Latest news with #GreatModeration
The Star
4 days ago
- Business
- The Star
Pressure on US to follow Japan in debt profile rethink
IN the face off between heavily indebted developed economies and increasingly wary investors, Japan has blinked first, announcing that it will reconsider its debt profile strategy amid plunging demand for long-dated bonds. The United States could soon follow. Japan has the second-longest debt maturity profile of the Group of Seven (G7) nations, with an average of around nine years. Decades of ultra-low policy rates allowed Tokyo to borrow huge amounts at very low cost across the Japanese government bond yield curve. But in recent weeks, 30-and 40-year yields have soared to record highs, as appetite for long-dated paper at Japanese government bond auctions has dried up, a one-two punch that has forced officials to consider reducing issuance of long-term bonds in favour of short-dated debt. Many of the debt pressures bearing down on Tokyo are also being felt in Washington. The United States no longer boasts a AAA credit rating, following the downgrade from Moody's earlier this month, and the non-partisan Congressional Budget Office (CBO) projects federal debt held by the public will rise to a record 118.5% of gross domestic product (GDP) over the next decade from 97.8% last year. Net interest payments will rise to 4.1% of GDP from 3.1%, it predicts. Finally, there is Trump's tax-cut bill, which is projected to lump US$3.8 trillion onto the federal debt over the next decade, according to the CBO. All this is creating understandable unease among investors, and even though foreign demand at bill auctions has remained high, on average, demand at bond auctions is the lowest in years. Treasury may be forced to grab a page out of Japan's recent playbook and shorten its maturity profile. The United States has the shortest 'weighted average maturity' (WAM) of all G7 countries at 71.7 months, according to Treasury. That's due to a mix of factors including rising deficits, the Federal Reserve (Fed) holdings of longer-dated bonds, and high liquidity and demand at the short end of the curve. But this figure has rarely been higher on its own terms. While the WAM reached a record 75 months briefly in 2023 and was elevated during the post-pandemic period, it has otherwise rarely exceeded 70 months. Indeed, the average going back to 1980 is 61.3 months. Shifts in Treasury's WAM over the past half century have largely been driven by the interest rate environment, economic and financial crises and investor preference. While today's mix of market, economic and geopolitical trends is unique, it doesn't point to strengthening investor demand for long-dated bonds. The decades before the pandemic – the period known as the 'Great Moderation' – were generally marked by falling interest rates, flattening yield curves, and weak inflation. That era is over, or at least that's the growing consensus among investors and policymakers. This largely reflects the belief that inflation pressures in the coming decades will be higher than those seen during the 'Great Moderation' – particularly given the move toward high tariffs and protectionism – meaning interest rates are likely to remain 'higher for longer'. At the same time, America's apparent move toward isolationism and increased political volatility is apt to make global investors consider reducing their elevated exposure to dollar-denominated assets. That could make it harder for the Treasury to borrow long term at acceptable rates. These are broad assumptions, of course, and there are many moving parts. A sharp economic slowdown or recession could flatten the yield curve and spark an increase in longer-term issuance. But the curve is currently steepening, and the United States 'term premium' – the risk premium investors demand for lending 'long' to Treasury instead of rolling over 'short' loans – is the highest in over a decade and rising. This creates two problems. First, the Treasury may prefer to borrow longer term but not if yields are prohibitively high. Second, even though the United States can borrow more cheaply at the short end when the curve is steepening, this increases the 'rollover risk', meaning the government becomes more vulnerable to sudden moves in interest rates. T-bills' 22% share of overall outstanding debt is already above the Treasury Borrowing Advisory Committee's recommended 15% to 20% share, but it's hard to see that coming down much any time soon. Morgan Stanley analysts earlier this month outlined a 'thought experiment' whereby low demand for notes and bonds could see the share of bills approach 30% by 2027. Ultimately, Treasury supply will largely depend on investor demand. If primary dealers indicate a preference for shorter-dated bonds, the WAM will probably fall. Japan won't be the only developed economy rethinking its onerous borrowing plans. — Reuters Jamie McGeever is a columnist for Reuters. The views expressed here are the writer's own.
Yahoo
15-05-2025
- Business
- Yahoo
Powell warns economy could face more frequent 'supply shocks'
Federal Reserve Chairman Jerome Powell on Thursday said that the central bank's framework for setting monetary policy may need to be adjusted to account for the possibility that supply shocks will become more common given the difficulties they pose for policymakers. Powell delivered remarks at the Federal Reserve's Thomas Laubach Research Conference and said that the central bank's policy rate – the target range for the benchmark federal funds rate – could be higher in the future because of the potential for volatility with inflation and supply shocks occurring more often. "Many estimates of the longer-run level of the policy rate have risen, including those in the summary of economic projections," Powell said. "Higher real rates may also reflect the possibility that inflation could be more volatile going forward than during the inter-crisis period of the 2010s." "We may be entering a period of more frequent and potentially more persistent supply shocks – a difficult challenge for the economy and for central banks," the chairman added. Trump Lobbies 'Too Late Powell' To Cut Interest Rates Powell noted that the Fed's policy rate is currently well above the "lower bound" of cutting the policy rate to zero – it currently sits at a range of 4.25% to 4.5% – and that the central bank has historically made significant cuts during times of recession. Read On The Fox Business App "While our policy rate is currently well above the lower bound, in recent decades we have cut the rate by about 500 basis points when the economy is in recession. Although getting stuck at the lower bound is no longer the base case, it is only prudent that the framework continue to address that risk," Powell said. Goldman Sachs Says Undermining Central Bank Independence Has Economic Repercussions The Federal Reserve and other central banks face policymaking constraints when the policy rate is near zero, as it negates their ability to cut interest rates to stimulate the economy amid a downturn. Powell also discussed how keeping longer-run inflation expectations anchored at the Fed's 2% target will remain a key part of the Fed's policymaking framework, saying that while some aspects of it "must evolve, some elements of it are timeless." Federal Reserve Holds Key Interest Rate Steady Amid Economic Uncertainty He noted that its importance became clear during the Great Inflation, from the 1960s to 1982, and that it helped foster the Great Moderation of the mid-1980s to mid-2000s when there was relatively low economic volatility. "Policymakers emerged from the Great Inflation with a clear understanding that it was essential to anchor inflation expectations at an appropriately low level," Powell explained. "During the Great Moderation, well-anchored inflation expectations allowed us to provide policy support to employment without risking destabilizing inflation." "Since the Great Inflation, the U.S. economy has had three of its four longest expansions on record. Anchored expectations played a key role in facilitating these expansions. More recently, without that anchor, it would not have been possible to achieve a roughly 5 percentage point disinflation without a spike in unemployment," Powell article source: Powell warns economy could face more frequent 'supply shocks'
The Guardian
19-02-2025
- Entertainment
- The Guardian
Afflicted with liberal angst in the age of Trump? Take a leaf from Bridget Jones's diary
When future generations study creative works that capture the unsettled spirit of our age, they might easily neglect Bridget Jones 4: Mad About the Boy. The movie isn't about the historical inflection point that coincides with its release. It doesn't feature Donald Trump, his vandalism of US democracy or his dissolution of the transatlantic alliance. Such things are not the stuff of romantic comedy. Also, they hadn't yet happened in 2013, when Helen Fielding wrote the book on which the film is based. But the lack of intentional allegory doesn't prevent us projecting one on to the story. Or maybe it was just me, experiencing a sentimental hallucination induced by events outside the cinema. Indulge me a moment (and forgive any plot spoilers), as I explain. The first three volumes of the Jones diaries are picaresque chronicles of professional and sexual misadventure that resolve themselves in the reassuring arms of Mark Darcy, a human rights barrister: stolid, emotionally reticent, honourable and kind. That on-and-off romance sweeps Bridget from twentysomething anxiety to thirtysomething neurosis; from post-adolescent insecurity to early midlife crisis, unplanned pregnancy and, in the happy ending, marriage. Allowing for some chronological elasticity (with lags between books being written and adapted for cinema), Jones's relationship with Darcy unfolds against a political and economic backdrop that hindsight reveals to be exceptionally benign. It is that period sometimes called the Great Moderation: roughly from the fall of the Berlin Wall in 1989 to the global financial crisis in 2007-09. Democracy sprawled eastwards across Europe. Captive peoples were liberated from communist dictatorship. The dissolution of the Soviet threat generated a 'peace dividend' for western governments, permitting a diversion of budget resources from defence to social spending. There was a viable Middle East peace process. In 1993, Yitzhak Rabin and Yasser Arafat shook hands over the Oslo accords on the White House lawn. Apartheid was dismantled in South Africa, which held its first free, multiracial elections in 1994. The Good Friday agreement brought peace to Northern Ireland in 1998. The UK was then well into an economic boom that had another nine years still to run. London was basking in its status as capital of 'Cool Britannia' – a powerhouse of art, music and self-congratulation. This was the context in which Bridget Jones's diary first appeared as a weekly newspaper column in 1995. Her avid readership was the same generation that hit their young adult stride in that bright springtime of liberal metropolitan complacency. Jones was not very political, which made her an eloquent exponent of the zeitgeist. 'It is perfectly obvious that Labour stands for sharing, kindness, gays, single mothers and Nelson Mandela,' she wrote on the eve of Tony Blair's 1997 landslide election victory. The Tories were 'braying bossy men having affairs with everyone shag shag shag left right and centre and going to the Ritz in Paris then telling all the presenters off on the Today programme.' We know also from a one-off column published in 2019 that Jones was a remainer in the Brexit culture wars. To break the legislative deadlock in parliament, she proposed that Queen Elizabeth, David Attenborough and Joanna Lumley join forces, urging the nation to reconsider the referendum question. It makes perfect sense that the love of Bridget's life should be a distinguished lawyer who battles global injustice. It was a match made in the late 20th century, when human rights were a byword for all that was virtuous in western democracy. A career dedicated to their defence was the obvious device for a comic novelist wanting to signal intimidating levels of moral uprightness in a character. (It is often said that Darcy was modelled on a younger Keir Starmer. Fielding acknowledges uncanny likenesses in profession and manner, while insisting they are coincidental.) In the opening minutes of Mad About the Boy, we learn that Darcy is dead. He was killed in the line of duty, of course, on a humanitarian mission overseas. His widow is struggling to restart her life and raise two children alone. If, like me, you succumb easily to cinematic schmaltz, this is already an affecting scenario. What I found unexpectedly poignant was the thought that Darcy's untimely death also functions as a metaphor for the demise of political certainties that defined the world in which Bridget Jones's generation came of age. Her heartbreak is a parable of political bereavement, describing liberal angst at the sudden unravelling of institutional and legal norms underpinning European security. (Plus sex and jokes.) In the week that the movie was released, the US president reached over the heads of his country's former Nato allies to embrace Vladimir Putin. He sketched the outline of a deal to end the war in Ukraine that was part territorial capitulation to the aggressor, part gangster extortion – offering Kyiv protection in exchange for mineral wealth. Vice-president JD Vance gave an ominously unhinged speech at the Munich security conference. He claimed that freedom is more imperilled by imaginary culture-war spectres haunting European democracies than it is by a Russian dictator whose tanks are churning up the sovereignty of a neighbouring state. In case of any lingering doubt that the Trump regime has authoritarian ambitions, the president also asserted on social media last week that 'he who saves his country does not violate any law'. It is a signal that judges, courts and constitution should all be subordinate to a leader whose personal preference is synonymous with the national interest. Coming from the man who fomented insurrection to overturn the 2020 election, Trump's aphorism should be read as a hint that the spirit of Maga patriotism is vested in thugs and militias, not statutes. This was the advertised programme. None of it should surprise the US's allies. But it was easier to hope there might be momentum in the old order than to work out how to live in the new one. Now European leaders are scrambling to convene summits, scraping the sides of their depleted defence budgets, flexing atrophied military muscle in panicky gestures of continental solidarity. There is no going back to Darcy's world. The idea that human rights are universal and the principle that no one is above the law are losing ground to older axioms – big nations extract tribute from smaller ones; a strongman ruler makes the rules. Pained by these existential challenges, it is hard not to reach for the anaesthetic balm of nostalgia, mythologising the late 90s and early 21st century as a golden age of liberal democratic primacy. In reality, that was a cosy bubble around one generation in one corner of the world: a historical fluke. To move on, we have to get through denial, anger and the other stages of grief to acceptance. We need to recognise that we live for the foreseeable future in a world without a friend in the White House, and that this points to a destiny for Britain much closer to Europe. And we need politicians who will dare to say as much aloud. This, too, is something that occurred to me as I left the cinema last weekend. Maybe if we had leaders capable of expressing the magnitude of the crisis, and rising to the challenge, I wouldn't have to look for messages of solace between the lines of Bridget Jones's diary. Rafael Behr is a Guardian columnist
