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Thursday, October 1, 2026

Demand-Driven Inflation

Domenico Giannone and Giorgio Primiceri Bookings Papers on Economic Activity

Date Posted:: October 1, 2026
Is Database:: Database

Giannone and Primiceri revisit the relative role of supply vs. demand shocks in generating the post-Covid inflation. Because aggregate demand curves estimated from pre-pandemic data are flat, supply shocks alone would not have generated large inflation in the absence of added demand stimulus.

Demand and supply curve slopes are estimated from pre-pandemic data using the essentially definitional restriction that supply shocks move prices and output in opposite directions along demand curves, while demand shocks move them together along supply curves; the plotted slopes represent Bayesian posterior medians rather than uniquely identified estimates. The estimated demand curves are relatively flat in both the US and euro area [Figure 7], reflecting the central banks’ strong pre-pandemic responses to inflation. With those slopes, adverse supply shifts cause large output losses but comparatively little inflation. [To successfully explain] the combination of inflation and output observed in 2022 therefore requires demand to shift outwards too. Strong demand, including unusually accommodative monetary policy [on top of strong fiscal expansion], cushioned the output losses while increasing inflation [Figure 7]. In 2021–22, both inflation and GDP as subsequently revised exceeded forecasts in the US and euro area. That combination is suggestive of unexpectedly strong demand, whereas an adverse supply surprise alone would raise inflation but lower output. [Figure 9].

Takeaways by Macro Roundup^® AI

Demand curves estimated from pre-pandemic US and euro-area data are relatively flat, reflecting central banks’ strong pre-pandemic responses to inflation, so adverse supply shifts produce large output losses but comparatively little inflation.
Explaining the 2022 combination of inflation and output requires an outward shift in demand, with strong demand — including unusually accommodative monetary policy atop fiscal expansion — cushioning output losses while raising inflation.
In 2021–22, both inflation and GDP as subsequently revised exceeded forecasts in the US and euro area, a combination suggestive of unexpectedly strong demand, since an adverse supply surprise alone would raise inflation but lower output.

How Much Revenue Does The AI Buildout Need In 2030?

William Gildea and Azeem Azhar Exponential View

Date Posted:: October 1, 2026
Is Database:: Database

Beginning with capex projections, Gildea/Azhar derive for their high-growth case a $1.3T annual AI-infrastructure revenue hurdle for 2030. This covers $771B of depreciation and operating costs, plus a 15% return on $3.5T of net capital in service.

We estimate AI CapEx to be $560B in 2026, 64% of the total declared by the hyperscalers. Unfinished facilities can’t generate revenue, so the investment bill and the productive asset base will grow at different speeds. [In the high investment case], by 2030 we see $3.5T of net AI capital in service. The largest component [of the revenue hurdle] is the $555B in compute depreciation. We model lifespans at the current 5-6 years. Shell depreciation and OpEx combined contribute about a further $216B to the required revenue hurdle. [Adding a 15% return on net capital brings required annual infrastructure revenue to $1.3T]. Reaching the $1.3T hurdle would represent 7.4x growth (59% CAGR) from today’s annualized revenues. For its customers to earn 30-50% gross margins, downstream revenues need to be $1.9-2.6T. [Editor’s note: Van Nieuwerburgh’s far larger figure of $3.7T covers mature revenues from projects completed through 2032, using commissioning capital and a 50% infrastructure operating cash-flow margin. This estimate instead charges depreciation and operating costs plus 15% on net capital in service in 2030. Different horizons and cost conventions prevent a direct comparison. Van Nieuwerburgh also has a much higher capex estimate.]

Takeaways by Macro Roundup^® AI

In a high investment case with $3.5tn of net AI capital in service, the authors estimate AI infrastructure must generate $1.3tn of annual revenue by 2030, requiring 7.4x growth (59% CAGR) from today’s annualized revenues.
Compute depreciation of $555bn, modeled on 5-6 year lifespans, is the largest component of the 2030 revenue hurdle, with shell depreciation and operating expenses adding about $216bn and a 15% return on net capital completing the $1.3tn total.

In MAGA-Land People Are Dying Faster Than They Are Being Born

Economist Staff The Economist

Date Posted:: October 1, 2026

An Economist analysis of more than 3,000 US counties finds that in reliably GOP counties, annual deaths now exceed births by 0.4 per 1k residents, while in reliably Democratic counties, births exceed deaths by 2.8 per 1k. Population growth in the GOP counties is largely driven by internal migration.

Our number crunching shows that domestic migration has historically boosted the population of reliably Republican counties by about 0.5% a year, while reliably Democratic ones have lost 0.6%. The opposite is true of international migration, which has historically added 0.5% a year to solid-blue counties, compared with just 0.1% in solid-red ones. Data from the IRS show that the fastest-growing red counties draw an unusually large share of newcomers from politically unfriendly territory. In 2022-23 more than 20% came from solid-blue places and around 40% from competitive ones. This may already be affecting voting patterns. Before 2016, fast-growing red counties leaned more Republican than slower-growing ones. That has now flipped: slower-growing red counties lean more Republican, and GOP support in faster-growing ones has weakened.

Takeaways by Macro Roundup^® AI

Domestic migration has historically added about 0.5% a year to the population of reliably Republican counties while subtracting 0.6% a year from reliably Democratic ones.
International migration has historically added about 0.5% a year to solid-blue counties versus just 0.1% in solid-red ones, reversing the pattern of domestic migration.
Internal Revenue Service data show that in 2022-23 more than 20% of newcomers to the fastest-growing red counties came from solid-blue places and around 40% from competitive ones.

Treasuries Surge as France’s Fiscal Woes Boost Haven Demand

Ye Xie, Alice Gledhill, and Victor Swezey Bloomberg

Date Posted:: October 1, 2026

The US 10-year Treasury yield hit 5.34%, its highest since 2002, before retreating as investors bought Treasuries amid stress in European bond markets.

The US benchmark yield touched its highest level since 2002, the latest milestone in a monthslong selloff in global sovereign debt. The yield on the 10-year Treasury note briefly rose above its 2007 peak to trade at 5.34% on Thursday. US Treasuries [then] rebounded from a bruising global bond selloff as pressure in European markets fueled demand for haven assets, pulling 10-year yields down from a 24-year high. In Europe, the spread between Italy and Germany’s two-year yields almost doubled to 55 basis points on Thursday, the biggest daily jump since 2020 on a closing basis. The equivalent gap for France rose as much as 22 basis points, the most since 2012.

Takeaways by Macro Roundup^® AI

The 10-year US Treasury yield briefly traded at 5.34% on Thursday, rising above its 2007 peak to its highest level since 2002.
The 10-year Treasury yield’s rise marks the latest milestone in a monthslong selloff in global sovereign debt.
The yield on 30-year US bonds reached a 24-year high.

France Seeks To Rein In Pensions And State Salaries In 2027

Leila Abboud and Ian Smith Financial Times

Date Posted:: October 1, 2026

The French government has proposed €43B in spending cuts and tax increases for 2027, in an effort to reduce the deficit to 5% of GDP from a projected 5.4% in 2026.

The government of Prime Minister Sébastien Lecornu said it aimed to narrow the deficit to 5% of GDP next year by slashing state spending, capping increases to pensions and civil servant salaries, while raising taxes. The French deficit is on track to rise to 5.4% of GDP this year, after a deterioration in its public finances that has led to France borrowing at higher interest rates than Italy and Greece. France’s 10-year bond yields reached as high as 4.96% on Thursday, their highest point since 2002, as a global bond rout was exacerbated by investor concerns over the country’s fragile public finances. But they later fell back to 4.93% in choppy trading.

Takeaways by Macro Roundup^® AI

France’s government under Prime Minister Sébastien Lecornu aims to narrow the deficit to 5% of GDP next year by cutting state spending, capping increases to pensions and civil servant salaries, and raising taxes.
The French deficit is on track to rise to 5.4% of GDP this year, following a deterioration in public finances that has left France borrowing at higher interest rates than Italy and Greece.
French 10-year bond yields reached 4.96%, their highest since 2002, as a global bond rout was exacerbated by investor concerns over France’s fragile public finances, before falling back to 4.93%.

Friday, October 2, 2026

Shipping to America

Xiwen Bai, Jesús Fernández-Villaverde, Yiliang Li, Ricardo Marto and Francesco Zanetti National Bureau Of Economic Research

Date Posted:: October 2, 2026

US-bound shipping can fall far short of potential after disruptions. Pandemic queuing and slow steaming drove effective capacity from ~89% of potential to <70%. Later, Houthi attacks left it near 79% as ships rerouted around the Cape of Good Hope.

In 2016–2019, the U.S.-bound shipping network turned about 89% of the fleet’s potential capacity into effective service [Figure 3.5]. During 2021–2022, effective capacity declined despite potential capacity reaching record highs. Pandemic-era port congestion and slower steaming pushed aggregate utilization below 70%. On the Asia-Pacific–U.S. West Coast route, utilization fell from about 92% before 2020 to 53% by late 2021. The route has since recovered but remains below its old peak. The network as a whole has not regained its pre-pandemic utilization. More recently, rerouting after the 2023–2024 Houthi attacks in the Red Sea held aggregate utilization near 79%. Utilization on the Middle East and Asia-Pacific routes to the U.S. East Coast via Suez fell to 48% and 61%, respectively, largely because diversion around the Cape of Good Hope lengthened voyages without increasing cargo delivered.

Takeaways by Macro Roundup^® AI

The U.S.-bound shipping network converted about 89% of potential fleet capacity into effective service in 2016–2019, but aggregate utilization fell below 70% in 2021–2022 as ships waited at anchor, steamed slowly, or sailed around maritime bottlenecks.
Utilization on the Asia-Pacific–U.S. West Coast route dropped from 92% before 2020 to 53% by late 2021 amid port congestion and slower steaming, recovering since but remaining well below its old peak.
Since late 2023, utilization on the Middle East and Asia-Pacific routes to the U.S. East Coast via the Suez Canal has fallen to 48% and 61%, with diversions around the Cape of Good Hope driving much of the loss as ships travel longer distances without delivering additional cargo.

Soaring Yields Find Europe’s Weak Spot

John Authers Bloomberg

Date Posted:: October 2, 2026

The spread between 10-year French OATs and German Bunds is pricing a second eurozone sovereign-debt crisis. Authers suggests that the recent surge in US long-term yields has “shone a light” on France’s fiscal weakness, raising its salience to investors.

The speed of [the upward move in US long yields] brought the risk of dislocations elsewhere, like in France. Much as a surprising hawkish shift from the Fed under Alan Greenspan in 1994 revealed underlying weaknesses in the Mexican financial system that led to the Tequila Crisis, so this Treasury scare has shone a light on where the world’s greatest vulnerabilities are to be found. As France is part of the euro zone, any crisis must naturally extend to the rest of the currency area, at a time when most of its members are moving in a nationalist direction and likely reluctant to help. That is beginning to have an impact on stocks. The main European bourses sold off even as US equities rallied on Thursday. In combination with a weakening euro, the continent’s stocks have now given up almost all their gains since Trump took office.

Takeaways by Macro Roundup^® AI

The speed of the rise in US long-term Treasury yields has raised the risk of dislocations elsewhere, with France a point of elevated vulnerability that would extend to the rest of the euro zone.
The Treasury scare echoes the Fed’s surprising hawkish shift under Alan Greenspan in 1994, which revealed weaknesses in Mexico’s financial system and led to the Tequila Crisis.
Europe’s main bourses sold off even as US equities rallied, and combined with a weakening euro, the continent’s stocks have given up almost all their gains since Trump took office.

How Asia’s Surpluses Are Evolving

Udith Sikand Gavekal

Date Posted:: October 2, 2026

Northeast Asia’s ~$10T in net foreign assets would yield $400B annually at 4%, versus its ~$600B mean current-account surplus. Unlike export earnings, much investment income is reinvested abroad, creating less appreciation pressure.

Japan, China, South Korea and Taiwan now hold nearly US10T net. At a 4% return, those net assets would generate roughly $600B over the past decade. The composition matters for exchange rates: exporters typically convert more of their foreign earnings into local currency to meet domestic costs, while foreign investment income is more likely to be reinvested abroad. A current-account surplus increasingly driven by investment income therefore creates less appreciation pressure than an equivalent trade surplus.

Takeaways by Macro Roundup^® AI

Japan, China, South Korea and Taiwan together hold just under $30tn in gross foreign assets, a five-fold increase over the past two decades, with net foreign assets of about $10tn after liabilities to foreigners.
At the current 4% federal funds rate, $10tn of net foreign assets would imply roughly $400bn a year in net investment income for the four Northeast Asian economies, against a combined current account surplus averaging about $600bn over the last decade.
A current account surplus dominated by investment income generates less appreciation pressure than one dominated by trade, as exporters are more likely to repatriate and convert dollar earnings to cover domestic input costs while investment-income earners are more likely to reinvest abroad.

USA: Pushing Back Fed Rate Hike on Lower Core PCE Inflation; Q2 GDP Revised Up to +2.2%; Trade Deficit Widens More Than Expected; Lowering Q3 GDP Tracking to +3.3%

Jan Hatzius, David Mericle, Alec Phillips, Ronnie Walker, et al. Goldman Sachs

Date Posted:: October 2, 2026

GS forecasts that the FOMC will not hike in October, will do one 25bp hike in December and “ultimately conclude that additional rate hikes are unnecessary.”

Real GDP was revised up by 0.7pp to +2.2% in Q2 (quarter-over-quarter annualized), largely reflecting upward revisions to consumption (+0.4pp to +3.8%) and investment (+1.9pp to +4.6%) growth. The strength in consumer spending in Q2 likely continued to reflect the boost to consumer cashflow from larger-than-usual tax refunds, but we continue to expect consumer spending growth to slow somewhat in 2026Q4 as the fiscal support fades and the headwind from higher energy prices remains. Stronger investment growth reflected an upward revision to private fixed investment (+0.5pp to +9.0%), driven by data center investment in the nonresidential structures category (+1.9pp to +0.1%), and an upward revision to the contribution from inventories (+0.2pp to -0.5pp).

Takeaways by Macro Roundup^® AI

U.S. real GDP growth in Q2 was revised up 0.7pp to +2.2% quarter-over-quarter annualized, led by upward revisions to consumption (+0.4pp to +3.8%) and investment (+1.9pp to +4.6%).
Private fixed investment growth in Q2 was revised up 0.5pp to +9.0%, driven by data center investment in nonresidential structures, revised up 1.9pp to +0.1%, alongside a +0.2pp revision to the inventory contribution, to -0.5pp.
Q2 consumer spending strength likely reflected the cashflow boost from larger-than-usual tax refunds, with spending growth expected to slow somewhat in 2026Q4 as fiscal support fades and higher energy prices remain a headwind.

The Two Charts Any Social Security Reformer Should Understand

Andrew Biggs American Enterprise Institute

Date Posted:: October 2, 2026

A Penn-Wharton simulation finds that restoring Social Security solvency with tax increases alone would cut debt/GDP by ~14pp by 2060, while a fix based only on benefit cuts would cut it by ~29pp.

The first figure [in the gallery] decomposes the tax-increase reform package’s improvement to the debt/GDP ratio into separate effects: how much does it cut debt versus how much does it raise GDP? Almost all of the tax-increase plan’s improvement in debt/GDP comes from lowering federal debt by raising taxes. The plan has a small negative effect on the economy in the short run and a small positive effect in the long run. But 97% of its 14.3 percentage point long-run reduction in debt/GDP comes simply from reducing Social Security’s deficits. The economy is little-changed relative to a baseline in which Congress simply borrows to pay Social Security benefits. The benefit-reduction package [second figure in the gallery] tells a different story. It reduces debt/GDP by 29.2 percentage points, more than twice as much as the tax-increase package. Part of that comes from a larger reduction in debt: 17.2 percentage points versus 13.9. But the real kicker comes from higher long-run GDP: 12.1% under the benefit-reduction package versus just 0.4% under the tax-increase package.

Takeaways by Macro Roundup^® AI

The benefit-reduction package cuts the debt/GDP ratio by 29.2 percentage points in the long run, more than twice the 14.3 percentage points under the tax-increase package.
Of the tax-increase plan’s 14.3 percentage point long-run reduction in debt/GDP, 97% comes from reducing Social Security’s deficits, leaving the economy little changed relative to a baseline in which Congress borrows to pay benefits.
Long-run GDP rises 12.1% under the benefit-reduction package versus 0.4% under the tax-increase package, with debt falling 17.2 percentage points versus 13.9.

Giannone and Primiceri revisit the relative role of supply vs. demand shocks in generating the post-Covid inflation. Because aggregate demand curves estimated from pre-pandemic data are flat, supply shocks alone would not have generated large inflation in the absence of added demand stimulus.

Did outward demand shifts, not supply shocks alone, drive recent inflation?

Takeaways by Macro Roundup® AI

Related Articles:

Beginning with capex projections, Gildea/Azhar derive for their high-growth case a $1.3T annual AI-infrastructure revenue hurdle for 2030. This covers $771B of depreciation and operating costs, plus a 15% return on $3.5T of net capital in service.

How much annual revenue must AI infrastructure generate to justify investment?

Takeaways by Macro Roundup® AI

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How is domestic migration reshaping politics in Republican counties?

Takeaways by Macro Roundup® AI

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The US 10-year Treasury yield hit 5.34%, its highest since 2002, before retreating as investors bought Treasuries amid stress in European bond markets.

Are long-term Treasury yields reaching their highest levels in decades?

Takeaways by Macro Roundup® AI

Related Articles:

The French government has proposed €43B in spending cuts and tax increases for 2027, in an effort to reduce the deficit to 5% of GDP from a projected 5.4% in 2026.

Can capping pensions and public salaries shrink a widening budget deficit?

Takeaways by Macro Roundup® AI

Related Articles:

US-bound shipping can fall far short of potential after disruptions. Pandemic queuing and slow steaming drove effective capacity from ~89% of potential to <70%. Later, Houthi attacks left it near 79% as ships rerouted around the Cape of Good Hope.

Why has shipping capacity to America not regained its prior utilization?

Takeaways by Macro Roundup® AI

Related Articles:

The spread between 10-year French OATs and German Bunds is pricing a second eurozone sovereign-debt crisis. Authers suggests that the recent surge in US long-term yields has “shone a light” on France’s fiscal weakness, raising its salience to investors.

Do rising US long-term yields expose vulnerabilities in Europe?

Takeaways by Macro Roundup® AI

Related Articles:

Northeast Asia’s ~$10T in net foreign assets would yield $400B annually at 4%, versus its ~$600B mean current-account surplus. Unlike export earnings, much investment income is reinvested abroad, creating less appreciation pressure.

Does investment income create less currency appreciation pressure than trade surpluses?

Takeaways by Macro Roundup® AI

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GS forecasts that the FOMC will not hike in October, will do one 25bp hike in December and “ultimately conclude that additional rate hikes are unnecessary.”

What drove the upward revision to second-quarter GDP growth?

Takeaways by Macro Roundup® AI

Related Articles:

A Penn-Wharton simulation finds that restoring Social Security solvency with tax increases alone would cut debt/GDP by ~14pp by 2060, while a fix based only on benefit cuts would cut it by ~29pp.

How do benefit cuts and tax increases differ in reducing debt-to-GDP?

Takeaways by Macro Roundup® AI

Related Articles:

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