Archive

Will AI save the US Economy?

• European policymakers and investors see Donald Trump’s economic policies harming Republican prospects in the 2026 midterms and the 2028 general election.
• The Trump Administration is placing a good deal of faith in AI as a panacea. But the US may not have the skilled labour or the power-generating capacity to fuel an AI boom.
• Nor is it clear whether the current Administration is preparing for the related socio-economic disruption from which the MAGA faithful would be far from immune.

By Alastair Newton

Broadly Slower Services PMIs

• PMIs broadly disappointed and declined relative to August, but absolute levels mostly remain robust or at least expansionary. We are not concerned by these noisy moves.
• Such broad slowing seems shocking relative to the past few months, but it is historically a regular occurrence. Five of the previous twelve were at least as broadly bad.
• The labour market remains tight in the euro area, softened in the UK, and steady in the US. Slower activity does not mean disinflationary slack. We stay relatively hawkish.

By Philip Rush

Fed Cuts Amid Deep Policy Division

• Fed cuts rates 25bp as expected, with new Trump appointee Miran dissenting for a 50bp reduction.
• Labour market weakness drove the policy shift as job growth averages 29k monthly, below the levels likely needed to maintain stable unemployment.
• Projections show a 9-9 split between one or two more cuts in 2025, and only one more in 2026. The FOMC is not as dovish as the market's pricing.

Fed: Politics Vs Fundamentals

• President Trump’s current preference for rate cuts is not unconditional. Higher-order logic suggests this would not override fundamental resilience or fairly prove “TACO”.
• Political pressure is state-dependent, with the messenger mattering more than the objective truth beneath any message. Trump’s Chair will have a stronger hand.
• Brazil suffered President Lula’s pressure, but he still supported his “Golden Boy’s” turn from dovish dissent to forceful rate hikes. Fed pricing ignores the potential for change.

By Philip Rush