economics3.73 min read
Iran Conflict Sparks Europe’s Inflation Spike, Tightening ECB Dilemma
11 days ago•Source: politico.eu
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Oil shock could erase gains from bigger tax refunds, economists warn
Stanford economists warn that higher oil and gasoline costs could largely offset the extra tax refunds Americans are set to receive this year. In a scenario where crude prices spike (with disruption to the Strait of Hormuz) but retreat later, U.S. households could spend about $740 more on gas this year, roughly canceling out the projected $360–$748 in additional refunds from last year’s tax changes. The result is a net drag on spending growth and inflation, with big variation by household — non-drivers and EV owners face less pain while long commuters face higher costs — making the outlook uncertain and tempering the hoped-for fiscal tailwind.
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Energy shock from Iran conflict risks stalling global recovery
The Guardian•1 month ago
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Can US dynamism outpace its rising debt?
A Danish pension fund sold its US government bonds over concerns about Washington’s overspending, highlighting a core tension: American financial dominance currently rests on sustained corporate vigor and fiscal discipline. If US dynamism wanes amidst rising deficits, its edge in global markets could erode even as the country remains the benchmark today.
Trump’s Greenland tariffs: a minor nuisance for Europe unless tensions escalate
European firms have already absorbed and rerouted around US tariffs, and the proposed 10% levy on several European countries for Greenland troop deployments would be a nuisance rather than a major hit, provided the dispute does not widen into a broader trade war; escalation remains the key factor that could alter the impact.
Trump’s Reluctance Reconfigures Hassett Fed Chair Prospects
President Donald Trump signaled reluctance to nominate Kevin Hassett as Fed chair, saying he’d rather keep Hassett in his current White House role, a stance that could reshape the race to succeed Powell and boost former Fed Governor Kevin Warsh; analysts say the comments complicate a Senate-confirmation process already strained by a DOJ probe into the Fed, while markets moved on the news as the administration weighs candidates who can win confirmation and align with Trump’s policy goals.
Bowman Urges Readiness to Cut Rates Amid Fragile Jobs Market
Federal Reserve Vice Chair for Supervision Michelle Bowman said policy remains moderately restrictive and officials should be prepared to lower rates further unless the labor market improves; she urged the Fed not to signal a pause and to keep policy near neutral as inflation cools, noting the central bank already trimmed rates by 25 basis points last month amid slower job growth and a 4.4% unemployment rate ahead of the January meeting.
US-Taiwan pact cuts tariffs to 15%, unlocks $500B chip investment push
The US and Taiwan announced a trade agreement lowering tariffs on Taiwan-made goods to 15% and committing about $500 billion in Taiwanese-backed investments to expand US semiconductor, AI, and energy operations, including $250 billion in direct investments and $250 billion in credit guarantees to bolster the American chip supply chain.
Deregulation as a Growth Engine: How Supply-Side Reforms Shape Monetary Policy
Governor Miran argues that targeted deregulation expands the economy’s supply potential and boosts productivity, improving the transmission of monetary policy. Citing Greece’s crisis-era reforms and the US deregulation push, he suggests lower regulation can justify a more accommodative stance from the ECB and Fed, while acknowledging measurement challenges in gauging regulation’s macro effects and noting new tools indicate a shrinking regulatory burden.
Energy Costs Lift US Wholesale Prices While Core PPI Stays Flat
US wholesale prices rose 0.2% in November, driven by higher energy costs, while the core PPI (excluding food and energy) was unchanged from October, signaling limited pass-through of higher costs. The data come as consumer inflation cools and investors await the Fed’s next policy move.
Auto rebound and holiday deals lift US retail sales in November
US retail sales rose 0.6% in November—the strongest gain since July—led by auto purchases and robust holiday shopping; excluding autos, sales rose 0.5%. Ten of 13 categories posted gains, indicating a still-resilient consumer entering the holiday season, aided by promotions and higher gasoline receipts.
G10 debt strains: higher yields, currency wobble
The article argues that debt crises in advanced economies are more plausible than commonly thought: high public debt plus shocks can push yields higher, and even when central banks cap yields, currencies can depreciate, signaling ongoing, low‑grade crises across Japan, the UK, and parts of the euro area. For example, Japan’s yen falls as JGB yields rise despite BoJ caps, the UK sees rising gilt yields with a relatively stable pound, and Italy, Spain and France face growing debt pressures within a euro framework, though Germany's low debt provides some insulation. The piece concludes that debt distress is already unfolding in the G10 and could deepen.
Mixed Insights on Tariffs' Impact on Inflation and Economy
The article examines historical data on large tariff increases, particularly around 2025, showing that such shocks historically raised unemployment and lowered inflation, possibly due to increased uncertainty, and discusses implications for current monetary policy decisions.