Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, May 26, 2026

AI Summary. The University of Michigan's consumer sentiment index fell 5 points to 44.8, a record low and weaker than all economist projections in a Bloomberg survey. Consumers expect prices to rise 3.9% annually over the next five to 10 years, up from 3.5%, and 4.8% over the coming year.

María Paula Mijares Torres Bloomberg
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The Michigan Consumer Sentiment Index hit a record low in May, falling ~10% month over month. Consumers foresee prices advancing 4.8% over the next year. Inflation and high gas prices have long been major causes of sentiment drops.

Are price expectations pushing consumer sentiment to a record low?

Core argument: The University of Michigan's final May consumer sentiment index fell 5 points from April to 44.8, a record low and weaker than every forecast in a Bloomberg survey of economists as well as the preliminary reading of 48.2.

The University of Michigan’s final May sentiment index decreased 5 points to 44.8 from April. The gauge was weaker than all projections in a Bloomberg survey of economists as well as the preliminary reading of 48.2. Consumers expect prices to rise an annualized 3.9% over the next five to 10 years, up from 3.5% in April and the highest in seven months. They also saw costs advancing 4.8% over the next year.

Takeaways by Macro Roundup® AI

  1. The University of Michigan's final May consumer sentiment index fell 5 points from April to 44.8, a record low and weaker than every forecast in a Bloomberg survey of economists as well as the preliminary reading of 48.2.
  2. Consumers expect prices to rise an annualized 3.9% over the next five to 10 years, up from 3.5% in April and the highest in seven months.
  3. Consumers expect costs to advance 4.8% over the next year, according to the University of Michigan's final May survey.

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%.
  • The Dangerous Brew That’s Rattling Bond Markets — U.S. inflation has remained above the Federal Reserve's 2% target since 2022 while government borrowing runs high and companies borrow heavily to fund AI build-out. Even so, the 30-year Treasury yield reached a 19-year high of 5.18% while the 10-year yield, at 4.67%, sat below its October 2023 level.
  • $50 Trillion Safe-Haven Debt Market Upended by Iran War Inflation — Long-term yields in the $50tn-plus market for Group of Seven government bonds reached a two-decade high, as investors demand compensation for the risk that higher inflation persists and central banks must raise interest rates to contain it. Pandemic-era inflation has not fully faded and government debts keep increasing.

AI Summary. US annual inflation of 3.8% outpaced average hourly earnings growth of 3.6%, leaving prices rising faster than pay for the first time in two years, while Eurozone workers face a fresh energy-driven setback. JPMorgan attributes the real wage decline to Middle East conflict and expects growth to resume if energy prices retreat.

Delphine Strauss and Claire Jones Financial Times
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Real wage growth in the US and Eurozone which have been slightly positive since 2024, downticked due to the rise in inflation. JPM’s Mike Feroli argues if the Strait of Hormuz reopens “I would expect real wages to start growing again.”

Are real wages shrinking as inflation outpaces pay in developed countries?

Core argument: US inflation rose to an annual 3.8% in April while average hourly earnings gained 3.6% over the year, leaving prices rising faster than earnings for the first time in two years.

US inflation jumped to an annual 3.8% in April, while average hourly earnings increased 3.6% over the year, meaning prices were rising faster than earnings for the first time in two years. In the Eurozone, the energy shock represents a fresh setback for workers who had only just clawed back the ground lost in the 2022 inflationary shock. Michael Feroli, chief US economist at JPMorgan, said the real wage shrinkage was “all about the Middle East conflict” so if the Strait of Hormuz reopens and energy prices retreat, “I would expect real wages to start growing again.”

Takeaways by Macro Roundup® AI

  1. US inflation rose to an annual 3.8% in April while average hourly earnings gained 3.6% over the year, leaving prices rising faster than earnings for the first time in two years.
  2. In the Eurozone, the energy shock is a fresh setback for workers who had only just recovered the ground lost in the 2022 inflationary shock.
  3. JPMorgan chief US economist Michael Feroli attributed the real wage shrinkage to the Middle East conflict and said he would expect real wages to grow again if the Strait of Hormuz reopens and energy prices retreat.

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%.
  • $50 Trillion Safe-Haven Debt Market Upended by Iran War Inflation — Long-term yields in the $50tn-plus market for Group of Seven government bonds reached a two-decade high, as investors demand compensation for the risk that higher inflation persists and central banks must raise interest rates to contain it. Pandemic-era inflation has not fully faded and government debts keep increasing.
  • 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.

AI Summary. The equity risk premium—the gap between the S&P 500's earnings yield and the yield on 10-year US Treasury notes—has nearly disappeared and sits near multi-decade lows, leaving a rough gauge of expected stock returns only slightly above what safe government bonds offer. A global bond selloff driven by inflation fears has pushed Treasury yields higher.

Hannah Erin Lang and Sam Goldfarb Wall Street Journal
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The gap btw the S&P 500’s earnings to price ratio and the 10-year Treasury yield is ~0, its lowest level since the dot-com bust. The WSJ interprets this as a measure of the equity risk premium, stressing soaring bond yields.

Is the extra return from stocks over bonds disappearing?

Core argument: The equity risk premium — the gap between the S&P 500's earnings yield and the 10-year Treasury note's yield — has nearly disappeared and is hovering among its lowest levels since the start of the millennium.

The equity risk premium, often defined as the gap between the S&P 500’s earnings yield—the profit companies generate relative to stock valuations, expressed as a percentage—and that of the 10-year Treasury note. In recent weeks, it has nearly disappeared and is hovering among its lowest levels since the start of the new millennium. In other words, a rough gauge of stocks’ expected returns is now only slightly higher than what ultrasafe government bonds will produce. The primary culprit: a global bond rout powered by inflation fears that has pushed Treasury yields higher.

Takeaways by Macro Roundup® AI

  1. The equity risk premium — the gap between the S&P 500's earnings yield and the 10-year Treasury note's yield — has nearly disappeared and is hovering among its lowest levels since the start of the millennium.
  2. A rough gauge of stocks' expected returns now sits only slightly above what ultrasafe government bonds will produce.
  3. A global bond rout powered by inflation fears has pushed Treasury yields higher, the primary cause of the shrinking equity risk premium.

Related Articles:

  • Bond Market Fright May End Cheap Funds Era — The yield on 30-year US Treasury bonds reached 5.19%, its first time at that level since 2007. The author argues that the suddenness of such a move in yields, rather than the level itself, could dislodge the financing that underpins stocks and pressure credit markets.
  • An AI IPO Impact Update: The AnthroPix Effect May Be $5-Trillion+ — A closed-end fund holding small private stakes in OpenAI, SpaceX, and Anthropic has more than doubled in under two weeks and trades at nearly triple its last reported net asset value. The author argues this reflects investor appetite for any exposure to pre-IPO artificial intelligence companies, which will pull money out of other assets.
  • One Hundred Years in the U.S. Stock Markets — Over a century, U.S. publicly traded stocks generated roughly $91tn in shareholder wealth enhancement, with returns strongly positively skewed and dominated by a relatively small number of high-performing firms. Because most possible outcomes fall below the mean in a skewed distribution, the authors argue financial planning should focus on median outcomes or the full distribution.

AI Summary. The measured corporate labor share fell from 63% in 1978 to 58% in 2017, but the authors estimate that tax-driven reclassification of wages as S corporation profit and the shift of high-labor-share firms into partnerships account for about 1.6 percentage points, roughly a third of the decline.

Owen Zidar And Eric Zwick The Everywhere Millionaire
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A third of the 9pp drop in labor’s share of corporate income btw 2000 and 2025 is due to tax policy changes that incentivized business migration to partnerships, relabeling some earnings of the top 1% as pass-through income, lowering reported wages.

Does tax-driven business reclassification explain part of the falling labor share?

Core argument: The corporate-sector labor share fell from 63% in 1978 and about 64% in 2000 to 58% in 2017 and 55% in 2025, a headline decline of 5 percentage points from 1978 to 2017.

The corporate-sector labor share was 63% in 1978, fluctuated modestly through the 1980s and 1990s, and still stood near 64% in 2000. Then it fell to 58% in 2017 and 55% in 2025. Change of label pulls down the measured labor share because the national accounts count S corporation profit as capital income. When we add these recharacterized wages back into the labor income bucket, then the corporate labor share in 2017 is about 0.9 percentage points higher. In addition, many firms have left the corporate sector and reorganized as partnerships. Partnership profit has grown from 13% of all business profit in 1980 to 35% today. These partnerships have labor shares more than 10 percentage points higher than the corporate firms left behind. As these high-labor-share businesses left, the corporate sector that remained looked more capital-heavy than it used to. When we treat the partnership activity that migrated out since 1986 as if it had stayed in corporate form, the 2017 labor share is another 0.7 percentage points higher. These two corrections together are worth about 1.6 percentage points. The headline decline from 1978 to 2017 was 5 points. Our adjusted decline is 3.4. Thus, the tax code accounts for roughly a third of the decline.

Takeaways by Macro Roundup® AI

  1. The corporate-sector labor share fell from 63% in 1978 and about 64% in 2000 to 58% in 2017 and 55% in 2025, a headline decline of 5 percentage points from 1978 to 2017.
  2. Adding back S corporation profit that reflects recharacterized wages raises the 2017 corporate labor share by about 0.9 percentage points, since the national accounts count such profit as capital income.
  3. Partnership profit rose from 13% of all business profit in 1980 to 35% today, and treating partnership activity that migrated out since 1986 as corporate adds another 0.7 percentage points, leaving an adjusted 1978–2017 decline of 3.4 points.

Related Articles:

  • What’s Missing in the Fed’s Data about Ultrarich Portfolios — The Federal Reserve's Distribution of Financial Accounts defines "private business" narrowly as proprietor's equity in noncorporate, nonfinancial businesses, excluding S-corporations, other private corporations, and private equity and hedge fund partnerships, which are lumped into "corporate equities." The Survey of Consumer Finances instead shows private business is roughly 45–50% of top 0.1% wealth.
  • The Rise of Pass-Throughs and the Decline of the Labor Share — The authors estimate that reallocating business activity to its pre-1986 organizational form accounts for one-third of the decline in the corporate sector labor share, which fell from 62.9% to 57.9% between 1978 and 2017. US tax reform encouraged firms to organize as pass-through entities, letting income be characterized as profits rather than labor payments.
  • Capitalists in the Twenty-First Century — Most income at the top of the US distribution is non-wage income, primarily profits from closely-held, mid-market firms in skill-intensive industries owned by working-age individuals. The authors find private business profit falls by three-quarters after an owner retires or dies prematurely, indicating most top earners are "working rich" deriving income from human capital.

AI Summary. The authors estimate that $0.7tn–$1.4tn of China's roughly $2.2tn manufacturing surplus is concentrated in low-skill sectors such as apparel and footwear, where low- and middle-income countries compete most directly. At China's current per capita GDP, its share of global value-added exports in apparel, leather, textiles and footwear is 27%, versus 8% for rich countries at a comparable stage.

Shoumitro Chatterjee and Arvind Subramanian Peterson Institute for International Economics
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China has broken the historical norm of growing economies ceding low-skilled manufacturing to poorer countries. “At today’s level of China’s per capita GDP, rich countries’ global export market share was 8% compared with 27% for China.”

How does China's manufacturing surplus affect low- and middle-income countries?

Core argument: Between $0.7 trillion and $1.4 trillion of China's roughly $2.2 trillion manufacturing surplus sits in low-skill-intensive sectors such as apparel and footwear, where low- and middle-income countries compete most directly.

[Little] attention has been paid to what China’s surplus means for low- and middle-income countries (LMICs). This neglect is striking because a large share of China’s manufacturing surplus—between $0.7 trillion and $1.4 trillion out of a total of about $2.2 trillion—is concentrated in low-skill-intensive sectors such as apparel and footwear, precisely where LMICs compete most directly [Figure 1 in gallery]. For LMICs, the China Squeeze operates through three channels. The first and perhaps the most important is competition in global export markets. In 1965, advanced economies accounted for about 60% of global value-added exports in four key low-skilled manufacturing sectors, i.e., apparel, leather, textiles, and footwear. Over time this share declined and began to be occupied first by the East Asian tigers and, beginning in the late 1990s, by China. Figure 6 plots tradability adjusted global value-added export market share in four canonical unskilled-labor activities with that of rich countries in development time. The result is striking. At today’s level of China’s per capita GDP, rich countries’ global export market share was 8% compared with 27% for China. This impact—hundreds of billions of dollars in foregone LMIC exports—has been felt most acutely in global markets but also in China’s imports in LMIC markets and low access to China’s markets as well.

Takeaways by Macro Roundup® AI

  1. Between $0.7 trillion and $1.4 trillion of China's roughly $2.2 trillion manufacturing surplus sits in low-skill-intensive sectors such as apparel and footwear, where low- and middle-income countries compete most directly.
  2. At China's current level of per capita GDP, China holds a 27% tradability-adjusted global value-added export market share in apparel, leather, textiles, and footwear, compared with 8% for rich countries at the same development stage.
  3. The China Squeeze on low- and middle-income countries operates through three channels: competition in global export markets, China's imports in LMIC markets, and limited access to China's own markets, with hundreds of billions of dollars in foregone LMIC exports.

Related Articles:

  • 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.
  • China’s Next-Generation Industrial Policy — China's export growth is concentrated in upstream, higher-tech goods: exports of intermediate inputs rose 26% and capital goods 32% between 2021 and 2024, while consumption goods exports were broadly flat. This shift embeds China deeper in global production systems and aligns with its long-running import substitution strategy of localizing entire value chains.

AI Summary. China will allow workers to enroll in social insurance programmes in the cities where they are employed regardless of their official household registration, or hukou, and will refine mechanisms for transferring social insurance across regions. Census sample data put China's migrant population above 357m, a group historically locked out of public services where they work.

Meredith Chen South China Morning Post
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China’s internal migrant population of more than 357mm workers may benefit from reforms to the hukou system that would allow them to access social insurance in the cities where they work, potentially increasing labor mobility, allowing a national labor market.

Will migrant workers gain social insurance where they work?

Core argument: China's new policy lets workers enroll in social insurance programmes in the cities where they are employed regardless of their hukou registration, with census sample data putting the country's migrant population above 357 million.

Under the new policy, workers can enroll in social insurance programmes in the cities where they are employed, regardless of their official hometown registration, or hukou. Authorities will also refine the mechanisms for transferring and continuing social insurance relationships across regions, a long-standing challenge for a highly mobile workforce. It reflects China’s latest policy reform emphasis on achieving renhu fenli - or the “separation between place of residence and household registration”. According to census sample data released on Friday, China’s migrant population has surpassed 357 million. Historically, the hukou system locked migrant workers out of vital public services – like healthcare and public schooling – in the places where they lived and worked. In recent years, however, these rigid restrictions have been progressively relaxed.

Takeaways by Macro Roundup® AI

  1. China's new policy lets workers enroll in social insurance programmes in the cities where they are employed regardless of their hukou registration, with census sample data putting the country's migrant population above 357 million.
  2. Chinese authorities will refine mechanisms for transferring and continuing social insurance relationships across regions, a long-standing challenge for a highly mobile workforce.
  3. The hukou system historically locked migrant workers out of services such as healthcare and public schooling where they lived and worked, restrictions progressively relaxed amid China's emphasis on renhu fenli, the separation of residence from household registration.

Related Articles:

  • The ‘Invisible Wall’ Amplifying China’s Population Doom Loop — China's hukou household registration system restricts migrant workers' access to local services such as healthcare, education, and home purchases in major cities. While two-thirds of Chinese live in cities, only 48% hold urban residency rights, leaving roughly 250m people excluded from many urban benefits; rural disposable income is about $3,000 per capita versus over $7,000 in cities.
  • China’s Youth Unemployment Hits New High As Fresh Graduates Flood Market — China's National Bureau of Statistics reported the jobless rate for 16-to-24-year-olds, excluding students, rose to 16.9% from 16.1%, while the rate for those aged 25 to 29 rose to 7.7% from 7.2%, and overall urban unemployment edged up to 5.4%. A record 12.7m students, about 4% more than the prior year, are expected to graduate.
  • China Punishes ‘Excessively Pessimistic’ Social Media Users — China's internet regulator has launched a campaign to remove online content that incites "excessively pessimistic sentiment," panic, or defeatist ideas such as "hard work is useless." Authorities have punished bloggers who advocated working less, an influencer who said forgoing marriage and children made financial sense, and a commentator who said China's quality of life lags Western countries.

Wednesday, May 27, 2026

AI Summary. Labor productivity has grown solidly while the San Francisco Federal Reserve's total factor productivity index, which adjusts for the equipment and technology workers use, has grown modestly, suggesting gains so far reflect better tools rather than broader advances. A regime-switching model puts the probability of a high-productivity regime at 57% using labor productivity and 21% using total factor productivity.

Hamza Abdelrahman and Andrew Foerster Federal Reserve Bank of San Francisco
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US labor productivity is ~8pp above 2022 levels, while TFP has shown little growth since 2024, echoing 1990s pre-surge dynamics. A regime-switching model using labor productivity gives a 57% probability the US is in a high-growth regime vs 21% using TFP.

Do recent productivity gains reflect better tools rather than broader advances?

Core argument: A regime-switching model puts the implied probability that the U.S. economy is in a high-productivity growth regime at about 57% based on labor productivity and 21% based on total factor productivity as of the fourth quarter of 2025.

[While] labor productivity has shown solid gains in recent years, the San Francisco Fed’s Total Factor Productivity (TFP) index- which adjusts for how much equipment, technology, and other resources workers have at their disposal - has shown modest growth. A similar divergence between labor productivity and TFP emerged in the 1990s technology before the full productivity benefits became more definitive. Figure 1 plots how labor productivity and TFP have evolved relative to 2022 values, right before the recent surge in labor productivity. Their paths have since diverged amid a surge in business investment in AI technology and infrastructure, such as data centers, with labor productivity growing at a faster pace in recent years. The increased investment has coincided with more productive workers but has not yet produced the broader gains that TFP is designed to measure, suggesting that productivity improvements so far reflect better tools for workers rather than fundamental economic advancement. Figure 2 shows the implied probability [from a regime-switching model] of the U.S. economy being in a high-productivity growth regime using labor productivity (blue line) and TFP (green line). The probabilities based on these two measures have picked up to varying degrees: around 57% based on labor productivity and 21% based on TFP as of the fourth quarter of 2025.

Takeaways by Macro Roundup® AI

  1. A regime-switching model puts the implied probability that the U.S. economy is in a high-productivity growth regime at about 57% based on labor productivity and 21% based on total factor productivity as of the fourth quarter of 2025.
  2. Labor productivity has posted solid gains in recent years while the San Francisco Fed's Total Factor Productivity index, which adjusts for the equipment, technology, and other resources workers have at their disposal, has grown modestly.
  3. The divergence between labor productivity and TFP has coincided with a surge in business investment in AI technology and infrastructure such as data centers, suggesting productivity improvements so far reflect better tools for workers rather than fundamental economic advancement.

Related Articles:

  • America Is Experiencing A Productivity Miracle — America's post-2019 productivity acceleration came largely from professional services and management—about 10% of output and heavy users rather than producers of new technology—and from oil and gas. The information industry grew productivity around 6% annually, no faster than its 2000-19 average, with its output share steady at 5.3–5.5%.
  • Concentrated Growth: The Role Of The IT Sector — Since 1988, total factor productivity in the information technology sector has risen about 178%, versus about 12% across all non-IT sectors combined, while aggregate productivity rose about 40%. The IT sector accounts for roughly 45% of cumulative aggregate productivity growth, once sectoral linkages to downstream industries are weighted in.
  • An AI Productivity Boom? Don’t Count Your (Productivity Data) Chickens — 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.

AI Summary. U.S. GDP per capita, about $87,000, is projected to reach $102,000 by 2035 with 1.8% annual productivity growth, or $110,000 with 2.7% growth. Because the healthcare sector has been slow to adopt AI, health spending is projected to rise from 18.3% of GDP to 21% under slower growth and 21.7% under faster growth.

Mark Warshawsky American Enterprise Institute
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Warshawsky argues AI may paradoxically worsen the US fiscal outlook, as the income effect of higher overall growth increases demand for low-productivity-growth healthcare. The rise in healthcare spending may “swamp rising tax revenues.”

Does faster productivity growth reduce health spending as a share of GDP?

Core argument: U.S. GDP per capita, about $87,000, is projected to reach $102,000 by 2035 with 1.8% annual productivity growth, or $110,000 if productivity rises to 2.7%.

Currently, GDP per capita is about $87,000. With annual productivity growth of 1.8%, based on historical averages, this welfare measure for the U.S. population will grow to $102,000 by 2035. With productivity rising to 2.7%, per capita income is projected to reach $110,000, a clearly positive result for welfare. Currently, healthcare spending is 18.3% of GDP. With 1.8% productivity growth in the broad economy but not in the healthcare sector, which has been slow to adopt AI, and an aging population, the health spending-to-income ratio is projected to rise to 21% of GDP by 2035, with relative healthcare inflation running at 1.1% annually. When productivity increases to 2.7%, health prices rise more rapidly at 1.8% annually, pushing spending to 21.7% of GDP.

Takeaways by Macro Roundup® AI

  1. U.S. GDP per capita, about $87,000, is projected to reach $102,000 by 2035 with 1.8% annual productivity growth, or $110,000 if productivity rises to 2.7%.
  2. Healthcare spending, at 18.3% of GDP, is projected to reach 21% by 2035 under 1.8% productivity growth, with relative healthcare inflation of 1.1% annually, an aging population, and slow AI adoption in healthcare.
  3. Productivity growth of 2.7% is projected to raise health prices 1.8% annually and health spending to 21.7% of GDP by 2035.

Related Articles:

  • U.S. Treasury Investors Are Long in AI — The authors find U.S. government debt has a large positive productivity beta, because the tax code makes federal revenue highly sensitive to productivity growth while spending commitments change little, leaving bondholders implicitly long productivity growth. They argue greater market confidence in sustained productivity gains from AI could substantially reprice government debt, lowering nominal yields.
  • Has the United States Bent the Health Care Cost Curve? — The authors estimate that a slowdown in US health care spending reflects technology-associated changes in health and site of care (21% of the slowdown, double that in Medicare), more elastic long-run supply (6%), market changes reducing and making demand more elastic (11–27%), improved population health (7%), and slower price growth net of upcoding (24%).
  • 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. Current readings on labor market tightness, manufacturing price pressures, supply chain tightness and the output gap resemble conditions that have historically preceded Federal Reserve rate increases rather than cuts, and futures markets are pricing in hikes. Averaging several monetary policy rules implies a policy rate of 4.00%–4.85% versus the current 3.50%–3.75%.

Michael Cembalest J.P. Morgan
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Cembalest notes labor market tightness, price pressures in the manufacturing sector and the implied output gap are “much closer to conditions that have historically prompted the Fed to raise policy rates rather than to lower them.”

Do current inflation indicators point toward rate hikes rather than cuts?

Core argument: Averaging several monetary policy rules — Taylor rules, inertial, alternative r*, and forward-looking — yields a Fed Funds range of 4.00%–4.85%, above the current 3.50%–3.75% range.

Inflation indicators the Fed watches include labor market tightness, price pressures in the manufacturing sector, supply chain tightness and the “output gap” which measures how far actual growth is above/below potential growth. [The two] charts plot these four variables at the time of prior Fed decisions to increase or cut policy rates; green dots indicate when the Fed cut, red dots indicate when the Fed tightened and yellow circles show today’s values. In other words: current values are much closer to conditions that have historically prompted the Fed to raise policy rates rather than to lower them. That may be why the futures curve is now pricing in Fed hikes instead of the cuts that were priced in at the start of the year. Superwonky: averaging several different monetary rules of thumb (Taylor rules, inertial, alternative r*, forward-looking) yields a Fed Funds range of 4.00% - 4.85% compared to the current range of 3.50% - 3.75%.

Takeaways by Macro Roundup® AI

  1. Averaging several monetary policy rules — Taylor rules, inertial, alternative r*, and forward-looking — yields a Fed Funds range of 4.00%–4.85%, above the current 3.50%–3.75% range.
  2. Labor market tightness, manufacturing price pressures, supply chain tightness, and the output gap sit much closer to conditions that historically prompted the Fed to raise policy rates than to cut them.
  3. The futures curve is pricing in Fed hikes rather than the cuts priced in at the start of the year.

Related Articles:

  • US Consumer Sentiment Slides to Record Low on Price Concerns — The University of Michigan's consumer sentiment index fell 5 points to 44.8, a record low and weaker than all economist projections in a Bloomberg survey. Consumers expect prices to rise 3.9% annually over the next five to 10 years, up from 3.5%, and 4.8% over the coming year.
  • The Dangerous Brew That’s Rattling Bond Markets — U.S. inflation has remained above the Federal Reserve's 2% target since 2022 while government borrowing runs high and companies borrow heavily to fund AI build-out. Even so, the 30-year Treasury yield reached a 19-year high of 5.18% while the 10-year yield, at 4.67%, sat below its October 2023 level.
  • 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.

AI Summary. US consumer prices ended up 10.4% higher than if the Federal Reserve had hit its 2% annual inflation target throughout, suggesting central banks tolerate permanent price-level overshoots after large shocks while resisting persistent undershoots. The author argues the Fed's shift to averaging 2% over time was mistimed and tightening came far too late.

Martin Wolf Financial Times
Date Posted:

Martin Wolf argues that the Powell Fed’s lateness in raising interest rates in response to the pandemic inflation and its new “let bygones be bygones” monetary rule, left inflation on a prolonged above-2% course.

Do central banks let prices overshoot targets but resist undershoots?

Core argument: The US personal consumption expenditures price index in March 2026 stood 10.4% above where it would have been had the Fed hit its 2% annual target from January 2020 onwards.

[In its response to] the disruption caused by the Covid-19 pandemic, the Fed, like other central banks, failed to keep inflation at 2% a year. Some argue that, given the scale of that disruption, what happened was the least bad outcome. But in March 2026 the US personal consumption expenditures price index was 10.4% higher than it would have been if the Fed had hit its 2% annual target from January 2020 onwards. From this experience, it is rational for people to conclude that over time the 2% target will be exceeded. That is because central banks will allow prices to rise permanently above the levels implied by the inflation target in response to a big shock. But they will work far harder to prevent it from falling consistently below that level. The Fed also made its job harder by moving to a new regime, in which bygones would no longer be bygones. In August 2020, the Fed said that it “seeks to achieve inflation that averages 2% over time”. Thus, “following periods when inflation has been running persistently below 2%, appropriate monetary policy will probably aim to achieve inflation moderately above 2% for some time.” This was both a bad idea and a badly mistimed idea, since it was followed by a period of very high inflation. The Fed and other central banks did not expect the soaring inflation and, in my view at the time, ended up tightening policy far too late.

Takeaways by Macro Roundup® AI

  1. The US personal consumption expenditures price index in March 2026 stood 10.4% above where it would have been had the Fed hit its 2% annual target from January 2020 onwards.
  2. The Fed's August 2020 shift to seeking inflation that averages 2% over time, aiming moderately above 2% after persistent undershooting, was, in the author's view, a bad and badly mistimed idea, as it preceded a period of very high inflation.
  3. Since central banks allow prices to rise permanently above levels implied by the inflation target after a big shock while working far harder to prevent persistent undershooting, people can rationally conclude the 2% target will be exceeded over time.

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  • 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%.
  • 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.

AI Summary. China's renminbi internationalization appears to have re-accelerated after nearly a decade of limited progress, supported by a persistently strong balance of payments and an appreciating currency. The renminbi has already displaced the dollar as the dominant currency for Chinese trade credit, and may benefit as historical US allies reconsider their dollar allocations.

Martin Lynge Rasmussen Money: Inside and Out
Date Posted:

80% of China’s trade finance extension is renminbi-denominated, up from 20% in 2020. “The renminbi has already displaced the dollar as the dominant currency for Chinese trade credit in the span of a few years.”

Is China's renminbi gaining ground as an international currency?

Core argument: Renminbi internationalization appears to have re-accelerated since 2024 after nearly a decade of limited progress, backed by a stronger political mandate.

After nearly a decade of limited progress, RMB internationalisation appears to have re-accelerated since 2024. The context appears highly supportive of continued progress: the renminbi has been appreciating since last summer as China’s balance of payments has been persistently strong, and the renminbi might benefit at the margin as historical US allies are reconsidering their USD allocations. Moreover, the renminbi has already displaced the dollar as the dominant currency for Chinese trade credit in the span of a few years.

Takeaways by Macro Roundup® AI

  1. Renminbi internationalization appears to have re-accelerated since 2024 after nearly a decade of limited progress, backed by a stronger political mandate.
  2. The renminbi has displaced the dollar as the dominant currency for Chinese trade credit within the span of a few years.
  3. The renminbi has been appreciating since last summer as China's balance of payments has remained persistently strong, and it might benefit at the margin as historical US allies reconsider their USD allocations.

Related Articles:

  • A New Driver of China’s De-Dollarization — Chinese banks have shifted their trade financing toward the renminbi, which now accounts for 72% of the roughly $250bn of Chinese trade credit extended since 2017, up from 17% of about $150bn during 2017-2021. The dollar share of Chinese trade credit is falling, and dollar trade credit provision may be negative.
  • The Emergence Of A New Anchor — Renminbi bonds have outperformed other major bond markets over horizons ranging from year-to-date to the past 10 years, and most countries now trade more with China than with the US. The author argues the world is not deglobalizing but "de-Westernizing," with greater trade with China making countries more willing to save in renminbi.
  • Finding China in the U.S.TIC Data — China's holdings of U.S. assets began disappearing from U.S. custodial data after the G-7 immobilized Russia's reserves, and estimating them has grown harder as China diversified away from both U.S. and Belgium-based custodians. Estimates suggest a lower share in long-term Treasuries, more bills, and roughly 10% in agency bonds.

AI Summary. German federal spending has picked up, with year-to-date outlays from the off-budget military fund up €1.7bn (+44%) from a year earlier and total defence spending up €7.0bn (+34%). Spending from the newly established infrastructure and climate fund came in above expectations at €6.1bn, exceeding the decline in infrastructure items within the main budget.

Niklas Garnadt Goldman Sachs
Date Posted:

German fiscal expansion is underway, led by defense spending, which was up 34% y/y in April. Further buoyed by climate and infrastructure spending above expectations, the widened deficit will add an estimated 0.6pp fiscal impulse in 2026.

Is German federal spending on defence and infrastructure accelerating?

Core argument: Germany's year-to-date spending from the off-budget military fund is up EUR 1.7bn (+44%) from last year, while total defence spending is up EUR 7.0bn (+34%).

Spending in the off-budget military fund (implied by the fund's issuance activity) stood at EUR 1.2bn, slightly higher than our expectation of EUR 1.0bn and also higher than last year's EUR 0.9bn. YTD spending in the military fund is up EUR 1.7bn (+44%) from last year and total defence spending is up EUR 7.0bn (+34%). Spending in the infrastructure fund (implied by the fund's issuance activity) came in at EUR 6.1bn, notably above our expectation. Data on spending in the federal bucket of this fund, which came in at only EUR 0.7bn in April, suggests that the upside surprise came either from disbursement to the states or spending in the climate transformation fund. As the infrastructure & climate fund was only established last autumn, there are no comparable numbers for last year, but total spending out of this fund remains notably higher than the decrease in infrastructure-related items in the main budget compared to last year.

Takeaways by Macro Roundup® AI

  1. Germany's year-to-date spending from the off-budget military fund is up EUR 1.7bn (+44%) from last year, while total defence spending is up EUR 7.0bn (+34%).
  2. April spending in Germany's off-budget military fund, implied by the fund's issuance activity, was EUR 1.2bn, above the EUR 1.0bn expected and last year's EUR 0.9bn.
  3. Spending in Germany's infrastructure fund, implied by the fund's issuance activity, came in at EUR 6.1bn, notably above expectation, with only EUR 0.7bn from the federal bucket, suggesting disbursement to the states or the climate transformation fund.

Related Articles:

  • Germany Has the Cash to Revitalize Its Economy, but Can’t Seem to Spend It — Germany's large economic stimulus has been slowed by bureaucratic procedures that delay infrastructure spending, though the country suspended planning rules to build three liquefied natural gas terminals in about 10 months instead of the usual five years. A bill in parliament would extend similar streamlining to large infrastructure projects.
  • Merz’s €600 Billion Defense Push Is Rippling Across Germany — 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.
  • 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.