Understanding this monetary–fiscal nexus is key to grasping what “sustainability” really means

What truly matters is the relationship between fiscal and monetary policy. When a government issues debt in its own currency, and the central bank stands behind it, the constraints it faces are not those of a household or a firm.

Is U.S. Government Debt Unsustainable? The $38 trillion U.S.

This is an important post on debt sustainability.

We often treat debt as a purely fiscal issue, searching for magic numbers (38T, 45T) or debt-to-GDP ratios (90%, 120%) beyond which everything unravels. But that misses the bigger picture. #debt #US #fiscalpolicy

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#geopolitics #swap_lines #united_states #china | Herald Insight Collection(#HIC) Professor Gianluca Benigno at the University of Lausanne took an in-depth look at global currency swaps, which have emerged as a key issue in #geopolitics. He offers the insight that the geopolitics o...

In my column for Herald Insight Collection, I explore how swap lines could evolve into geopolitical instruments of strategy and power.
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Hi, apologies for the delayed reply. Since June, perceptions of the labor market have shifted, and it now seems likely that we’ll see at least two rate cuts by the end of 2025, possibly three. The next SEP is out next week, so we’ll have a clearer view of the new median then.

Committee Dynamics:

Potential split: There may be a growing divide between the voting members (12 FOMC) and the full committee (19 participants) about the pace and direction of policy.

Future decisions, especially from September on, are likely to hinge on the inflation outlook.

Stagflation risks noted:

End of 2025-GDP growth (2025 median) drops from 1.7% to 1.4% (central tendency narrows from 1.5–1.9% to 1.2–1.5%)

End of 2025-PCE inflation (2025 median) rises from 2.7% to 3.0% (central tendency shifts from 2.6–2.9% to 2.9–3.4%)

Quick Fed Update: 2025 rate cuts: The median projection still sees 2 rate cuts by end-2025.
Rising support for “no cuts”: In March 2025, 4 FOMC participants saw no cuts in 2025. In June, that number has increased to 7, showing increased caution within the committee on easing policy further.

Japan April-25 CPI Inflation Report Sticky core and goods inflation keep pressure on the BoJ’s cautious stance.

open.substack.com/pub/gianluca...

Japan Inflation (Apr): CPI steady at 3.6% YoY; core CPI up to 3.5%. Food eased, but rice +98.4% YoY. Goods—not services—drive inflation. BoJ likely to stay cautious amid external risks.

#Japan #CPI #BoJ #inflation #economy #Yen

UK April-25 CPI Inflation Report Headline CPI rose as regulated price increases took effect. More notably, there was a surprise uptick in services inflation, which climbed to 5.4%.

open.substack.com/pub/gianluca...

UK data: CPI rose to 3.5% YoY (vs. 3.3% expected), led by services inflation at 5.4% YoY, up from 4.7%. With wage growth sticky at 5.4% YoY, the current release might lead to a further cautious approach by the #BoE.
#UKinflation #CPI #wages #BoE #interestrates #monetarypolicy

Decline in interest rates would mitigate the cash-flow channel (associated with higher mortgage payments) and support aggregate demand, but overall, it is hard to see how all this would lead to inflation in a low-growth context with lack of fiscal support

Thanks for your comment, I agree that there are structural factors in explaining pressures in the rental market, but what is striking about the UK and also Canada is how rent inflation started rising as interest rates increased and now has recently declined in Canada as they cut interest rates more.

The Flip Side of UK Monetary Policy This note draws from remarks I delivered as part of the monetary policy outlook panel at the Bank of England Watchers’ Conference.

From a monetary policy perspective, these factors suggest that more decisive easing by the Bank of England could be appropriate, with relatively limited side effects in the current context. #Inflation #Interestrates #MonetaryPolicy 3/3. open.substack.com/pub/gianluca...

I made 3 key points: a)The role of rent inflation in accounting for UK inflation and its persistence b)The rapid and sizeable increase in the policy rate as a driver of UK inflation through higher rent c)The role of wage growth as demand support rather than just an input cost 2/3

I presented "The Flip Side of UK Monetary Policy" last week at the BoE's Watchers Conference. The main message is that the transmission mechanism of monetary policy is not mechanical, but depends on state-contingent and institutional country-specific factors. #BankofEngland 1/3

US April-25 CPI Inflation Report Disinflation continues, as tariff-driven inflation fears have yet to materialize. The current release suggests no change in the "wait and see" monetary policy approach.

No signs of tariffs-induced price increases yet for the U.S. economy.

open.substack.com/pub/gianluca...

Large capital inflows, sectoral allocation, and economic performance This paper describes the stylized facts characterizing periods of exceptionally large capital inflows in a sample of 70 middle- and high-income countr…

Finally, in my own paper with @gianlucabenigno.bsky.social and @lucafornaro.bsky.social, we show that the Financial Resource Curse is not merely a theoretical possibility by presenting careful empirical evidence that it is a general phenomenon www.sciencedirect.com/science/arti... 4/n

In an AER paper w Martin Wolf (of U.St.Gallen) @gianlucabenigno.bsky.social and @lucafornaro.bsky.social show that the Financial Resource Curse has even larger negative implications when flows go to the world technological leader, I.e. the US (ungated here: www.newyorkfed.org/research/sta...) 3/n

I like that Brunnermeier and Merkel at least nod (without citation for some reason) at @gianlucabenigno.bsky.social and @lucafornaro.bsky.social ‘s work on the Financial Resource Curse (e.g crei.cat/wp-content/u...) 3/n

When tariffs become a financial shock inducing feedback loop in asset prices @gianlucabenigno.bsky.social #econsky
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A Quick Guide to the New U.S. Trade Regime This is a major structural shift to the global economy, here I review the basics.

My teaching notes on the new U.S. Trade regime. What are tariffs? Who pays for it? Do they increase prices? what policy actions have been adopted, their implementation and possible legal challenges.
open.substack.com/pub/gianluca...

US January-25 CPI Inflation report An unexpected rise in inflation will likely dampen expectations for rate cuts, reinforcing the Fed's cautious stance and increasing the likelihood of a prolonged higher-for-longer rate environment.

January CPI inflation release surprised on the upside. Core inflation seems to be stuck above 3% showing little progress. As trade tensions increase, goods prices will likely add to inflationary pressures rather than contribute to disinflation as in 2024.
gianlucabenigno.substack.com/p/us-january...

Interest Rates Politics: can Trump Pressure the Fed? It is still inflation that matters

Interest Rates Politics: can Trump Pressure the Fed?
open.substack.com/pub/gianluca...

A Copernican revolution in EU economic thinking? ‘Draghi plus’ would make Europe take domestic demand seriously — and not before time

This is the link of @martinsandbu.bsky.social on.ft.com/4gqJKmz

The Keynesian Growth Approach to Macroeconomic Policy and Productivity - Liberty Street Economics Productivity is one of the key determinants of potential output—that is, the trend level of production consistent with stable inflation. A productivity growth slowdown has occurred in several advanced...

Nice article by @martinsandbu.bsky.social on Draghi's proposal. "Demand creates its own supply" this is what happens in the Keynesian growth framework (libertystreeteconomics.newyorkfed.org/2019/04/the-...)

Scenario Analysis as Communication Device for Central Banking Reshaping Communication: The Bernanke Review will affect Central Banks’ communication beyond the Bank of England.

How can Central Banks manage the post-pandemic world with increased macro variability, geopolitical tensions, and shifting interest rate dynamics? Building on the BoE, I explore how scenario analysis could emerge as a new communication device for CBs. gianlucabenigno.substack.com/p/scenario-a...

@andreasbeerli.bsky.social @gianlucabenigno.bsky.social @kenzabenhima.bsky.social @fuster.bsky.social @eyquem2.bsky.social @dominic-rohner.bsky.social @marcbruetsch.bsky.social @karstenjunius.bsky.social

This reflects the guidance provided by Powell at the November press conference where he stated “..we are on a path to a more neutral stance.. that has not changed at all since September..”. There is one more CPI inflation report before the next FOMC policy meeting.