Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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 must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…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 represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences 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 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
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, September 17, 2026

AI Summary. The official U.S. poverty rate fell 0.5 percentage points to 10.2%, a third consecutive annual decline and among the lowest on record, with 34.5m people in poverty. Poverty rates hit historic lows for Hispanic individuals, down 1.2 points to 13.9%, and children under 18, down 1.0 point to 13.4%.

Christina Bijou and Emily Shrider U.S. Census Bureau
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According to the Census Bureau, the poverty rate in the US fell .5pp in 2025 to 10.2%, one of the lowest rates on record. The poverty rate for children fell to a historical low of 13.4%. Census’s income measure does not include taxes or non-cash government transfers.

Is the U.S. poverty rate falling to record lows?

Core argument: The official U.S. poverty rate fell 0.5 percentage points to 10.2% in 2025, the third consecutive annual decline and one of the lowest rates on record, with 34.5 million people in poverty.

In 2025, the official poverty rate fell 0.5 percentage points to 10.2%, the third consecutive annual decline and one of the lowest rates on record. There were 34.5 million people in poverty in 2025. Poverty rates for Hispanic individuals and children under age 18 both fell to historic lows in 2025. Between 2024 and 2025, the poverty rate for Hispanic individuals fell 1.2 percentage points to 13.9%. The child poverty rate fell 1 percentage point to 13.4%.

Takeaways by Macro Roundup® AI

  1. The official U.S. poverty rate fell 0.5 percentage points to 10.2% in 2025, the third consecutive annual decline and one of the lowest rates on record, with 34.5 million people in poverty.
  2. The poverty rate for Hispanic individuals fell 1.2 percentage points to 13.9% between 2024 and 2025, a historic low.
  3. The poverty rate for children under age 18 fell 1.0 percentage point to 13.4% in 2025, a historic low.

Related Articles:

  • Poverty and Dependency in the United States, 1939–2023 — Extending a consistent poverty measure back to 1939, the authors estimate US absolute poverty fell from 48.5% to 19.5% between 1939 and 1963, driven by growth in market income rather than government transfers net of taxes. Poverty fell no faster in the 24 years after the War on Poverty than before.
  • Evaluating the Success of the War on Poverty since 1963 Using an Absolute Full-Income Poverty Measure — The authors estimate that an absolute full-income poverty measure, which counts a fuller set of income sources and adjusts thresholds only for inflation, fell from 19.5% to 1.6%, versus an official decline to 10.5%. They also find relative poverty reductions modest and government dependence more than doubled among working-age adults.
  • The Great “Transfer”-mation — Government transfers rose from 8.2% of Americans' total personal income in 1970 to 17.6% in 2022, making them the third largest income source after work and investments. The share of U.S. counties drawing a quarter or more of personal income from transfers rose from under 1% in 1970 to 53% in 2022.

AI Summary. Census data show the number of U.S. families with inflation-adjusted incomes above $150,000 grew from under 3m in 1967 to over 31m in 2025, while families earning under $75,000 fell by almost 3m in absolute terms. The share of families with multiple earners has not increased much over that period.

Jeremy Horpedahl Economist Writing Every Day
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In 1967, just 5.5% of American families had an inflation adjusted income of $150,000 or more. In 2025, 35.7% did. During that timeframe, the share of families with a real income less than $75,000 declined from 63.4% to 32.8%.

Are more American families reaching higher inflation-adjusted income levels?

Core argument: The number of U.S. families with incomes above $150,000 in 2025 inflation-adjusted dollars rose from fewer than 3 million in 1967 to over 31 million in 2025, according to Census data.

In 1967 there were fewer than 3 million families with incomes over $150,000 (in 2025 inflation-adjusted dollars). By 2025, that had grown to over 31 million families. If we look at the highest income threshold in this Census data — over $200,000 — the number of families has grown from just 1 million in 1967 to over 20 million in 2025. And there are fewer lower-income families too: the number of families under $75,000 shrunk, not just as a proportion of the total but even in absolute terms by almost 3 million families from 1967 to 2025. Of course, some of these families do have more earners than in 1967, though we shouldn’t overstate that too much. Using other data from Census, we can see that the share of families with multiple earners hasn’t increased much since 1967, and especially hasn’t since the mid-1990s.

Takeaways by Macro Roundup® AI

  1. The number of U.S. families with incomes above $150,000 in 2025 inflation-adjusted dollars rose from fewer than 3 million in 1967 to over 31 million in 2025, according to Census data.
  2. Families earning over $200,000, the highest income threshold in the Census data, grew from about 1 million in 1967 to over 20 million in 2025.
  3. Families with incomes under $75,000 declined by almost 3 million in absolute terms from 1967 to 2025, while Census data show the share of families with multiple earners has not increased much since 1967, and especially not since the mid-1990s.

Related Articles:

  • Income in the United States: 2025 — Median U.S. household income rose 2.6% to $87,460, the highest level on record in data going back to 1967. Median income increased 3% for White households, 2.9% for non-Hispanic White households, and 4.8% for Black households, while changes for Asian and Hispanic households were not statistically significant.
  • The Middle Class Is Shrinking Because of a Booming Upper-Middle Class — Analyses showing a shrinking middle class typically use relative income thresholds that rise with median income, so they can register decline even when living standards rise across the distribution. Using an absolute definition, the authors find the core middle class shrank because the upper-middle class grew from 10% of families to 31%, doubling its income share.
  • Who Sees Themselves as Working Class? — Survey data indicate 60% of U.S. adults say the term "working class" describes them well, including half of those with a bachelor's degree and half of upper-income Americans. Identification is highest among blue-collar workers at 77%, versus 61% in other occupations, and ranges from 52% of Asian adults to 62% of White adults.

AI Summary. An analysis of 22 rich countries estimates that if each refinanced its entire debt at current five-year bond yields, Britain would need the largest primary surplus to stabilize its debt-to-GDP ratio, about 1.5%, followed by Italy at 1.4%, France at 1.2% and America at 1%.

Economist Staff The Economist
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Refinancing the entire US debt stock at the current five-year borrowing rate, on current growth forecasts, would require a primary surplus of 1% of GDP to hold the debt ratio stable, a fiscal consolidation of 4.7pp. In October 2025, it would have required 2.3pp.

How much belt tightening would rich countries need to stabilize debt?

Core argument: The Economist calculates that Britain would need the largest primary surplus of 22 rich countries, about 1.5% of GDP, to hold its debt-to-GDP ratio stable if it replaced its entire debt stock at today’s five-year yields.

The Economist calculated what would happen if rich countries had to replace their entire debt stocks at today’s five-year bond yields, using IMF forecasts for nominal growth. Out of 22 countries, Britain would need to run the largest primary surplus, of about 1.5% of GDP, merely to keep its debt-to-GDP ratio stable. Italy and France are next, needing surpluses of 1.4% and 1.2%, respectively. America is not far behind, requiring one of 1%. Japan can run a deficit of 0.8% since its growth is estimated to outpace the interest rate on its debt. America is running a primary deficit of nearly 4% of GDP, meaning significant belt tightening of nearly five percentage points of GDP is needed to stabilise its debt ratio at today’s borrowing costs. The situation is deteriorating fast as a result of persistent deficits and surging yields. Just a year ago America required an adjustment of more than two percentage points less than it does today.

Takeaways by Macro Roundup® AI

  1. The Economist calculates that Britain would need the largest primary surplus of 22 rich countries, about 1.5% of GDP, to hold its debt-to-GDP ratio stable if it replaced its entire debt stock at today’s five-year yields.
  2. America requires a primary surplus of 1% of GDP to stabilise its debt ratio at today’s borrowing costs while running a primary deficit of nearly 4%, implying belt tightening of nearly five percentage points of GDP, by The Economist’s calculation.
  3. Japan can run a primary deficit of 0.8% of GDP and still keep its debt burden stable because its growth is estimated to outpace the interest rate on its debt, while Italy and France need surpluses of 1.4% and 1.2%.

Related Articles:

  • America’s Risky Debt: What Markets See That Policymakers Don’t — Two market-based measures suggest the safety premium investors pay to hold US Treasuries has compressed toward zero and at times reversed: the spread between top-rated corporate bonds and Treasuries after stripping out default risk, and the gap between currency-hedged foreign G10 government yields and Treasury yields at the same maturity, where longer-maturity comparisons now favor foreign bonds.
  • The United States Capital Structure — Because Social Security and Medicare benefits are politically untouchable, retirees effectively hold the most senior claim on US government resources while Treasury bondholders hold the riskiest one. On this argument, bondholders absorb adverse fiscal shocks through surprise inflation, financial repression, or both.
  • How Might Fiscal Policy Respond to the Rise of Artificial Intelligence? — The Congressional Budget Office estimates that a permanent 0.5 percentage point increase in annual productivity growth would lower publicly held federal debt after 30 years by 39% of GDP, offsetting roughly half the projected rise from 101% of GDP to 175%. Higher revenue and slower spending growth outweigh higher interest costs.

AI Summary. The Federal Reserve described its rate increase as having "removed a dose of accommodation" and as a start to showing it is serious, implying the policy rate remains accommodative and further increases are coming. Market-implied expectations have shifted to price in three additional hikes before the tightening cycle ends.

John Authers Bloomberg
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Authers argues a hiking cycle is underway, citing the unanimous decision to hike, the “dot plot” and Warsh’s comments framing the hike as “the removal of some accommodation,” implying the FOMC doesn’t view policy as restrictive.

Is the Fed signaling more rate increases ahead?

Core argument: Markets, as gauged by Bloomberg World Interest Rate Probabilities, have braced for three more Fed hikes, against an implied peak below 4% when Warsh took office in May.

The key was what Warsh didn’t say, rather than what he did. There was no suggestion that this was a one-off. Instead, he said the FOMC has “removed a dose of accommodation” — not all of it, implying the rate was still accommodative and that there would be more doses in the prescription. He added that the hike “starts to show we’re serious about this.” If that was only a start to the seriousness, the direct implication is to brace for more. As a result, the market priced in a lot of tightening. Implicit fed funds rates, as gauged by the Bloomberg World Interest Rate Probabilities, were projected to peak below 4% when Warsh took office in May — at a point when the market had already had time to adjust to the energy shock from the Iran war. Expectations crept up a bit by the time he spoke at Jackson Hole; and since then the market has braced for three more hikes before the Fed is done.

Takeaways by Macro Roundup® AI

  1. Markets, as gauged by Bloomberg World Interest Rate Probabilities, have braced for three more Fed hikes, against an implied peak below 4% when Warsh took office in May.
  2. Warsh said the FOMC has "removed a dose of accommodation" rather than all of it, implying the policy rate remains accommodative and that further doses are in the prescription.

Related Articles:

  • Just Waiting for Disinflation is Not Enough — About 52% of consumer price index components are rising at least 3% year-over-year, down from 73% at the peak but above the 32% average from 2000 to 2020, and such breadth measures track actual inflation closely. Weighting components by spending shares makes the current episode resemble milder past inflation accelerations rather than the largest ones.
  • 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%.
  • US Diesel Hits Record $6 A Gallon On Iran Supply Shock — US diesel pump prices reached a record $6.06 a gallon, above the prior high of $5.82, according to motorist group AAA. Diesel's role in the transport supply chain is feeding into rising producer prices, and grain farmers report that higher fuel and fertiliser costs are eating into profits.

AI Summary. The US is reopening the Santa Teresa, New Mexico port to Mexican live cattle shipments, the second port to reopen after livestock imports were halted to prevent the spread of the New World screwworm parasite. Nearly 500,000 cattle moved through the port in 2024, about 40% of US imports from Mexico.

Ilena Peng Bloomberg
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There are now only two active screwworm cases in Texas as the outbreak recedes. The largest port for live cattle from Mexico is reopening, “a significant step in the Trump administration’s efforts to ease the pressures of a domestic cattle shortage.”

Is the US reopening its largest port to Mexican cattle imports?

Core argument: The US is reopening the Santa Teresa, New Mexico port to Mexican live cattle shipments; the port handled nearly 500,000 head in 2024, about 40% of total US cattle imports from Mexico.

The US is reopening its biggest port for Mexican live cattle shipments. The port in Santa Teresa, New Mexico, is the second to reopen, after the US in late 2024 stalled livestock shipments from Mexico in order to prevent the spread of the deadly New World screwworm. Nearly 500,000 cattle were shipped through the Santa Teresa port in 2024, amounting to about 40% of the US’s total imports from Mexico Concerns over the screwworm in the US have faded, with only two active cases remaining in Texas. Infestations of the parasite, which can be deadly if left untreated, have totaled less than 50 since its detection in the US in June. Still, there are nearly 2,000 active cases in Mexico. The US has been dispersing sterile male flies, which contain the disease by mating with wild female flies to curb reproduction.

Takeaways by Macro Roundup® AI

  1. The US is reopening the Santa Teresa, New Mexico port to Mexican live cattle shipments; the port handled nearly 500,000 head in 2024, about 40% of total US cattle imports from Mexico.
  2. Santa Teresa is the second port to reopen after the US stalled Mexican livestock shipments in late 2024 to prevent the spread of the New World screwworm.
  3. US screwworm infestations have totaled fewer than 50 since the parasite’s detection in June, with two active cases remaining in Texas, while Mexico has nearly 2,000 active cases.

Related Articles:

  • What’s at Stake for Beef as Flesh-Eating Screwworm Cases Exceed Two Dozen — Screwworm infections have been confirmed in more than two dozen animals, including cattle, sheep, goats and a dog, threatening Texas, which produces roughly 14% of US beef supply. The outbreak comes with the US cattle herd at its lowest level in generations and beef prices at or near record highs.
  • How Much Will A 4th of July Cookout Cost This Year? — The Economist's summer barbecue index, tracking ten cookout staples across 25 American cities, finds the basket costs an average of $81, 12% more than a year earlier and the fastest annual increase in a decade. That outpaced grocery-price inflation of less than 3%, reflecting unusually sharp price increases in several barbecue items.

Friday, September 18, 2026

AI Summary. Wage gains have trailed inflation for five months, and consumer prices are 27% higher than at the start of 2021. The "misery index," the sum of the inflation and unemployment rates, stands at 7.5, up from 6.7 a year earlier.

David Uberti, Justin Lahart and Aaron Zitner Wall Street Journal
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Over the past five months, real wages as measured by average hourly earnings have declined. Okun’s “misery index” is now 7.5, just above its October 2024 level of 6.7.

Are wage gains falling behind rising consumer prices?

Core argument: Consumer prices are 27% higher than in January 2021, when Biden took office, and wage gains have failed to keep pace with inflation for five months.

For five months, wage gains haven’t kept pace with inflation and, especially with the sharp increase in gasoline prices over the past few weeks, they aren’t likely to keep up this month. University of Chicago Booth School of Business economist Christina Patterson said employees who achieve pay bumps often bear a burden. “You negotiate. You get an outside offer. You switch jobs. You threaten to leave,” she said. “All of those actions are costly. They disturb employer-employee relationships. You lose co-workers. You have to move.” Consumer prices are now 27% higher than they were in January 2021. One long-popular benchmark of economic conditions is the “misery index,” a simple summing up of the inflation and unemployment rate, it now stands at 7.5, higher than the 6.7 it was at in October 2024, just before Harris lost the presidency to Trump.

Takeaways by Macro Roundup® AI

  1. Consumer prices are 27% higher than in January 2021, when Biden took office, and wage gains have failed to keep pace with inflation for five months.
  2. The “misery index,” a summing of the inflation and unemployment rates devised by economist Arthur Okun, stands at 7.5, above the 6.7 recorded in October 2024 before Kamala Harris lost to Trump.
  3. University of Chicago Booth School of Business economist Christina Patterson said workers who win pay bumps often bear a burden through negotiating, obtaining outside offers, switching jobs, or threatening to leave, actions that disturb employer-employee relationships and can require moving.

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%.
  • Sticky Wage Norms and the Real Wage Cost of Unexpected Inflation — Firms set nominal wage increases by round-number rules—about 42% of increases below 6% fell within 0.01 percentage points of a whole or half number—and these rules rose only from about 2.7% to 3.5% as inflation peaked near 7%, contributing to falling real wages for job stayers.
  • 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.

AI Summary. Capital spending by the highest-rated corporate borrowers has grown more than 35% year-over-year for ten straight quarters, with artificial-intelligence-related issuers accounting for a quarter of US investment-grade gross supply and 44% of US convertible bond issuance. Higher capital costs and greater capital intensity have pushed dominant capital-spending hyperscalers' forward price-earnings ratios near the market average.

Peter Oppenheimer, Sharon Bell, Guillaume Jaisson, Elena Porfidia, et al. Goldman Sachs
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The surge in hyperscaler capex has “eaten through their free cash flow,” increasing reliance on external financing.  The resultant rise in the cost of capital, combined with higher capital intensity, has reduced the value of the dominant hyperscalers’ future cash flows enough that they now have a forward PE “close to the average of the rest of the market.”

How is AI-driven borrowing reshaping credit markets and tech valuations?

Core argument: Capex for AA-rated issuers grew 65% year-over-year in Q2, the 10th consecutive quarter in which aggregate AA capex growth exceeded 35%.

Capex spending growth for AA-rated issuers has been substantial: the 65% year-over-year growth in Q2 marks the 10th consecutive quarter that aggregate AA capex growth exceeds 35%. They have turned to the convertible bond market where volume has increased year to date reaching $135 billion in the US, with AI-related borrowers driving 44% of total issuance. Our Credit team raised their full-year US IG gross issuance forecast to $2.3 trillion and AI-related issuers account for a quarter of USD IG gross supply this year, pushing overall supply to a year-to-date record. The combination of higher cost of capital and greater capital intensity has reduced the value of their future cash flows and triggered a de-rating. The dominant capex hyperscalers in the US now have a forward PE close to the average of the rest of the market.

Takeaways by Macro Roundup® AI

  1. Capex for AA-rated issuers grew 65% year-over-year in Q2, the 10th consecutive quarter in which aggregate AA capex growth exceeded 35%.
  2. US convertible bond volume reached $135 billion year to date, with AI-related borrowers accounting for 44% of total issuance, while Morgan Stanley’s Credit team raised its full-year US investment-grade gross issuance forecast to $2.3 trillion.
  3. Higher cost of capital and greater capital intensity have reduced the value of future cash flows and triggered a de-rating, leaving the dominant capex hyperscalers in the US with a forward P/E close to the average of the rest of the market.

Related Articles:

  • The Market Is Asking Questions — Markets are weighing whether the trillions committed upfront to AI data centers, chips, and power will generate returns above the cost of capital before those assets depreciate. With the buildout increasingly funded by debt rather than internal cash flow and borrowing spreads widening, financing costs could rise until new data-center spending no longer clears its return hurdle.
  • Making Sense Of The AI Capex Logjam — Cash funded 85% of capital spending at Alphabet, Amazon, CoreWeave, Meta, Microsoft, Nebius, and Oracle in 2024, falling to 70% in 2025 and two-thirds in 2026, with 2026 capital spending guidance of $863bn exceeding their combined operating cash flow for the first time. About $282bn is funded by debt, equity, and leases.
  • Gross and Net US Investment — Net US investment has fallen from roughly 40% of gross investment in the 1970s to about 25% in the past decade, meaning about three-quarters of gross investment now just replaces depreciating capital. The author attributes this gap to modern investment being more information-technology-related, which depreciates faster and requires more frequent replacement.

AI Summary. The cost of insuring large artificial intelligence firms' debt against default has widened while bank spreads have stayed flat near 40 basis points, which the author argues rules out dealer hedging of new bond supply as the cause. Instead, markets are repricing a debt-financed AI investment cycle with rising leverage and negative free cash flow.

Torsten Sløk Apollo
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Noting widening CDS spreads for top AI firms but not for banks, Sløk argues this dynamic is driven not by dealer hedging, but by a repricing of hyperscaler credit fundamentals.

Is widening tech credit risk about fundamentals rather than dealer hedging?

Core argument: Bank CDS spreads have sat flat near 40 bps even though banks remain the single largest source of investment-grade supply, an argument against dealer hedging of new issuance as the driver of hyperscaler CDS widening.

The widening in hyperscaler CDS is not driven by dealer hedging of new issuance. If it were, bank CDS would be widening too, given that banks remain the single largest source of IG supply, and instead bank spreads have sat flat near 40 bps. What the market is repricing is hyperscaler credit fundamentals, namely a debt-financed AI capex cycle with rising leverage, negative free cash flow and uncertain payback on depreciating assets.

Takeaways by Macro Roundup® AI

  1. Bank CDS spreads have sat flat near 40 bps even though banks remain the single largest source of investment-grade supply, an argument against dealer hedging of new issuance as the driver of hyperscaler CDS widening.
  2. The widening in hyperscaler CDS reflects a repricing of credit fundamentals, specifically a debt-financed AI capex cycle with rising leverage, negative free cash flow, and uncertain payback on depreciating assets.

Related Articles:

  • Rear Window — Major cloud providers posted annual revenue growth of 37% at Amazon Web Services, 43% at Microsoft Azure and 82% at Google Cloud, with rising revenue backlogs of $514bn and $496bn respectively at Google Cloud and Amazon Web Services. Earnings growth appears highly contingent on continued hyperscaler capital spending and research, which rose from $460bn to $870bn.
  • The Market Is Asking Questions — Markets are weighing whether the trillions committed upfront to AI data centers, chips, and power will generate returns above the cost of capital before those assets depreciate. With the buildout increasingly funded by debt rather than internal cash flow and borrowing spreads widening, financing costs could rise until new data-center spending no longer clears its return hurdle.
  • The Summer I Turned Pretty — A warning sign in a boom cycle is when companies closest to final demand weaken while capital spending beneficiaries keep thriving, as when telecom operators' shares rolled over while communications equipment stocks kept rising. Semiconductor stock prices and free cash flow are soaring while large cloud providers' shares stagnate and their free cash flow plummets.

AI Summary. The Bank of Japan raised its policy rate to the highest level since 1995 and flagged the risk of underlying inflation overshooting its 2% target, but the yen fell 1.3% to nearly ¥158 per dollar as two dissenting votes cast doubt on appetite for further tightening.

Leo Lewis and David Keohane Financial Times
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The yen weakened even as the Bank of Japan raised its policy rate by 25 basis points to 1.25%, a 31-year high. The yen has surrendered ~ half its gain from the US-Japan intervention in July.

Why did the yen fall after a rate increase?

Core argument: The yen sank 1.3% to nearly ¥158 to the dollar after the Bank of Japan raised rates to their highest level since 1995, as two dissenting votes out of seven cast doubt on the appetite for further tightening.

In a signal to markets that further rises in borrowing costs are likely to follow, BoJ governor Kazuo Ueda highlighted the risk to Japan’s economy of underlying inflation overshooting the central bank’s target of 2%. However, the yen sank 1.3% to nearly ¥158 to the dollar following the decision despite Ueda’s comments, as the [two] dissenting votes [out of 7 total] cast doubt on the appetite for further tightening in Japan. Analysts noted that the two dissenting voters on the board were both appointed by Japan’s Prime Minister Sanae Takaichi, who favours reflationary government spending and has in the past been critical of tighter monetary policy. Marcel Thieliant, head of Asia-Pacific at Capital Economics, said that “with the two most hawkish board members set to depart next July, the composition of the board will probably become even more dovish.”

Takeaways by Macro Roundup® AI

  1. The yen sank 1.3% to nearly ¥158 to the dollar after the Bank of Japan raised rates to their highest level since 1995, as two dissenting votes out of seven cast doubt on the appetite for further tightening.
  2. Bank of Japan governor Kazuo Ueda signalled that further increases in borrowing costs are likely, highlighting the risk to Japan’s economy of underlying inflation overshooting the central bank’s 2% target.
  3. Marcel Thieliant of Capital Economics said the Bank of Japan board will probably become more dovish once its two most hawkish members depart next July, while both dissenters were appointed by Prime Minister Sanae Takaichi, who favours reflationary government spending.

Related Articles:

  • Where is the Global Debt Crisis Most Acute? — A proxy for strain at the long end of government bond markets — the gap between the 10-year yield expected in 10 years' time and today's 10-year yield, scored against its own history — shows Japan as an outlier among the G10 economies.
  • New Respect in the Land of the Rising Yen — Norway's sovereign wealth fund is reallocating its fixed income portfolio in a way that likely shifts from US Treasuries toward Japanese government bonds, prompting speculation that more international money will return to Japan's newly competitive yields. Japanese overnight interest rates are forecast to rise by a full percentage point over 12 months, to 1.9%.
  • Yen Intervention = US Self-Preservation — Japan's two traditional options for supporting a weak yen — much higher Japanese interest rates or large sales of dollars and US Treasuries — would both pressure US yields, as Japan holds about $1tn of Treasuries. US willingness to back Japan via its exchange stabilization fund and the Federal Reserve's international repo facility suggests officials see that risk.