Edward Conard

Top Ten New York Times Bestselling Author

  • “…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 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 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 represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “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
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, March 17, 2026

AI Summary. Irish balance of payments data show foreign multinationals, almost all US-headquartered, reporting over $300bn in earnings in Ireland, generating roughly €35bn ($38-39bn) in Irish corporate tax revenue. Based on past patterns, a little under half likely comes from just three companies: Apple, Microsoft, and Eli Lilly.

Brad Setser Council on Foreign Relations
Date Posted:

American multinationals largely headquartered in the US booked $300B in profits in Ireland last year, generating $38–39B for the Irish Treasury, with ~ half coming from Apple, Microsoft and Eli Lilly. Happy Saint Patrick’s Day!

How much corporate tax revenue does Ireland collect from US multinationals?

Core argument: Irish balance of payments data show foreign multinationals, almost all American-headquartered, reporting over $300 billion in earnings in Ireland.

The Irish balance of payments data now shows that foreign multinationals (almost all American headquartered multinationals) report earning over $300 billion in Ireland—a remarkable sum. Those “Irish” profits generated close to 35 billion euros ($38-39 billion) or so in Irish corporate tax revenue in 2025—with a little under half likely coming from just three companies (Apple, Microsoft and Eli Lilly, which replaced Pfizer in the top 3 a couple of years back) judging from past patterns. The lost tax revenue from Eli Lilly, Apple, and Microsoft [$17-18 billion] would buy roughly four nuclear attack subs a year.

Takeaways by Macro Roundup® AI

  1. Irish balance of payments data show foreign multinationals, almost all American-headquartered, reporting over $300 billion in earnings in Ireland.
  2. Profits booked in Ireland generated close to €35 billion ($38–39 billion) in Irish corporate tax revenue in 2025, with a little under half likely coming from Apple, Microsoft and Eli Lilly, judging from past patterns.
  3. The $17–18 billion in tax revenue lost to Eli Lilly, Apple and Microsoft would buy roughly four nuclear attack submarines a year.

Related Articles:

  • This Loophole Buried in Trump’s Bill Is Anything but Beautiful — U.S. tax law taxes global profits from intellectual property moved offshore at 10.5%, versus 21% on domestic profits, and American companies report roughly $350bn in annual profits in major corporate tax havens such as Ireland, Luxembourg and Singapore. Pharmaceutical companies shifted patents and manufacturing abroad, reporting nearly all income overseas and largely ceasing to pay domestic corporate tax.
  • American Pharmaceutical Companies Still Aren’t Paying Tax in the U.S. — The six largest U.S. pharmaceutical companies by revenue reported a combined U.S. corporate income tax provision of zero or less for their profits, with only Eli Lilly setting aside a significant sum of roughly $1bn. The author attributes this to holding intellectual property offshore, producing patent-protected drugs offshore, and booking profits on U.S. sales offshore.

AI Summary. Japan's public debt is large enough that the country cannot afford higher interest rates, so the Bank of Japan intervenes to hold yields artificially low. These yield caps shift fiscal risk from the bond market to the currency, and the trade-weighted yen has fallen to its lowest level against other advanced-economy currencies in many years.

Robin Brooks Robin Brooks Substack
Date Posted:

The trade-weighted Yen has fallen by ~32% against G10 currencies since the start of 2020, and is now 1 percent under its previous low in July 2024.

Does capping bond yields shift fiscal risk onto the currency?

Core argument: The trade-weighted Yen against G10 advanced-economy currencies has fallen to its lowest level in many years, according to the author's index.

Japan’s public debt is so large that it can’t afford higher interest rates, so the Bank of Japan (BoJ) must intervene to keep them artificially low. These yield caps transfer fiscal risk from the bond market to the Yen, which depreciates as a result. This is what’s happened since war broke out in the Persian Gulf. The Yen has fallen to its lowest level in many years. The chart shows my index for the trade-weighted Yen versus the currencies of other advanced economies, a group of countries that’s often called the G10.

Takeaways by Macro Roundup® AI

  1. The trade-weighted Yen against G10 advanced-economy currencies has fallen to its lowest level in many years, according to the author's index.
  2. The author argues Japan's public debt is so large that the country cannot afford higher interest rates, requiring the Bank of Japan to intervene to hold yields artificially low.
  3. Those yield caps transfer fiscal risk from Japan's bond market to the Yen, which depreciates as a result, a shift the author dates to the outbreak of war in the Persian Gulf.

Related Articles:

  • 2026 Japan Economic Outlook: Steady Fundamentals, Policy Risks Ahead — Japan's government debt-to-GDP ratio has continued to decline despite an ongoing primary deficit, because the government's interest payment rate (0.8%) is far below nominal GDP growth (3.9%), a gap the authors call the widest since 1980 and worth roughly -7 percentage points a year.
  • Is Japan “Normal” Again? — Yields on long-term Japanese government debt have risen to their highest since the 1990s while the yen remains cheap relative to its history. One benign reading is that Japan has exited post-bubble stagnation, with modest inflation and faster wage and income growth aligning with higher interest rates.
  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.

AI Summary. An author's estimate of the forward-looking equity risk premium implied by stock prices and expected cash flows rose only modestly, from 4.37% to 4.51%, even as oil topped $100 a barrel and US stocks fell. Over the same stretch the 10-year US Treasury yield jumped from 3.97% to 4.28%, which the author reads as inflation fears outweighing other market concerns.

Aswath Damodaran Musings on Markets
Date Posted:

From March 1–15, the equity premium rose from 4.37% to 4.51% as oil rose to $100 per barrel. But a surge in the 10-year Treasury, from 3.97% on February 27 to 4.28% on March 13, suggested “inflation fears are trumping other market concerns right now.”

How much has the equity risk premium risen as oil prices surged?

Core argument: The implied equity risk premium for the S&P 500 rose only from 4.37% at the start of March to 4.51% by March 13, which Damodaran reads as a market not behaving as if in crisis mode despite falling stocks and oil above $100 per barrel.

[I estimate] forward-looking equity risk premiums by backing out from stock prices and expected cash flows, the expected return (internal rate of returns) that markets were pricing into stocks. My conclusion, at the start of 2026, was that while stocks were richly priced using almost every conventional metric (high PE ratios, low dividend yields), the implied equity risk premium was in line with what US stocks have generated over the last 65 years []. Two weeks ago, bombs started falling in the Middle East, and US equities and bonds have been struggling to price in the effects of higher oil prices. In keeping with my practice of estimating equity risk daily, during troubled times, I did compute the implied ERP for the S&P 500 every day, during the last two weeks (Feb 27- March 13) [see above]. Oil is up to over $100 per barrel and the S&P 500 is down, but so far, the market is not behaving as if it is in crisis mode. The equity risk premium, which started March at 4.37% has risen, but only to 4.51%, over the two weeks. In fact, it is the ten-year US treasury bond that has had the bigger surge, up from 3.97% at close of trading, on February 27, to 4.28% at close of trading, on March 13, indicating inflation fears are trumping other market concerns right now.

Takeaways by Macro Roundup® AI

  1. The implied equity risk premium for the S&P 500 rose only from 4.37% at the start of March to 4.51% by March 13, which Damodaran reads as a market not behaving as if in crisis mode despite falling stocks and oil above $100 per barrel.
  2. The ten-year US Treasury yield rose from 3.97% on February 27 to 4.28% on March 13, a larger move than the equity risk premium, which Damodaran reads as inflation fears trumping other market concerns.
  3. At the start of 2026, Damodaran judged US stocks richly priced on almost every conventional metric, including high PE ratios and low dividend yields, yet found the implied equity risk premium in line with what US stocks have generated over the last 65 years.

Related Articles:

  • Margin Debt at Record Highs — Margin debt has reached a record high of about $1.3tn. Analysts argue this leverage could amplify any stock market downturn, as leveraged investors are forced to sell into falling markets.
  • Data Update 2 for 2026: A Testing Year (2025) for US Equities — An implied equity risk premium computed from the US stock index level and expected cash flows from dividends, buybacks and earnings growth yields an expected stock return of 8.41%, or 4.23% above the 10-year Treasury yield of 4.18%. That premium sits in the middle of its historical range, unlike the 2.05% low reached at the end of 1999.
  • Stocks Near Highest Valuations Since 1880 — The cyclically adjusted price-earnings ratio, which divides stock prices by the average of the past 10 years of inflation-adjusted earnings to smooth business-cycle swings, stands near its highest level since 1880. Because it uses a decade of earnings rather than one year, it is a gauge of sustainable earnings power.

AI Summary. Analysts argue Nvidia's gross margins, 73% in the most recent quarter, will have to compress as AI shifts toward inference computing, which prizes efficiency and low cost. Competition has grown as more chip companies offer inference chips that are cheaper to buy and operate.

Robbie Whelan Wall Street Journal
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The research firm Gartner estimates that in 2025, capex spending on AI training and inference were approximately at par. Gartner forecasts that by 2029, inference capex spending will be nearly 2x that of training.

Will the shift toward inference computing compress leading chipmakers' margins?

Core argument: Paul Kedrosky argues Nvidia's gross margins, which stood at 73% in the most recent quarter, will by necessity compress as inference computing shifts demand toward efficiency and cheaper hardware.

“Nvidia is in a weird moment,” said Paul Kedrosky. “For a long time, Jensen was saying, ‘We don’t need to have dedicated, stand-alone inference chips, you can just throw a Blackwell at it.’ But that ship has sailed, and there’s a host of new competitors.” Kedrosky argued that Nvidia’s gross margins, which stood at 73% in the most recent quarter, will by necessity have to compress, for two reasons. First, the business model around inference computing puts a premium on efficiency and reducing the cost of producing the final product, which for consumers means AI tools. The hardware behind it can’t be too pricey or the companies selling it, directly or as middlemen, won’t make money. Second, there is more competition to supply customers with inference computing because more chip companies have figured out ways to provide it with chips that are cheaper to buy and operate. Nvidia became the first $4 trillion company by selling the silicon equivalent of fast, powerful and expensive Ferrari sports cars, but now the world wants Priuses and Model Ys.

Takeaways by Macro Roundup® AI

  1. Paul Kedrosky argues Nvidia's gross margins, which stood at 73% in the most recent quarter, will by necessity compress as inference computing shifts demand toward efficiency and cheaper hardware.
  2. Kedrosky says Jensen Huang long maintained that dedicated stand-alone inference chips were unnecessary because customers could "just throw a Blackwell at it," but that position has been overtaken by a host of new competitors.
  3. Nvidia became the first $4 trillion company selling the silicon equivalent of fast, powerful and expensive Ferraris, while more chip companies now supply inference computing with chips that are cheaper to buy and operate.

Related Articles:

  • Commoditization, Orchestration, and the New AI Stack — The author argues that as incremental gains from larger AI training runs shrink, the return on additional computing power falls, weakening the case for the training spending that dominates data center demand. Survivors of model commoditization will be those owning the orchestration layer or the applications where outcomes are priced.
  • Chart of the Day: AI Capex, From Bonanza to Burden — Stock price reactions to large artificial intelligence capital spending announcements have shifted from rewarding to penalizing companies, with the valuation multiple markets assign to such spending collapsing and likely turning negative. Technology companies once valued for low debt and low capital intensity are now among the leaders in both.

AI Summary. Germany has earmarked an initial €600bn ($687bn) for its military, and streamlined procurement is helping defense producers secure record orders for goods ranging from artillery shells to attack drones, with banks lending more readily. UBS estimates defense will add 0.5 percentage points to German growth by 2028.

Alexander Weber and Kamil Kowalcze Bloomberg
Date Posted:

The surge in German defense spending will contribute .5pp annually to German GDP growth by 2028, according to a UBS analysis. German remilitarization is also being supported by Middle Eastern armament demand.

Is Germany's defense spending surge becoming meaningful economic stimulus?

Core argument: German Chancellor Friedrich Merz has earmarked an initial €600 billion ($687 billion) for the military, with streamlined procurement helping producers secure record orders for everything from artillery shells to attack drones.

Chancellor Friedrich Merz has earmarked an initial €600 billion ($687 billion) for Germany’s military. What began as geopolitical necessity, however, is becoming meaningful economic stimulus as streamlined procurement helps producers secure record orders for everything from artillery shells to attack drones. Banks are also making loans more readily available. UBS analyst Felix Huefner reckons defense will contribute 0.5 percentage points to growth by 2028. The Ifo institute said last week the rapid defense rollout is supporting the outlook for growth this year, even as the Iran conflict creates new headwinds. Even the latest war in the Middle East is stoking demand for German hardware to help Gulf nations shoot down Iranian missiles.

Takeaways by Macro Roundup® AI

  1. German Chancellor Friedrich Merz has earmarked an initial €600 billion ($687 billion) for the military, with streamlined procurement helping producers secure record orders for everything from artillery shells to attack drones.
  2. UBS analyst Felix Huefner reckons defense will contribute 0.5 percentage points to German growth by 2028, and banks are making loans more readily available.
  3. The Ifo institute said Germany's rapid defense rollout is supporting the growth outlook for this year, even as the Iran conflict creates new headwinds and stokes Gulf demand for German hardware to shoot down Iranian missiles.

Related Articles:

  • Waking the Sleeping European Giant — Europe, at roughly 500m people and a $26tn economy with world-class aerospace, shipbuilding, pharmaceutical, vehicle and weapons manufacturers, has the material basis to be a military superpower. National militaries' preference for home-country suppliers has left subscale defense firms, and common procurement could raise output and lower unit costs.
  • The Big Bet on European Defense Stocks Is Getting Expensive — U.S. weapons manufacturers delivered stronger stock returns after the Cold War than during it, even as U.S. military spending fell from around 7% of the economy to about 3.7%, with the "guns" sector posting the third-best total return among 49 U.S. sectors, behind software and microchips.
  • The Intellectual Spoils of War? Defense RD, Productivity and International Spillovers — The authors estimate that a 10% increase in government-financed R&D, largely defense, is associated with a 4.3% rise in privately funded R&D across OECD countries, indicating "crowding in" rather than "crowding out." They also find international spillovers raise private R&D abroad, though the overall effect on US productivity growth is modest.

Wednesday, March 18, 2026

AI Summary. Bank tellers per branch fell steadily as automated teller machines spread, and total teller employment held up only because banking deregulation drove a rise in branch numbers; teller jobs are down nearly 40% from their peak. The author argues invoking this case for AI requires identifying an equivalent offsetting source of labor demand.

Paul Kedrosky Notes on Complexity
Date Posted:

ATM’s reduced demand for tellers per bank branch, but this was offset by an increased number of branches due to deregulation. Kedrosky notes, “aggregate numbers can hide substitution.” Total teller jobs are down ~40% from their peak.

Does the teller story support optimism about AI and jobs?

Core argument: Bank teller employment is down nearly 40% from its peak, falling once the regulatory tailwind faded and mobile banking added pressure.

While overall employment grew, tellers per branch fell steadily from ~1985 onward. That is the ATM effect, technology working exactly as you'd expect. Teller employment fell, even if it was masked by more branches appearing. What caused all the new branches? Technology? No. It was banking deregulation. The AI tale-tellers who invoke the comforting ATM story are arguing, even if they don't realize it, that some equivalent of Riegle-Neal is coming, some expansion in the demand for human labor that will offset AI's substitution effect at the task level. And that's possible. But it requires identifying what that force actually is, not just assuming it will materialize because it did once before under very different circumstances. The more honest read of the banking employment data is that the ATM case was more like a near-miss than a success story. Employment held up by coincidence, not by the magic of automation economics. Teller jobs eventually did collapse — they're down nearly 40% from peak — once the regulatory tailwind fell away. (And mobile banking provided a push too.)

Takeaways by Macro Roundup® AI

  1. Bank teller employment is down nearly 40% from its peak, falling once the regulatory tailwind faded and mobile banking added pressure.
  2. Tellers per branch fell steadily from about 1985 onward, the expected ATM substitution effect, while total teller employment was masked by a proliferation of branches driven by banking deregulation rather than technology.
  3. Invoking the ATM story for AI implicitly assumes some equivalent of Riegle-Neal will expand demand for human labor and offset task-level substitution, a force that must be identified rather than assumed.

Related Articles:

  • AI Tracker – The GDP Dividend; A Jobs Dilemma — Unemployment in occupations exposed to artificial intelligence rose to 3.8% from 3%, a larger increase than the 0.3 percentage point rise in the national rate, while unemployment in non-exposed occupations edged lower. The rise is concentrated among workers aged 34 and under, whose jobless rate jumped to 5.3% from 3%.
  • Tech Has Never Caused a Job Apocalypse. Don’t Bet on It Now — Labor Department data analyzed by researchers show the number of software developers up 5% year over year, a pace largely consistent with the past 23 years, while computer programmers declined slightly in line with a decades-long trend. The median young computer science graduate earned 63% more than the typical young graduate in 2024, up from 47% in 2009.
  • Looking for the Ladder — The article argues that the hiring downturn in occupations most exposed to generative AI reflects interest-rate sensitivity rather than AI itself, since roughly 38% of workers in the most AI-exposed quintile work in information, finance and insurance, and professional and technical services, versus under 2% in the least-exposed quintile.

AI Summary. Rebuilding after a disruption to a key shipping strait would require governments to finance defense, strategic reserves, domestic energy production, and infrastructure at the same time that inflation expectations are raising funding costs. The author argues capital will rotate out of asset-light sectors that thrived on open sea lanes and cheap energy into asset-heavy physical ones.

Jeff Currie and James Gutman Carlyle
Date Posted:

The Red Sea oil trade never recovered from the Houthi strikes. Regardless of its outcome, the Iran war itself will accelerate the rotation towards physical assets as nations move to localize, diversify and create redundancy in their energy supply.

Does a shipping disruption shift capital from asset-light to asset-heavy sectors?

Core argument: Germany's 10-year bund auction technically failed, not for lack of liquidity but because the bond market is already pricing the inflationary impact, according to the author.

When the dust settles and the strait reopens — partially, gradually, and perhaps on Tehran’s terms — the cost of rebuilding will likely be enormous. Governments must simultaneously finance defense, rebuild strategic reserves, restart domestic energy production, and harden infrastructure. All of this comes at a moment when inflation expectations are driving the cost of funding sharply higher — Germany’s 10-year bund auction technically failed this week, not for lack of liquidity, but because the bond market is already pricing the inflationary impact. Where does the capital come from? Capital will flow from the sectors that prospered during the era of open sea lanes and cheap energy, asset light, into the sectors that will build the replacement, asset heavy. The rotation back toward physical assets is not a trade — it is a regime change.

Takeaways by Macro Roundup® AI

  1. Germany's 10-year bund auction technically failed, not for lack of liquidity but because the bond market is already pricing the inflationary impact, according to the author.
  2. The author argues that governments must simultaneously finance defense, rebuild strategic reserves, restart domestic energy production, and harden infrastructure, at a cost likely to be enormous once the strait reopens partially and gradually.
  3. The author expects capital to flow from the asset-light sectors that prospered under open sea lanes and cheap energy into the asset-heavy sectors that will build the replacement, describing the rotation as a regime change rather than a trade.

Related Articles:

  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.
  • The Old Economy Begins To Take Its Revenge — The author argues that capital rotates between the financial economy's asset-light booms and the physical economy, with commodity capacity constraints and the use of critical materials as geopolitical leverage now making returns on physical investment more attractive. In this view, higher interest rates reflect the better returns and capital spending needed to expand production capacity.
  • Fighting Words: The Energy Transition in 2026 — Estimates based on primary energy overstate how much electricity is needed to replace oil in passenger cars, since electric motors convert 80%-90% of electricity into motion versus about 18% for gasoline cars. Measuring useful final energy net of waste heat avoids this "primary energy fallacy": the US consumed 45 exajoules of useful final energy versus 95 exajoules of primary energy.

AI Summary. Available spending data does not support the narrative of a bifurcated "K-shaped" consumer economy: surveys show households earning under $50,000 reported spending growth of 5%, versus 4.6% for those earning over $100,000. Government data show the top income decile's share of aggregate spending at 22.8%, down from 23.4% a year earlier.

Ernie Tedeschi Stripe Economics
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Using internal Stripe payment data, Tedeschi finds that spending growth of households in low-income zip codes has outpaced that of households in high-income zip codes since 2023, thus showing no evidence of the “K-shaped economy” in the consumer sector.

Does spending data support a bifurcated consumer economy?

Core argument: Households making under $50,000 reported spending growth of 5% over 2025, versus 4.6% for households making over $100,000, which does not support a K-shaped bifurcation narrative.

While consumer spending by income group is not tracked well in real time by any single government source, the available data does not support a bifurcation narrative. Multiple spending surveys show low-income household spending [growth] performing at least on par with high-income households over 2025. Households making under $50,000 reported spending growth of 5% over 2025, versus 4.6% for households making over $100,000. While inflation-adjusted retail spending for lower-income households grew modestly slower than it did for top-income households in 2023 and 2024, the gap converged through 2025—low- and upper-income consumption grew at similar rates. This is consistent with lagged but larger and more-reliable government data, which shows the top income decile’s share of aggregate spending at 22.8% in 2024, down from 23.4% in 2023 and below the recent peak of 23.9% in 2016, Using Stripe data, we can also crudely proxy for consumer spending by income quartile, based on consumer [Merchant Category Codes] transactions and average income in the ZIP code of the spender. This data similarly shows no evidence of a high-income divergence: if high-income ZIP codes were seeing faster spending growth than low-income ZIPs, the ratio of the two would be rising. But in fact, the ratio has been falling since 2023. So at least on Stripe, lower-income ZIP codes have seen more robust spending growth than the top.

Takeaways by Macro Roundup® AI

  1. Households making under $50,000 reported spending growth of 5% over 2025, versus 4.6% for households making over $100,000, which does not support a K-shaped bifurcation narrative.
  2. The top income decile's share of aggregate spending fell to 22.8% in 2024 from 23.4% in 2023, below the recent peak of 23.9% in 2016, according to lagged government data.
  3. Stripe transaction data proxied by ZIP-code average income shows the ratio of high-income to low-income ZIP spending falling since 2023, with lower-income ZIP codes seeing more robust spending growth.

Related Articles:

  • Unprecedented ‘Jobless Boom’ Tests Limits of US Economic Expansion — Forecasters expect US gross domestic product to have expanded 2.7% over the year while employment barely grew, a divergence drawing comparisons to the "jobless recovery" that followed the early-2000s technology stock collapse. Unlike that episode, which began with a recession, this "jobless boom" is occurring without one — a first in the postwar era.
  • 2026 Outlook: The Year Ahead In 14 Sparks — Slowing US growth — attributed to trade frictions, immigration restrictions and risks from a K-shaped economy — combined with inflation stuck near 3% amounts to a stagflation environment, even as the medium-term outlook looks strong. Real business investment growth is concentrated in information processing equipment such as computers, data centers and software, while non-AI capital spending growth is roughly zero.
  • Inflation Is Down, But Americans Still Feel an Affordability Squeeze — 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.

AI Summary. Consumer sentiment about the economy has worsened even as the economy and affordability continued improving at roughly the same pace, falling below levels seen during the financial crisis and the pandemic. Measures of economic conditions increasingly track how people feel about the party in power, with Democratic and Republican views of the economy flipping after the change in administration.

Jason Furman New York Times
Date Posted:

Despite the AI buildout and changes to tariff and immigration policy, key macro indicators were largely unchanged between 2024 and 2025. Overall consumer sentiment continues to decline despite a sharp increase in Republican sentiment after the election.

Does consumer sentiment reflect the economy or partisan loyalty?

Core argument: Consumer sentiment fell below its levels during the financial crisis and the pandemic even though the economy and affordability improved in 2025 at roughly the same pace as in 2024, and gasoline prices were lower.

Even though the economy and affordability continued to improve at roughly the same pace in 2025 as in 2024, consumer sentiment about the economy worsened. In 2024, analysts were puzzling about the “vibecession,” people feeling badly despite the overall numbers looking good. Since then, we have fallen into something more like avibe depression, with consumer sentiment falling below its levels during the financial crisis and the pandemic. And this was with lower gasoline prices. I expect the data for sentiment this month to set new lows as consumers react to rising gas prices and the news coverage of the Middle East. There are many explanations for negative feelings about the economy, including the legitimate concern that the purchasing power of wages is below the track it was on before Covid; public frustration with high prices even if inflation is moderating; and a failure to consider the ways that wages have risen alongside those prices. Perhaps most important, measures of how the economy is doing are increasingly measures of how people feel about the party in power. Democratic and Republican views of the economy flipped after Mr. Trump returned to office, although Democrats have become even more negative about the economy than Republicans were about Mr. Biden’s. When politics changes, perceptions follow — even if paychecks, prices and jobs do not.

Takeaways by Macro Roundup® AI

  1. Consumer sentiment fell below its levels during the financial crisis and the pandemic even though the economy and affordability improved in 2025 at roughly the same pace as in 2024, and gasoline prices were lower.
  2. Democratic and Republican views of the economy flipped after Trump returned to office, with Democrats becoming even more negative about the economy than Republicans had been under Biden.
  3. Explanations offered for negative economic sentiment include wage purchasing power sitting below its pre-Covid track, frustration with high prices despite moderating inflation, and a failure to consider that wages have risen alongside those prices.

Related Articles:

  • Asymmetric Amplification and the Consumer Sentiment Gap — Consumer sentiment surveys show Republican respondents' views swing about ±15 index points relative to predicted levels depending on which party holds the presidency, while Democrats' views swing only about ±6 points. The authors estimate that adjusting for this asymmetric amplification shrinks the gap between observed and predicted consumer sentiment by 30%.
  • Bad News Bias in Gasoline Price Coverage — An analysis of over one million television transcripts finds that coverage of gasoline prices shows a negative news bias, ramping up sharply once the nominal price reaches $3.50 a gallon, most steeply at Fox News. Because that threshold is fixed in nominal terms, the inflation-adjusted trigger has fallen by one-third.
  • 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%.

AI Summary. Across countries, unexpectedly higher government deficits relative to earlier International Monetary Fund forecasts are associated with unexpectedly higher inflation, measured by each factor's contribution to the increase in public debt, a relationship the author finds statistically significant. This evidence is consistent with a fiscal channel for inflation.

Ricardo Reis London School of Economics and Political Science
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Reis compares the IMF’s 2019 forecasts of increases in the public debt over the next 5 years with the actual increases. In OECD countries where deficits turned out to be higher than the IMF expected, inflation also turned out to be unexpectedly higher.

Do unexpectedly larger government deficits coincide with unexpectedly higher inflation across countries?

Core argument: Across the IMF World Economic Outlook country sample, unexpected increases in public debt from unexpected deficits and from inflation over 2019–25 show a statistically significant positive relation.

To inspect the fiscal mechanism, I compare the IMF’s 2019 forecasts for the increase in the public debt over the next 5 years, with the actual increase that we saw. The IMF also puts out forecasts for each term in the accounting identity linking current to future debt in equation (7). Using these forecasts, I constructed the expected increase in debt due to expected inflation, interest rates, economic growth, and fiscal deficits. Then, using the April 2025 actual values for what each of these variables were, I constructed the actual increase in public debt due to the actual evolution of each of these four variables. Subtracting one from the other gives the unexpected increase in public debt, broken down into four unexpected terms, for each country in the WEO sample. Figure 9 plots two of these terms: the unexpected increase in public debt due to unexpected deficits, and the unexpected increase in the debt due to inflation in 2019-25 per country. The figure shows a clear positive relation, which is statistically significant. This says that for countries where deficits turned out to be higher than the IMF expected, inflation also turned out to be unexpectedly higher, using the common metric of their impact on the public debt. The fiscal mechanism is validated using the expectations data. If fiscal developments lead the IMF to raise its expected deficits, then this past experience should lead it to raise its expected inflation as well.

Takeaways by Macro Roundup® AI

  1. Across the IMF World Economic Outlook country sample, unexpected increases in public debt from unexpected deficits and from inflation over 2019–25 show a statistically significant positive relation.
  2. Comparing the IMF's 2019 five-year forecasts for debt, inflation, interest rates, growth, and deficits with April 2025 actual values decomposes the unexpected increase in public debt into four unexpected terms.
  3. Countries whose deficits turned out higher than the IMF expected also saw unexpectedly higher inflation, measured by each variable's impact on public debt, which the author reads as validating the fiscal mechanism.

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  • Are Government Bonds Safe in Times of War and Pandemic? — Government bonds severely underperform in wartime, in absolute terms and relative to equities, housing, and economic growth, unlike in financial crises when bonds tend to outperform stocks. The U.S. and U.K. reduced war-driven debt-to-GDP ratios without explicit default, using surprise inflation and financial repression that shifted fiscal burdens onto bondholders.
  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.