At this point, you will have read numerous takes, predictions and analyses of what four more years of Mr. Trump in the White House means. I promise that I will make this short. I think Sam Harris’ “The Reckoning” offers a good explanation of what went wrong for the Democrats and the liberals. I also enjoyed the discussion between Glenn Loury and Daniel Bessner, even if I strongly disagree with Mr. Bessner on a number of key areas. If you want a longer explanation of the ills that have befallen US Democrats, unrelated to the diagnosis of excessive wokeness and identity politics, you should read Thomas Franks’ “Listen, Liberal”, published on the eve of the Democrat’s first loss to Mr. Trump in 2016. It’s all there, with a straight line back to Frank’s earlier identification of the problem when he asked “What’s the Matter with Kansas?” Apart from that, we should also add that Mr. Trump simply ran a superior campaign to Kamala Harris. After all, you don’t win all the swing states through luck or due to bad opposition alone.
Read MoreI am a big fan of US economist and academic Glenn Loury. He is smart, honest and well-articulated. He is also not afraid of an intellectual scrap if he stumbles upon one. He is an indispensable public commentator and intellectual whose ideas and influence go far beyond the confines of race, and associated social issues, in the US where he has staked his claim to fame and authority most comprehensively. Glenn has an impressive back-catalogue of writing and citations, but the best way to get a sense of him is by listening to his podcast the Glenn Show, which can be found on all the usual platforms. I am also a big fan of his co-conspirator, John McWorter, a US linguist and public intellectual, with whom Glenn runs a bi-weekly conversation on his podcast, and Q&A for paying subscribers. It is a must-listen. On this occasion, however, I want to recommend Glenn’s recent discussion with Larry Kotlikoff, a US academic economist, in which they discuss the economic policy ideas of the two candidates in the upcoming US presidential election ideas, and the US economy more generally. As the title of the podcast goes; if only we had an economist in the White House!
Read MoreLast week was a good day for my boss Ian Shepherdson who has been sticking his neck out since the beginning of the year with a call that the Fed would cut rates this year by more than the consensus believes. It was a bad day for a lot of other forecasters and investors. I recently joked with him that we were just one bad payroll report away from markets freaking out. That report landed on Friday, pushing already nervy markets into near meltdown. We know the drill; bonds soared, equities crashed, and “US recession risks” hit a headline near you. Of course, the Fed hasn’t cut rates yet, but even before Friday’s data, everyone expected the first cut in September. Expectations are now shifting towards a 50bp reduction, and further cuts in quick succession after that. The decision to hold rates in July is now freely being seen as a mistake.
Read MoreIt’s been a while since I ran through my favourite charts for the global economy. I am happy to report that nothing much seems to have changed since my last overview. Markets are still enjoying a soft landing, defined as a world in which inflation is drifting lower, even if still-sticky in key areas, the global economy and labour markets remain unencumbered, and monetary policy is on track to ease modestly. More immediately, a run of softish inflation data in the US, rising jobless claims—despite still solid non-farm payrolls—and the return of political uncertainty in Europe have driven a bond rally in the past few weeks, and raised questions about the strength of the US economy. As a result, markets are now pricing in slightly more aggressive near-term policy easing from the major central banks. In the US, SOFR futures imply 75bp worth of easing from the Fed this year, and similarly for the ECB, which includes the 25bp cut that the Bank delivered last month. Yields also have softened in the UK. The consensus expects a second rate cut from the ECB in September, at which point markets believe Frankfurt will be joined by the BOE—with many speculating on an August cut from Bailey et al—and the Fed. The first chart below plots the implied policy path for the Fed and ECB using SOFR and Euribor, respectively. This is a pleasant picture overall. Rates will remain higher than immediately before the twin-shock of Covid and an inflationary shift geopolitics, but they’re still on track to come down some 150bp from their highs.
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