The U.S. tariffs bombshell has detonated across markets worldwide. Yields on 10-year Treasury bonds sagged, the dollar weakened, and the S&P 500 and Nasdaq Composite indexes slumped 4% in New York morning trading a day after President Donald Trump unveiled a bewildering array of levies on imported goods. Combined, they imply an aggregate effective rate beyond 20%, its highest in a century by many estimates. The question now is whether Washington will get the message from Wall Street. The White House professes to no longer react to stock-price gyrations. Treasury Secretary Scott Bessent, for example, has said repeatedly that the administration cares

U.S. government bond markets are feeling the squeeze from all sides. Yields on 10-year government debt have dropped in recent weeks amid signs of slowing growth and investors’ reflexive flight to safety following President Donald Trump’s tariff talk. But buyers should beware a false sense of security: blown-up deficits, a major trade war, and something going haywire in tech tycoon Elon Musk’s forceful takeover of U.S. government payment systems all introduce major and sometimes opposing risks, making the future direction of yields hard to predict. The only guarantee is volatility. In the month after Trump’s election victory in early November, yields

The U.S. Constitution gives Congress the power of the purse, but President Donald Trump interprets the foundational document differently. His acting budget chief issued a two-page memo, citing “wokeness” and “Marxist equity” as if they were spending line-items, that freezes what the agency says is $3 trillion in federal grants and loans. Even if only temporary, as the administration claims, the decision will upend financial planning for chipmakers, road builders, medical researchers and more. If no one stops the overreach, the economic consequences may be more dire. There was no advance warning that Trump would blatantly contradict the separation of powers. The vagaries

In our Global Outlook, Autumn 2024, we argued that the euro area was much more likely than the US to go ‘Back to BC (before COVID)’, with interest rates, inflation and economic growth rates converging more rapidly towards their pre-pandemic levels. Emerging data since we put that forecast together do not challenge this view. One of the key characteristics of the pre-pandemic economic environment was real (inflation-adjusted) interest rates in negative territory. Rates went even further below zero during COVID as inflation rose, forcing a synchronised policy-tightening by major central banks. However, as the chart below shows, the expected real

Money can’t buy love, and when inflation soars it’s harder to purchase a lot of other important things, too. The frustration is more pronounced for poorer shoppers than richer ones. Even as some companies start slashing prices to bring back customers, a $5 value meal and discounted T-shirt will hardly be enough to make Americans feel much better about the economy. When The Beatles sang about the uselessness of currency when it comes to affairs of the heart, they started the refrain with “I don’t care too much for money.” It’s a sentiment that feels even quainter 60 years after

Everybody wants the dollar; everybody hates the dollar. The steroid-boosted greenback is the unwanted guest at this week’s annual meetings of the International Monetary Fund and World Bank in Washington, fueling complaints of capital outflows, sliding currencies and strangulated economic growth. The things that make the dollar such a fickle friend are also the reasons the world still needs it. Two things have pushed the dollar to its highest level against other currencies in two decades. One is fear: War, disease and instability drive investors to the currency that’s deemed the safest and easiest to get in and out of.

The International Monetary Fund is not the only forecaster to make dud economic predictions. But its tardiness in admitting where it made mistakes is pernicious for a body that gives economic advice to countries around the world and monitors risks to financial stability. The Washington-based lender on Tuesday cut its global growth forecast for 2022 by half a percentage point to 4.4% and predicted inflation in advanced economies would be 3.9% in 2022, 1.6 percentage points higher than anticipated as recently as October. That’s partly because it slashed this year’s U.S. GDP forecast by more than one percentage point, to 4%, and

Although they continue to be volatile, Italian spreads have dipped below 300 basis points in recent days amid speculation that the country’s government may be willing to cut a budget deal with the EU. Indeed, according to Fathom’s proprietary indicator, the market-implied probability of a default by the Mediterranean sovereign edged down to 14.8% in November.[1] Refresh the chart in your browser | Edit chart in Datastream Refresh the chart in your browser | Edit chart in Datastream As Fathom noted to clients last week, the market’s initial reaction to the coalition’s fiscal plans had perhaps caused Italian bonds to

Fathom’s Macroeconomic Policy Indicator (FMPI) weights together both fiscal and monetary policy to give an overall measure of the degree of macroeconomic stimulus in any given economy. Refresh the chart in your browser | Edit chart in Datastream The degree of monetary policy looseness across the euro area is already substantial and will remain so while interest rates are on hold. In terms of when we will see the first interest rate rise, the ECB’s Governing Council explicitly stated in its accompanying statement to the June meeting that rates would be on hold until “at least through the summer of 2019”. Refresh

Across the euro area economies the degree of policy looseness is the greatest it has been since our series began in 1999, potentially explaining why the common currency area has been enjoying such a strong cyclical upturn recently. However, the ECB has announced that, from September of this year, monthly asset purchases will be halved to €15bn a month and phased out altogether by the end of 2018. We also expect that the composition of the ECB’s Governing Council will become more hawkish over the coming year. We believe that GDP growth across the currency bloc peaked in 2017, with

The Senate managed to pass a tax plan on Friday night and the reconciliation needed with the House version passed earlier in November will likely be finished in the next few weeks so a final version should be ready for Trump’s signature well before year end. This is an extremely complex piece of legislation so even after reconciliation it will be months if not years before its implications – and unintended consequences – are fully evident. But most main themes of the package should remain so we think it worthwhile to consider what the likely impact of the legislations bodes

U.S. Federal Reserve Chair Janet Yellen has set out her stall for Donald Trump. In what may be her last set-piece speech at the annual Jackson Hole central bankers’ confab, she defended tighter regulation since the financial crisis 10 years ago and called for continued U.S. leadership in global forums. The president wants to unwind the reforms, which could be a factor as he considers who should next lead the central bank.The Fed chief reiterated her support for the post-crisis Dodd-Frank reforms, saying changes such as forcing banks to hold more capital have “substantially boosted resilience” without hurting economic growth.