The US fiscal stance is potentially necessary but by itself insufficient as an explanation for persistent econ resilience. Apparent inconsistency between the credit cycle and business cycle is a multi-causal phenomenon worthy of more nuanced commentary Pandemic transfers buffered balance sheets of some of the most vulnerable households as hike cycle started because they had just paid down a load of revolving debt. And consumption implications are different in curtailed leverage vs disorderly deleveraging cycles.

Strongly recommend listening to this in some ways as a piece with the excerpt from Romney’s biography in the Atlantic. Trivially, they’re similar in that both Stewart and Romney fell out with the parties they felt/feel deeply emotionally and intellectually associated with

https://twitter.com/AyoCaesar/status/1703661705664815384

More significantly, though, in both cases they both try on versions of “it was better to try to save the project from within the tent than be a powerless external critic” even where the risk was clearly going to be one of looking complicit in what subsequently happened.

There is a line on here particularly from some *cough* former Tory advisers currently gainfully employed in the financial sector that austerity can’t be blamed for the woes that the U.K. is currently experiencing. Worth thinking about what that implies. That the extent of the planned cuts ultimately failed to materialise is just pointing at the failure of the policy (the expected efficiencies weren’t there and lots of cuts turned out to be false economies) and ex post claiming it as vindication.

Still getting a lot of this and it’s obviously bad faith at this point. Where there is potential legal remedy to the current impasse, there’s arguably an *obligation* on the executive to use it rather than allow a default.

https://twitter.com/tomashirstecon/status/1658172871246503942

“We thought it might look too silly to issue high coupon bonds/consoles so we decided to let the treasury market go into freefall” isn’t a reasonable case to make. If Biden team really aren’t willing to make policy concessions under this threat they have to be looking at this.

Why does so much “serious” macro start with drawing silly arbitrary lines on a chat and calling it potential? Anyway this is all very time-series macro and hand-waivy. Can agree that U.K. has some unique constraints that are lowering supply potential but not clear they’re addressed particularly well here bankofengland.co.uk/-/media/boe/fi…

The rush to "normalise" rates in Europe is increasingly divorced from any economic justification. Evidence we are getting from negotiated wage settlements are showing one-off front-loaded jumps before resetting to normal(ish) growth thereafter. Econ is slowing. Energy still risk. Idea that a soft(ish) landing in '23 provides scope for higher terminal rate than currently priced gets the logic here backwards - if energy prices come down, and econ isn't too damaged then ECB no longer needs to chase headline HICP for fear of second round effects.

Contrary to the way it tends to be discussed outside of finance, markets really don't like elevated levels of volatility. It impacts (backwards looking) risk measures, which make trading more costly and limits scope to deploy leverage. Market would like a period of calm in the UK Some investors may have delivered outsize performance due to some of the recent moves but you want it to be a one-off. The more the UK stands out from the crowd, the tighter liquidity conditions are likely to remain and the harder it's going to be to stabilize conditions.

How is unpicking policy by policy better politically than ripping off the plaster here and ditching the lot? Puzzling. And market won't stop pushing especially as BoE want to be out here. Another way of looking at this is whatever "growth" dividend was supposed to come from these measures has been materially diluted. And you still have a gaping fiscal gap to close, which is getting bigger in part *because* she refuses to fully u-turn.

The contempt with which Pill discussed markets when the BoE did a volte-face on guidance is now being reflected back at the institution over the pension LDI debacle - and they still can’t sort out comms here. Don’t need to provide a wholesale CB put but have to demonstrate a clear understanding of distinction between P&L risk and broader stability risks, including how messages are likely to be interpreted. Shifting to antagonistic message - “sort this now or…” - looks like an error.

Suddenly thinking how much better things might have been if there had been rolling blackouts in the U.K. over the past few weeks that stopped these people from being able to broadcast Starting a campaign to replace senior U.K. public sector employees with a set of colourful rocks on a caretaker basis

Thinking through impact of a price cap and (ultimately) a levy on bills on inflation dynamics, likely implies we cap out at significantly lower levels of inflation than some were predicting *waves at those 22% CPI forecasts* but falls in wholesale energy prices won’t feed through Effectively, we’re going to make headline inflation less energy sensitive possibly for years to come, but as a trade-off basically lock in a price level shift. That might make returning to 2% targets more challenging for CBs (higher prices now wld have set >hurdle for next year)

This doesn’t make sense as an analytical approach to inflation targeting. Expectations don’t miraculously realise into out-turns, you need a mechanism. Growth in Eurozone is stalling and will soon shift into reverse. Prospect of industry shutdowns over winter. Rest is noise.

https://twitter.com/jnordvig/status/1566751215978946560

Not an argument that rates can’t rise but gradualism absolutely makes sense where the growth trade-off is extremely clear and the capacity to lower rates from here is still bounded by proximity to ELB.

Long been dismissive of a UK BoP shock story - it is extremely difficult to engineer the progression of events that envisages without some sort of hard friction such as a currency peg. But the constellation of problems facing the UK makes the current moment deeply troubling. On the one hand, the UK does have an external constraint that is driving terms-of-trade in its reliance on energy imports. That, coupled with the existing trade frictions caused by Brexit, make the risk of rolling rounds of imported inflation a serious policy problem.

For those who have been arguing that Russian sanctions weren’t effective, worth considering whether Russia would be so willing to play resource politics this transparently (at huge long term cost) unless western sanctions were biting hard on domestic capacity. Still this, I think

https://twitter.com/tomashirstecon/status/1546424671310077954?s=20&t=e3BWnxnEsyN93mQ-s5gN4A

First 11 syllables seem pretty accurate on the evidence so far ft.com/content/3c067e… Couple of things - bold to say you’re targeting 2.5% annual growth and then immediately note that forecasts aren’t destiny. Also, after three abortive rebrands of the same government, which “failed consensus” are we talking about specifically?

Absurd on the face of it that Liz Truss is happy to commit herself to tens of billions of additional outlays via reversing National Insurance and corporation tax increases but refuse to put any details/numbers around her imminent energy package because she isn’t PM yet. If there is a package of a size sufficient to mitigate some of the worst of damage from the energy price shock (potentially c.£100bn or so) the hit obviously has implications on capacity for spending/tax cuts elsewhere. Why not be candid about it?

The Lane/Schnabel analytical framework gap is currently *vast*. Lane makes a clear distinction btw cost-push and demand-driven inflation dynamics, and (in)ability of firms to continue pushing through price increases - entirely absent from Schnabel ecb.europa.eu/press/key/date… Lane acknowledges risks of persistent inflation overshoots on inflation expectations but also notes that the oft-made point about right-tail drift of expectations could simply be respondents who over-anchor to spot. So may not be a guide to how things develop from here.

European labour markets are so tight that they’re churning out negotiated wage growth of *checks notes* 2.1% YoY on.ft.com/3CKey0y Preemptively crushing labour bargaining power amid a region-wide cost of living crisis is a dereliction of duty and not consistent with medium term price stability

Short end of EUR IG corp curve looking awful interesting right about now IMHO Don’t get me wrong, you have to be willing to forgo some income and there’s a time value of money issue there but lots of these bonds going deep <par

This latest leg of the rates freak out contains a lot of what might look like quite contradictory information - hikes being priced out of the $ risk-free curve suggesting soft(ish) landing; hikes priced *into* the £ and € curves through '23 despite very clear growth pressures. Something looks wrong in this constellation. Might start with looking at what 4% Bank of England base rate implies for UK household debt service costs. Or what a 2% ECB effective rate does to Italian debt sustainability.

Price-wage spiral thesis receives an explicit endorsement as a concept from Schnabel ecb.europa.eu/press/key/date… Where it makes sense to me is that pent-up demand/reopening impacts have driven corp profits higher and, at least for now, softened the blow from the energy shock as household balance sheets were strong enough to absorb some of the shock.