much of the apparent productivity boost appears to come from capital utilization tied to increased productive investment, consistent with people investing in AI rather than people becoming more productive by using AI.

Related Articles:

  • Firm Data On AI — Survey data show around 70% of businesses use some artificial intelligence technology, with larger, more productive, and higher-paying firms more likely to adopt it. Firms report little employment effect and a modest productivity boost so far, but predict adoption will raise productivity by about 1.4% and cut employment by about 0.7% over three years.
  • Waiting for the AI J-Curve — Artificial intelligence has yet to appear in employment, productivity, or inflation data, or in profit margins and earnings expectations outside the largest technology firms. With fierce competition pushing large language model prices toward zero for users, value creation depends on sector-level implementation, and the author argues AI will likely enhance labor in some sectors rather than replace it across all.
  • Everyone’s Looking For A Bubble. No One Sees The Stampede — A proprietary model estimates monthly artificial intelligence revenue grew roughly 18-fold in two years, from $772m to $13.8bn, with AI accounting for an estimated 23% of Google Cloud, 10% of Azure and 5% of Amazon Web Services. The model's ratio of investment to revenue fell from 6.1x to 4.7x, still historically high.

AI Summary. Treasury Department data show overseas investors bought a net $1.55tn of long-term US financial assets, up from $1.18tn the prior year, including $720bn in equities and just under $409bn in Treasury notes and bonds. China was a net seller of $208.6bn, with its Treasury holdings ending at $683.5bn.

Chris Anstey and Anya Andrianova Bloomberg
Date Posted:
Is Database:
Database

Foreign investors bought a net $1.55T of American long-term US financial assets in 2025, including $720B of net equity purchases and $409B in Treasury notes and bonds, up from $1.18T in 2024.

Are foreign investors increasing their purchases of US assets?

Core argument: Overseas investors bought a net $1.55tn of long-term US financial assets in 2025, up from $1.18tn the previous year, according to Treasury Department data.

Overseas investors bought a net $1.55 trillion of long-term US financial assets in 2025, data released by the Treasury Department showed. That’s up from a net $1.18 trillion of purchases the previous year. Combining private and official investors, there were $720 billion of net equity purchases, with just under $409 billion flowing into Treasury notes and bonds. Dollar depreciation last year might have even encouraged some overseas managers to load up on US securities. Geoff Yu, senior macro strategist at BNY — one of the world’s largest custodians — said earlier this month that was what happened after the market gyrations spurred by Trump’s “Liberation Day” tariff announcement last April. “Our data show that cross-border investors took full advantage of the adjustment in dollar valuation to add to US equity exposure,” Yu wrote in a note last week. “Although allocations are not as strong as during the ‘US exceptionalism’ period from 2023 to 2024, the cross-border ‘premium’ remains intact.” China was a notable net seller of US long-term financial assets, in the amount of $208.6 billion. Its [official] holdings of Treasuries ended the year at $683.5 billion, the lowest level since 2008.

Takeaways by Macro Roundup® AI

  1. Overseas investors bought a net $1.55tn of long-term US financial assets in 2025, up from $1.18tn the previous year, according to Treasury Department data.
  2. Private and official foreign investors together made $720bn of net equity purchases and just under $409bn of net purchases of Treasury notes and bonds.
  3. China was a net seller of $208.6bn of US long-term financial assets, ending the year with official Treasury holdings of $683.5bn, the lowest level since 2008.

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  • American Unexceptionalism — The S&P 500 has outperformed other developed-market equities by a cumulative 150% over the past fifteen years, but the authors attribute about 80% of that gap to a strengthening dollar and expanding relative valuations rather than fundamentals such as dividends, buybacks, and organic growth. U.S. valuations sit around the 90th percentile on price-to-earnings measures.
  • 2026 Outlook: Tech Tonic — A Broadening Bull Market — Most major equity markets have outperformed the US, with Europe, China and Asia generating almost double US total returns in dollar terms and gains of 54% in Italy, 73% in Spain and 71% in Korea. US returns have been driven by strong earnings, particularly in technology, while Europe's have come largely from rising valuations.