Edward Conard

Top Ten New York Times Bestselling Author

  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…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 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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…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
  • “…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 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, June 16, 2026

AI Summary. A macro model estimates that each 1 percentage point change in S&P 500 return on equity is associated with roughly a 1x change in the index's price-to-earnings ratio. Consensus estimates put hyperscaler capital spending at $770bn, equal to 100% of their operating cash flows, funded increasingly by debt and equity issuance rather than buybacks.

Ben Snider, Ryan Hammond, Jenny Ma, Daniel Chavez, et al. Goldman Sachs
Date Posted:

GS finds that historically, a 1pp move in the S&P 500’s ROE is associated with about a one‑turn move in its P/E multiple. Whether the S&P’s current P/E is sustainable therefore hinges on whether today’s elevated ROE proves persistent.

How does the AI capital spending boom affect S&P 500 profitability?

Core argument: Consensus estimates put hyperscaler capex at $770 billion in 2026, equivalent to 100% of their cash flows from operations.

Whether S&P 500 valuations revert toward their long-term average or prove structurally higher going forward will depend in large part on the trajectory of corporate profitability. Based on our macro model, every 1 percentage point change in S&P 500 ROE is associated with a change of roughly 1x in S&P 500 P/E. Consensus estimates suggest the hyperscalers will spend $770 billion on capex in 2026, equivalent to 100% of cash flows from operations. In order to fund continued capex growth, the companies have increasingly turned to debt and equity issuance and pulled back on buybacks. Net debt for the hyperscalers has increased by $170 billion since the start of 2025, and share counts have begun to rise. While further increases in corporate leverage would support ROE expansion going forward, all else equal, higher leverage would also likely result in increased interest expenses, weighing on ROE.

Takeaways by Macro Roundup® AI

  1. Consensus estimates put hyperscaler capex at $770 billion in 2026, equivalent to 100% of their cash flows from operations.
  2. A macro model associates every 1 percentage point change in S&P 500 return on equity with a change of roughly 1x in the S&P 500 P/E ratio.
  3. Hyperscaler net debt has risen by $170 billion since the start of 2025 and share counts have begun to rise as the companies fund capex growth through debt and equity issuance while pulling back on buybacks.

Related Articles:

  • Have We Entered an Era of High Productivity Growth? — 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.
  • Writing Code vs. Shipping Code: Productivity Effects Across Generations of AI Coding Tools — The authors estimate that AI coding tools raise developers' task-level productivity by about 40% with autocomplete, 140% including synchronous agents, and 180% with asynchronous agents, with larger effects for less active developers. Gains attenuate up the production chain: synchronous agents raise lines of code 741% and pull requests 65% but releases only 20%.
  • Measurements Matter: The Return of SLOC Slop — Measuring developer productivity by software lines of code captures output rather than value, and AI inflates the metric by generating boilerplate, wrappers, tests, and speculative code at near-zero cost. More code also creates liabilities through added maintenance, complexity, attack surface, and debugging load.

AI Summary. China's construction boom is estimated at roughly RMB100trn ($14tn) over a five-year span, moving some 800mn people into modern housing, and the AI data center spending boom is estimated at about half that size — but roughly 7x the $930bn inflation-adjusted US internet and broadband buildout.

Louis-Vincent Gave Gavekal
Date Posted:

The US AI buildout is now ~ half the size of China’s 2014–2018 construction boom. Gave notes the global demand for capital is rising, while supply is constrained relative to recent years, pointing to the disappearance of debt with a negative real yield.

How does AI data center spending compare with past building booms?

Core argument: China is estimated to have spent roughly RMB100trn (US$14trn) on construction of all kinds between 2014 and 2018, a boom that allowed roughly 800mn people to move out of insalubrious housing.

Between 2014 and 2018, when China’s construction boom was really going gangbusters, it is estimated that China spent roughly RMB100trn (US$14trn) on construction of all kinds. This construction boom allowed roughly 800mn people to move out of insalubrious housing and into the modern world The AI data center spending boom is thus estimated to be roughly half the size of the Chinese construction boom over a similar period. And this for assets that have a far faster depreciation cycle and are more prone to obsolescence than apartment buildings. The buildings that China built 10 years ago are still there and mostly still occupied. Meanwhile, will the data centers built in 2026 still be useful in 2036? Perhaps a more apt comparison is that between 1996 and 2000, US telecom companies spent roughly US$500bn on internet and broadband infrastructure, or US$930bn in inflation-adjusted terms. Today’s AI capex boom is thus roughly equal to 7x the internet capex boom.

Takeaways by Macro Roundup® AI

  1. China is estimated to have spent roughly RMB100trn (US$14trn) on construction of all kinds between 2014 and 2018, a boom that allowed roughly 800mn people to move out of insalubrious housing.
  2. The AI data center spending boom is estimated at roughly half the size of China's construction boom over a similar period, for assets with a far faster depreciation cycle and more prone to obsolescence than apartment buildings.
  3. US telecom companies spent roughly US$500bn on internet and broadband infrastructure between 1996 and 2000, or US$930bn in inflation-adjusted terms, roughly one-seventh of today's AI capex boom.

Related Articles:

  • SpaceX and OpenAI Are Ending Wall Street’s Era of Stock Scarcity — JPMorgan projects that share sales will add roughly $1.5tn of stock to the US equity market over the next two years even after buybacks, which would be the strongest net equity issuance since at least the late 1990s. Equity has grown cheaper relative to debt as a funding source.
  • A Tale of Two Countries: The Real Estate Crises in 1990s Japan and Contemporary China — The authors argue Japan's prolonged recession reflected the interplay of slowing returns to investment, weak consumption, and negative sentiment, and that China is in the middle stages of a multi-year real estate correction under more difficult macroeconomic and demographic conditions. They note China retains advantages, including a state-dominated financial system with implicit government guarantees capable of large-scale intervention.
  • 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.

AI Summary. The authors argue that American men's lifetime experiences of the male labor market shape their beliefs about the returns to working, contributing to the long-run decline in male labor force participation, with recent cohorts participating less than earlier ones at every age. The effects are stronger for same-race labor markets and for conditions experienced in childhood.

Remy Levin and Daniela Vidart National Bureau of Economic Research
Date Posted:
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Btw 1986 and 2019, prime-age males who grew up observing a one–SD lower male earnings history had a 7pp lower LFP rate in adulthood, holding current labor‑market conditions fixed.

How do lifetime labor market experiences shape male labor force participation?

Core argument: The authors propose that American men's lifetime experiences of the aggregate male labor market shape their beliefs about the returns to participation, influencing labor supply decisions in ways that persist even in the face of current market conditions.

We propose a new channel contributing to the long-run decline in [male labor force participation] (MLFP) in the United States: changes in American men’s lifetime experiences of the aggregate male labor market have shaped their beliefs about the returns to participation, influencing labor supply decisions in ways that persist even in the face of current market conditions. MLFP and national lifetime male labor market experiences, holding contemporaneous conditions fixed, are highly correlated over time (Figure 1, Panel A). Second, the decline in MLFP is largely driven by cohort-level differences: recent cohorts participate at lower rates than previous generations at every age (Figure 1, Panel B). These patterns suggest that men’s labor market participation is the history, embedded in each cohort’s memory, of the labor markets experienced by the men around them. The effects on MLFP are stronger for experiences of same-race male labor markets, demonstrating the central role of reference-group identity, and are driven by conditions experienced during men’s formative childhood years not explained by educational attainment of subjects or their fathers. Finally, we show that lifetime male labor market experiences are correlated with direct measures of men’s personal wage and employment expectations, but not their expectations for the macroeconomy as a whole.

Takeaways by Macro Roundup® AI

  1. The authors propose that American men's lifetime experiences of the aggregate male labor market shape their beliefs about the returns to participation, influencing labor supply decisions in ways that persist even in the face of current market conditions.
  2. The decline in U.S. male labor force participation is largely driven by cohort-level differences, with recent cohorts participating at lower rates than previous generations at every age.
  3. Effects on male labor force participation are stronger for experiences of same-race male labor markets and are driven by conditions experienced during men's formative childhood years, not explained by the educational attainment of subjects or their fathers.

Related Articles:

  • How Labor Force Participation Has Diverged Across Genders — Between 1976 and 2024 the trend labor force participation rate fell 10.1 percentage points for men and rose 8.2 points for women. Population aging lowered participation by about 4 points for each gender and rising education raised it (+6 for women, +3 for men), but the divergence is dominated by participation trends within age-gender groups.
  • Bachelors Without Bachelor’s: Gender Gaps in Education and Declining Marriage Rates — Marriage rates for college-educated women have remained stable over the past fifty years even as the relative supply of college-educated men declined, with the overall decline in marriage driven almost entirely by fewer marriages between non-college women and non-college men. The education gap in women's marriage rates is larger in areas where non-college men face the highest joblessness and incarceration.
  • Post-Pandemic Recovery for America’s Prime Age Labor Force: A Tale of Two Sexes — Prime-age women's labor force participation climbed about 5 points above its pre-pandemic level over a decade, while prime-age men's rose barely a point, only just regaining pre-pandemic levels. Despite economic expansion and labor shortages, work rates for prime-age American men are barely as high as at the trough of the severe Reagan-era recession.

AI Summary. US consumer sentiment rose for the first time in four months as lower gasoline prices offered some relief from a surge in inflation, with the University of Michigan's preliminary sentiment index increasing to 48.9 from a record low of 44.8. The reading beat most economists' expectations but remains the second lowest in data going back to the 1970s.

María Paula Mijares Torres Bloomberg
Date Posted:

The Michigan Consumer Sentiment Index rose in early June from its record low in May. Respondents expect inflation of 4.6% over the next year, down from 4.8% in May. The survey was taken prior to the US Iran deal.

Do lower gasoline prices lift consumer sentiment from record lows?

Core argument: The University of Michigan's preliminary consumer sentiment index rose to 48.9 in June from a record low of 44.8 in May, its first increase in four months.

US consumer sentiment rose in early June for the first time in four months as lower gasoline prices provided some relief for Americans grappling with a surge in inflation. The University of Michigan’s preliminary sentiment index increased to 48.9 in June from a record low 44.8 in May, according to the survey released Friday. That was higher than most economists in a Bloomberg survey expected, but it’s still the second lowest reading in data back to the 1970s.

Takeaways by Macro Roundup® AI

  1. The University of Michigan's preliminary consumer sentiment index rose to 48.9 in June from a record low of 44.8 in May, its first increase in four months.
  2. The June sentiment reading exceeded the expectations of most economists surveyed by Bloomberg, yet remains the second lowest in data going back to the 1970s.
  3. Lower gasoline prices provided some relief for Americans grappling with a surge in inflation, contributing to the rise in US consumer sentiment.

Related Articles:

  • Gas Prices Wipe Out More Than a Year of Wage Gains — Rising gasoline prices have pushed average hourly earnings 0.7% below their year-earlier level after adjusting for inflation, erasing more than a year of wage gains. Inflation eroding wage increases is one reason consumer sentiment sits near record lows despite relatively low unemployment and a strong stock market.
  • Do Voters Punish Inflation or Pay Cuts? Inflation and Real Wages in U.S. Elections — An analysis of U.S. counties estimates that where wages grew faster than prices, voters supported the incumbent party more, while counties with larger real wage losses than average shifted more toward the opposition. A one-standard-deviation larger real wage loss is associated with shifts of roughly 0.10 and 0.19 percentage points in vote share and margin.
  • US Producer Prices Rise at Fastest Pace Since November 2022 — The Bureau of Labor Statistics reported that US producer prices rose 6.5% from a year earlier, the fastest annual pace in more than two years, and 1.1% from the prior month. A core measure excluding food and energy rose 4.9% year over year.

AI Summary. SpaceX's market capitalization reached $2.65tn, about $8bn above Amazon's, making it the fifth-largest stock in the world, and at its intraday high it briefly passed Microsoft to rank fourth.

Carmen Reinicke and Subrat Patnaik Bloomberg
Date Posted:

SpaceX overtook Amazon in value. The firm is acquiring Cursor in an all-stock deal that values the coding startup at $60B.

Has a newly public rocket company become the world's fifth-largest stock?

Core argument: SpaceX shares closed 4.8% higher, lifting its market capitalization to $2.65 trillion, roughly $8 billion above Amazon.com's, and making it the fifth-largest stock in the world.

SpaceX jumped for a third straight day on Tuesday, overtaking Amazon.com in value to become the fifth-largest stock in the world. Shares closed 4.8% higher, pushing its market capitalization to $2.65 trillion, roughly $8 billion higher than Amazon’s. At the stock’s intraday high, the market value of Elon Musk’s rocket and AI company topped Microsoft to briefly become the world’s fourth-largest stock.

Takeaways by Macro Roundup® AI

  1. SpaceX shares closed 4.8% higher, lifting its market capitalization to $2.65 trillion, roughly $8 billion above Amazon.com's, and making it the fifth-largest stock in the world.
  2. SpaceX has rallied 49% since its IPO, with Tuesday's gain marking a third consecutive day of advances.
  3. At its intraday high, SpaceX's market value topped Microsoft's, briefly making Elon Musk's rocket and AI company the world's fourth-largest stock.

Related Articles:

  • SpaceX — To Boldly Raise Money Where No IPO Has Gone Before — Goldman Sachs research finds that large companies floating 7% or less of their shares at initial public offering have 54% of shares in circulation two years later, while across its full sample of listings a 24% float at debut became 69% within 24 months.
  • SpaceX and OpenAI Are Ending Wall Street’s Era of Stock Scarcity — JPMorgan projects that share sales will add roughly $1.5tn of stock to the US equity market over the next two years even after buybacks, which would be the strongest net equity issuance since at least the late 1990s. Equity has grown cheaper relative to debt as a funding source.
  • Capital Allocation — Internal financing has been the main source of capital for U.S. corporations, with steady new debt issuance except in recession years, consistent with a stable capital structure. Companies have retired equity on average, and net equity issuance remains negative even after accounting for stock-based compensation.

AI Summary. Swiss voters rejected a proposal that would have capped the country's population at 10mn, up from about 9.1mn, requiring government measures to curb growth past 9.5mn and potentially ending free movement of people with the European Union. Opponents including the government, business groups and trade unions argued it threatened economic growth and access to foreign labour.

Mercedes Ruehl Financial Times
Date Posted:

Swiss voters rejected by 54–46% a proposal to cap the country’s population at 10mm. The proposal would have required the government to take measures to curb population growth once its level hits 9.5mm. The Swiss population is ~ 9.1mm today.

Will voters approve a national population cap that limits immigration?

Core argument: Swiss voters rejected a Swiss People's Party initiative to cap the population at 10mn, from about 9.1mn today, which would have made Switzerland the first country to impose a formal population cap.

The proposal, backed by the rightwing Swiss People’s Party (SVP), would have made Switzerland the first country to impose a formal cap on its population. It sought to limit the number of residents to 10mn, from about 9.1mn today, and would have required the government to take measures to curb population growth once the population reached 9.5mn. If the population subsequently exceeded 10mn, the government would have been obliged to adopt more far-reaching measures, potentially including ending free movement of people with the EU, a cornerstone of Switzerland’s bilateral relationship with the bloc. The result represents a victory for the Swiss government, business groups and trade unions, which had argued the initiative threatened economic growth and risked undermining Switzerland’s access to foreign labour at a time of acute demographic pressures.

Takeaways by Macro Roundup® AI

  1. Swiss voters rejected a Swiss People's Party initiative to cap the population at 10mn, from about 9.1mn today, which would have made Switzerland the first country to impose a formal population cap.
  2. The rejected proposal would have required the Swiss government to curb population growth once residents reached 9.5mn, and to adopt more far-reaching measures beyond 10mn, potentially including ending free movement of people with the EU.
  3. The Swiss government, business groups and trade unions opposed the initiative, arguing it threatened economic growth and risked undermining Switzerland's access to foreign labour amid acute demographic pressures.

Related Articles:

  • Switzerland To Vote On Plan To Cap Population At 10mn — Switzerland will vote on a proposal to cap its population at 10mn, a limit that could jeopardize agreements with the European Union and restrict companies' access to skilled foreign workers. The population stands at 9.1mn, foreign residents make up 27% of the total, and the population has grown about 25% since 2000.
  • Africa Needs 1 Billion Jobs by the End of the Century. Where Will It Find Them? — Africa's population, now about 1.5bn, is projected to reach 4bn by 2100, with sub-Saharan Africa approaching 3.5bn and Nigeria's working-age population forecast to exceed 320m. Between 2005 and 2020, Congo, Nigeria, Ethiopia and other large states averaged only one job created for every two entrants to the working-age population.
  • Changing Sub-Saharan Africa’s Growth Trajectory — Sub-Saharan Africa's working-age population is growing nearly 3% a year, versus close to zero in much of the world, and is projected to exceed China's within about a decade and reach a quarter of the global total. With modest productivity growth near 2%, the region is likely among the world's fastest-growing.

Wednesday, June 17, 2026

AI Summary. Hyperscaler and data-center investment is tracking toward $1.5tn annually by 2030, which in real terms would exceed the 2005-06 housing boom, the 1990s fiber peak, and the 1882 railroad peak combined. External debt and equity are projected to fund close to 90% of the buildout, making it dependent on credit markets.

Paul Kedrosky Applied Complexity
Date Posted:

AI spending is on track to hit ~$1.5T annually by 2030, 90% of which will be externally financed. Increasingly, “The cycle’s fate is tied to debt market appetite, not hyperscaler conviction,” writes Kedrosky.

Is AI's buildout becoming dependent on outside credit markets?

Core argument: Hyperscaler and data-center investment, negligible through 2022, is tracking toward $1.5 trillion annually by 2030, exceeding in real terms the 2005–06 residential construction boom, the 1990s fiber build peak year, and the 1882 railroad peak combined.

Hyperscaler and data-center investment, negligible through 2022, is now tracking toward $1.5 trillion annually by 2030. At that level, it will surpass, in real terms, the residential construction boom of 2005-06, the 1990s fiber build peak year, and the 1882 railroad peak combined. Hyperscaler and data-center investment has reached funding escape velocity, with external debt and equity soon financing the majority of the buildout, with that share approaching 90% by 2030. AI infrastructure cycle is dependent on capital markets in a way that no prior technology cycle ever was. Debt-market dependency is now systemic. At these levels of dependency, a credit contraction or spread widening stops the buildout cold. The cycle's fate is tied to debt market appetite, not hyperscaler conviction. Exceeding their real-dollar peaks is not evidence of strength. Demand has to clear at this scale. Infrastructure investment at $1.5 trillion annually requires commensurate revenue generation from AI services to service the soaring debt. No prior technology wave has needed to monetize at this rate, this fast.

Takeaways by Macro Roundup® AI

  1. Hyperscaler and data-center investment, negligible through 2022, is tracking toward $1.5 trillion annually by 2030, exceeding in real terms the 2005–06 residential construction boom, the 1990s fiber build peak year, and the 1882 railroad peak combined.
  2. External debt and equity will soon finance the majority of the AI buildout, with that share approaching 90% by 2030, leaving the cycle dependent on capital markets in a way no prior technology cycle was.
  3. At these levels of debt-market dependency, a credit contraction or spread widening stops the buildout cold, and $1.5 trillion of annual infrastructure investment requires commensurate AI services revenue to service the debt.

Related Articles:

  • Have We Entered an Era of High Productivity Growth? — 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.
  • The Impact Of The AI Capex Boom On S&P 500 Return On Equity — A macro model estimates that each 1 percentage point change in S&P 500 return on equity is associated with roughly a 1x change in the index's price-to-earnings ratio. Consensus estimates put hyperscaler capital spending at $770bn, equal to 100% of their operating cash flows, funded increasingly by debt and equity issuance rather than buybacks.
  • The Unlikely Corporate Winners Of AI — Alphabet, Microsoft, Amazon, Meta and Oracle are projecting $700bn in capital spending in 2026, with Bain & Company estimating the tech industry must generate $2tn in annual AI revenue to justify current data centre spending trends. Electrical equipment suppliers describe AI data centres as a core growth driver.

AI Summary. Underlying U.S. inflation continues to run faster than the Federal Reserve's target and may be accelerating slightly, while growth, consumer spending, and a healthy job market keep wages rising about 1 percentage point faster than in the years just before the pandemic. On that evidence, the author argues rate increases, not cuts, are the appropriate policy.

Matt Klein The Overshoot
Date Posted:

Even well before the war, wage growth was outrunning productivity, and multiple indicators showed underlying inflation was above target and rising, Klein stresses. Yet talk of rate cuts persisted. Klein argues postwar rate hikes are on the horizon.

Do persistent inflation and strong wage growth justify raising rates?

Core argument: Wages continue to rise about 1 percentage point faster than in the years immediately preceding the pandemic, with a reasonably healthy job market accompanying underlying growth much stronger than worrywarts had feared.

The challenge for Warsh, and for his dovish supporters in the administration, is that underlying inflation continues to be persistently faster than the Fed’s official target, and may even be accelerating (slightly). Temporary disruptions associated with the closure of the Strait of Hormuz are not the main problem, which explains why rates pricing has barely budged since the announcement of a ceasefire and, more recently, a deal to reopen the Strait. Instead, as I have been arguing for some time, the prewar consensus in favor of lowering rates was mistaken. Underlying growth has been much stronger than worrywarts had feared, with the reasonably healthy job market ensuring that wages continue to rise about 1 percentage point faster than in the years immediately preceding the pandemic. The data over the past four months seem to have convinced traders to come towards my point of view. The obvious reason is that the job market, consumer spending, and inflation all seem to have accelerated. More important is that this acceleration coincided with a massive spike in commodity prices. The easing of constraints on shipping through Hormuz should create an additional boost to growth, and quite possibly to underlying inflation. In those circumstances, rate cuts would not be appropriate—but rate increases would be.

Takeaways by Macro Roundup® AI

  1. Wages continue to rise about 1 percentage point faster than in the years immediately preceding the pandemic, with a reasonably healthy job market accompanying underlying growth much stronger than worrywarts had feared.
  2. Underlying U.S. inflation remains persistently faster than the Fed's official target and may be accelerating slightly, which the author argues makes rate increases, not rate cuts, appropriate.
  3. Rates pricing has barely budged since the ceasefire announcement and the deal to reopen the Strait of Hormuz, and easing shipping constraints there should boost growth and quite possibly underlying inflation.

Related Articles:

  • US Producer Prices Rise at Fastest Pace Since November 2022 — The Bureau of Labor Statistics reported that US producer prices rose 6.5% from a year earlier, the fastest annual pace in more than two years, and 1.1% from the prior month. A core measure excluding food and energy rose 4.9% year over year.
  • US Inflation Picks Up to Three-Year High, Eroding Paychecks — US consumer prices rose 0.5% on the month and 4.2% from a year earlier, according to Bureau of Labor Statistics data, with more than half the monthly advance coming from higher energy costs, while the measure excluding food and energy rose 0.2%. Inflation-adjusted average hourly earnings fell 0.7% from a year earlier.
  • Home Alone: Inflation And The New Fed Chair — 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%.

AI Summary. Bond traders have priced in a full quarter-point interest-rate increase by the end of the first quarter of 2027, with the 10-year US Treasury yield at 4.44%. Most of the rise in yields came from real yields, which strip out inflation expectations, reflecting a stronger growth outlook and expectations of a higher neutral rate.

Georgia Hall, Ruth Carson, and Ye Xie Bloomberg
Date Posted:

Since the start of the Iran War, 10-year real yields have risen ~40bps, reflecting a stronger growth outlook and a perceived rise in the neutral rate.

Are rising bond yields signaling stronger growth and a higher neutral rate?

Core argument: Traders have priced in a full quarter-point rate increase by the end of the first quarter of 2027, even after easing their most intense hike expectations, with US Treasuries unchanged and the 10-year yield steady at 4.44%.

While traders have eased their most intense expectations for hikes, they still have priced in a full quarter-point increase by the end of the first quarter of 2027. US Treasuries were unchanged Wednesday, with the 10-year yield steady at 4.44%. For JPMorgan Chase & Co.’s Jay Barry, the Fed will ultimately have to hike. “The intermediate sector in the US curve is probably trading 20 or 25 basis points too low in yield,” the head of global rates strategy told Bloomberg Television Most of the increase seen across yields was driven by so-called real yields, which strip out inflation expectations, indicating that bond investors’ concerns go beyond price pressures from the Iran war. Those elevated real yields reflect a combination of a stronger growth outlook and expectations that the neutral rate — the level that neither restricts nor stimulates economic activity — will rise over time.

Takeaways by Macro Roundup® AI

  1. Traders have priced in a full quarter-point rate increase by the end of the first quarter of 2027, even after easing their most intense hike expectations, with US Treasuries unchanged and the 10-year yield steady at 4.44%.
  2. JPMorgan Chase & Co. head of global rates strategy Jay Barry told Bloomberg Television that the Federal Reserve will ultimately have to hike and that the intermediate sector of the US curve is probably trading 20 to 25 basis points too low in yield.
  3. Most of the increase across yields was driven by real yields, which strip out inflation expectations, reflecting a combination of a stronger growth outlook and expectations that the neutral rate will rise over time.

Related Articles:

  • Home Alone: Inflation And The New Fed Chair — 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%.
  • 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%.

AI Summary. Treasury bills make up almost 85% of gross US government debt issuance, near the highest share in over two decades. Tilting issuance toward short-dated debt ties government borrowing costs more closely to short-term interest rates, making its financing increasingly dependent on Federal Reserve policy.

Torsten Sløk Apollo
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T-bills are ~85% of gross Treasury issuance, meaning Federal borrowing costs are more closely tied to the front end of the curve, the part most directly under the Fed’s control.

Does heavier short-term debt issuance tie government borrowing costs to Fed policy?

Core argument: T-bills account for almost 85% of gross Treasury issuance, near the highest share in over two decades.

T-bills now account for almost 85% of gross Treasury issuance, near the highest share in over two decades. By tilting issuance toward short-dated debt, the government ties its borrowing costs more closely to the front end of the curve, making its financing increasingly dependent on Fed policy.

Takeaways by Macro Roundup® AI

  1. T-bills account for almost 85% of gross Treasury issuance, near the highest share in over two decades.
  2. By tilting issuance toward short-dated debt, the U.S. government ties its borrowing costs more closely to the front end of the yield curve.
  3. The Treasury's shift toward bills makes federal financing increasingly dependent on Federal Reserve policy.

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AI Summary. The U.S. has invoked the Defense Production Act to expand munitions output amid doubts that American weapons makers can meet increased demand. U.S. officials say more than 1,000 long-range Tomahawk missiles and 1,500–2,000 air-defense interceptors have been fired in the war with Iran, and replacing those stockpiles could take up to six years.

Lara Seligman and Marcus Weisgerber Wall Street Journal
Date Posted:

In an effort to accelerate munitions production, already an issue prior to the Iran war, Trump invoked the Defense Production Act. The war further stressed magazine depth; replenishing stockpiles at existing production rates could take six years.

Can American weapons makers replace depleted missile stockpiles quickly?

Core argument: The U.S. has fired more than 1,000 long-range Tomahawk missiles since the war with Iran began Feb. 28, along with 1,500–2,000 air-defense interceptors including Thaad, Patriot and Standard Missile, according to U.S. officials who declined to give exact figures.

The decision to turn to the Defense Production Act comes amid doubts that American weapons makers are able to meet increased demand. The U.S. has fired more than 1,000 long-range Tomahawk missiles since the war with Iran began Feb. 28, as well as 1,500 to 2,000 air-defense missiles, including Thaad, Patriot and Standard Missile interceptors, according to U.S. officials who declined to give exact figures. Completely replacing those stockpiles could take up to six years, officials told The Wall Street Journal at the time.

Takeaways by Macro Roundup® AI

  1. The U.S. has fired more than 1,000 long-range Tomahawk missiles since the war with Iran began Feb. 28, along with 1,500–2,000 air-defense interceptors including Thaad, Patriot and Standard Missile, according to U.S. officials who declined to give exact figures.
  2. President Trump invoked the Cold War-era Defense Production Act to boost munitions production amid doubts that American weapons makers can meet increased demand.
  3. Completely replacing the expended U.S. missile stockpiles could take up to six years, officials told The Wall Street Journal.

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  • Pentagon Approaches Automakers, Manufacturers to Boost Weapons Production — The Pentagon has approached U.S. automakers and other manufacturers about using their workers and factory capacity to boost production of munitions and other equipment as wars deplete stocks, asking whether they could rapidly shift to defense work. Most large non-defense manufacturers already hold Pentagon contracts, but these are typically limited in scope and value.
  • US Warns Japan Of Severe Delays In Tomahawk Deliveries Due To Iran War — The US has warned Japan that deliveries of 400 Tomahawk cruise missiles, expected by April 2028, could be delayed by as much as two years. The Center for Strategic and International Studies says the US fired more than 1,000 Tomahawks from an estimated prewar inventory of 3,100 during five weeks of operations against Iran.