Central banks: "Just another form of taxation"

As the market impact of the Israel-Iran conflict fades, pre-war market themes - dollar weakness, euro strength, and trade uncertainty - have snapped back, fed by reports that the new Federal Reserve's chair will be unveiled well ahead of his or her appointment.At their weekly meeting before news of minor Chinese and EU trade concessions to the US, Medley Advisors analysts discussed these themes. In this edited version of the meeting, the speakers, in order, are: Dan Schwartz, Michael Redmond, Tim Jones, Brian Jackson, Pepijn Bergsen, and Andrew Besuyen.Growing expectations of a new dovish Fed leadership have "been helped pretty dramatically by the fact that, so far, inflation from tariffs has been a phantom," says Schwartz. "This all comes to a head in the next two weeks" with the release of June jobs and inflation data, followed by the 29-30 July Fed meeting. "That sets up a move where you could get some pretty significant curve steepening, which raises the odds of a name the markets like less for the next Fed chair".

US Congressional Republicans’ “big, beautiful bill” has provoked a rift between President Donald Trump and his former ally Elon Musk but it has also created a policy dilemma for the Federal Reserve. In this podcast, Medley Advisors’ US analyst and Fed-watcher Michael Redmond talks to Tim Jones. Longer-term fears of fiscal slippage are keeping long-term US rates high but the bill’s tax cuts may encourage households and businesses to buy tariff-inflated goods in the short term. In Redmond’s view, this may be enough to delay a resumption of the Fed’s easing cycle into the fourth quarter. While this is sure to fuel Trump’s vendetta against Fed Chair Jay Powell, it is helping Governor Chris Waller’s case for replacing him next year. Waller argued that the Fed can “look through one-off tariff inflation,” says Redmond. “And what I've been hearing from people who are close to the White House is that Waller's arguments have gotten noticed over there … and, because of that, it seems to be that he's rebounding in his profile for the Chair role next year”.

Global bond yields may have come off their peaks going into the weekend but this was after a May surge that lifted US 10-year rates by 30 basis points back over 4.5% and pushed Japanese 30- and 40-year rates to all-time highs.At their weekly analysts' meeting, Medley Advisors discussed these market moves and how the authorities could respond, and debated sovereign defaults, inflated-away debt, and memories of the early days of the eurozone's solvency crisis."I'm thinking about this more as a reverse process of what we saw in the early 2000s ... 'the conundrum', when the Fed raised interest rates and 10-year yields didn't go anywhere because of this consistent bid for long-term assets," says Dan Schwartz, markets analyst. "We can see an unwind of that, or the opposite of that, which means that there's a consistent offer for long-term assets, that the Fed loses some control over parts of financial conditions, and that means higher yields over time, which is going to have really profound implications".This is an abridged and edited version of Medley's weekly meeting featuring in order: Andrew Besuyen, Kenichi Nagura, Dan Schwartz, Michael Redmond, Tim Jones, and Pepijn Bergsen.

In a week that saw US equities return to their pre-“Liberation Day” levels, Medley Advisors’ analysts consider the next steps for the US, European and Brazilian central banks. “The Federal Reserve doesn’t think that it has a particular edge in guessing where this economy is going from here,” says US analyst and Fed-watcher Michael Redmond. “There could be some inflationary concerns that keep the Fed on pause for a while … but ultimately, I view tariffs as just another form of taxation and a particularly regressive one that also causes a lot of supply-chain uncertainty along the way”. In this edited and abridged podcast from Medley's weekly meeting, the speakers - in order - are Tim Jones (Europe), Redmond, Pepijn Bergsen (Europe), and Mario Lima (Brazil).

The combination of US President Donald Trump's war of words with the Federal Reserve and apparent de-escalation of his trade war with China lifted US stocks 6% from early-week lows and lopped 10 basis points off 10-year rates.But, as became clear during Medley Advisors' weekly analysts' meeting, these reassurances from Trump and his Treasury Secretary Scott Bessent provided less than met the eye.Even if the US halved its tariffs on imports from China, "you still would be at tariff rates, let's say well above 60%, and maybe even close to 100% on many Chinese goods and the problem there is that it's a distinction without a difference," said Brian Jackson, Medley's China and trade specialist. "So, it might look nice. It might feel good for markets because, directionally, it is positive. But, in terms of actual activity, it might still be a blocking level of tariffs you're left with".In this edited and abridged podcast from the weekly meeting, the speakers - in order - are Tim Jones (Europe), Jackson, Michael Redmond (US), Dan Schwartz (markets/data), Kenichi Nagura (Japan), Fernando Posadas (Latin America), and Andrew Besuyen (Australia and New Zealand, and markets).

The morning after the Trump administration published its “Liberation Day” tariff list, Medley Advisors analysts met to consider the next steps. They discussed how much of the package was accident or design, US negotiating tactics and capacity, retaliation and conciliation.   “The one thing that's really notable,” said Brian Jackson, Medley’s China and trade specialist, “is that Mexico and Canada are at a huge advantage now compared to the rest of the world because they have a 20-percentage-point advantage in tariffs against everyone else … So, as much as (Prime Minister Mark) Carney was on TV last night criticizing Trump, we'll see – a year from now – how Canada feels about it because they're possibly going to enjoy a huge amount of diverted demand from Europe and from China into their market. And probably more so Mexico because Mexico has much more manufacturing than Canada”. In this edited recording of the meeting, the speakers - in order - are Jackson, Michael Redmond (US macro analyst), Pepijn Bergsen (European policy analyst), Fernando Posadas (Mexico specialist), and Kenichi Nagura (Japan analyst).

Over the past three weeks, the US withdrawal from European security and a consequent arms-and-infrastructure fiscal boost for Germany have driven up the euro, along with European equities and interest rates.Medley Advisors' European analysts, Tim Jones and Pepijn Bergsen, got together to discuss whether this political upheaval justifies the scale of repricing."At the end of the day," says Bergsen, "there's a very easy rule of thumb here, which is that those countries closest to Moscow are increasing defence spending while those far away who don't feel threatened politically are in a position that they don't really want to and probably also don't quite have the fiscal space".Germany will take time to ramp up its spending but it has the space and the urgent need to do so. The eurozone's other big three have their budgetary hands tied, so it will be Poland, the Baltics, and the Nordics rearming in response to US withdrawal.

Eighteen months after Australia’s central bank chief was removed, New Zealand’s governor Adrian Orr quit with three years left of his term. Both had faced withering political criticism, but Orr’s departure was so abrupt and inexplicable that it shook the market just as the Reserve Bank of New Zealand was carefully reversing its pandemic-era tightening cycle. To explain what Orr’s departure may mean for policy and to contrast the easing cycles in Australia and New Zealand, Pepijn Bergsen talked to Andrew Besuyen, Medley Advisors’ analyst for the region. Before joining Medley in 2023, Andrew was an RBNZ economist who worked on the analysis team for Orr and the monetary policy committee.  “Adrian has a tendency to take a lot of the criticisms to heart, and so maybe it's just come at a time where he's had enough". "Once he knew where he wanted to get, he wanted to get there quite quickly, and, in this case, he wanted to get the OCR to 3% or at least have a three handle. I think the committee bought into that in general. So even without him there, there'll be a little bit of that mentality remaining”. 

The impact of the US government's about-turn on Ukraine and the North Atlantic alliance will be felt most keenly in Europe.In this podcast, Pepijn Bergsen, Medley Advisors' macro policy analyst, and James Waddell, the Head of European Gas and Global LNG at Energy Aspects, discuss what this strategic upheaval will mean for natural gas prices and fiscal spending."Europe remains pretty burned from what happened with the Russian weaponisation in the first place," says James Waddell. "Most member states remain opposed to Russian gas coming back. Certainly, the [European] Commission does, and we're expecting next month the commission to start really giving teeth to its roadmap for exiting Russian hydrocarbon imports by 2027 ... And unless Ukraine has very strong guarantees from the West on its security, we think it will still be reluctant to allow a lot of Russian hydrocarbons to flow through Ukraine, given the fact that this would just be funding a future war chest for aggression against it in the future". 

Radical US Republicans are looking 5,000 miles south for inspiration as they take their own "chainsaw" to government. Sixteen months since taking office as Argentina's president, Javier Milei has met his promises to drive down inflation and generate a primary surplus while sustaining public approval.For an assessment of the exportability and sustainability of the Milei model, Pepijn Bergsen talked to Medley Advisors' Argentina specialist, Ignacio Labaqui."I don't think the public finances of the US and Argentina are comparable even if both countries have run large fiscal deficits for a while," says Labaqui. To meet his goals, Milei froze public spending, including pensions, and bypassed Congress in budget-making. "You could streamline some expenditures in the US, but I don't think the Milei formula is basically replicable".Aside from hubris, Labaqui sees the greatest threat to Milei as "a deterioration of the international environment" due to US President Donald Trump. "Trump is very close to Milei ideologically ... but the systemic consequence of Trump's policy could put Milei's economic approach under stress. If Trump results in higher interest rates and a stronger dollar, that's going to lead to the appreciation of other [emerging market] currencies that will aggravate the strength of the peso".