Aurelia Butler

The departure of three partners from Goldman Sachs on Monday this week was followed a day later by the exit of Lisa Opoku, who had been running the bank’s wealth management business.The departures are the latest in a clutch of senior partners who have left the Wall Street bank this year, heaping the pressure on chief executive David Solomon as he struggles to overcome an expensive foray into consumer lending and a slowdown in the bank’s investment banking business. Other notable departures since January include Mike Koester, the 25-year veteran who was co-president of the group’s alternative investments business and was said to be a “beloved” figure inside the bank. Julian Salisbury, chief investment officer for asset and wealth management, Dina Powell, head of Goldman’s business covering sovereign wealth funds, and Joe Montesano, head of equity trading for the Americas, have also left since the start of the year.Goldman insiders say the departures are part of the normal turnover at the bank and are reminiscent of the period following the financial crisis in 2008 or 1998, when the bank delayed an initial public offering. They also take comfort from the fact that many of the executives who have left become part of the highly influential network of Goldman alumni on Wall Street that go on to become clients at their new employers, whether that be in the hedge fund industry or in private equity. But others inside the bank worry that the exodus of top talent is sapping morale and that the knowledge walking out of the door will take years to replace.“If you don’t have aspirational mentors, it becomes difficult to stay,” said one insider. Read more on the exodus at Goldman Sachs. Here’s what I’m keeping tabs on today:Donald Trump’s arraignment: The former US president is expected to appear in a Washington courtroom at 4pm after being accused of attempting to overturn the results of the 2020 election. Here’s what to expect.Results: Apple, Amazon, Airbnb, Coinbase, ConocoPhillips, Moderna, Warner Bros Discovery, Kellogg, Expedia and Hasbro are among the companies reporting earnings today. Economic data: Economists anticipate initial US state unemployment claims, a proxy for job cuts, to have increased last week. Separately, the July ISM services purchasing managers’ index is expected to fall slightly.UK interest rates: The Bank of England is expected to further tighten monetary policy as it tries to stamp out inflation, which is running at nearly four times its official target. Five more top stories1. Investors are increasing bets that Europe will sink into a painful economic downturn, in growing contrast to the conviction in financial markets that the US is headed for a “soft landing”. Read more on the diverging European and US economies. 2. Brookfield Asset Management and Sequoia Heritage, a $16bn fund that manages the wealth of Silicon Valley, are creating an investment vehicle to capitalise on plunging valuations of venture capital-backed companies. Read more on the new company which will be led by a former Oaktree Capital executive. 3. Two people found guilty in a corruption scandal involving KPMG and the US audit regulator are set to have their convictions dropped, after prosecutors conceded they had misinterpreted the law. Read more on the case.4. Tom Brady, the former New England Patriots’ and the Tampa Bay Buccaneers’ quarterback, has taken a stake in English football club Birmingham City. The Midland’s team, which competes in the second tier of English football, was taken over by a company led by US financier Tom Wagner last month. Read more on Brady’s plans for the club. 5. Global law firms and corporate counsel are warning of a “massive” challenge to the centuries-old concept of attorney-client privilege after a federal judge in New York last week ordered the details of seven clients to be released. Read more on the controversial ruling. The Big Read

Bonds have long been considered the most boring bit of finance, but they have played an integral role in the development of human society, funding everything from wars and railways to Tesla’s electric cars and Netflix. Alphaville editor Robin Wigglesworth sketches a very short, very wild history of the market that will shape the next financial crisis.We’re also reading and listening to . . . Trump’s co-conspirators: Although the six co-conspirators were not identified in Tuesday’s indictment they are likely to be characters in Trump’s orbit. Women’s football: Aly Wagner, a former player on the US women’s national team, explains how she helped get Bay FC off the ground with the help of a novel funding model. Weather forecasting: The science of predicting ever more extreme meteorological events is becoming more sophisticated and accurate. Chart of the day

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The Banco Central do Brasil yesterday became the second Latin American central bank within a week to cut its main lending rate, in the latest sign that the region is getting on top of inflation. Chile was the first to lower its main policy rate and others are expected to follow. “Latin American central banks can take a victory lap,” said one economist. Take a break from the newsGeorge Orwell’s warnings about state control and surveillance are often invoked — especially now, in the age of artificial intelligence and big data. But if the legacy is secure, his reputation is less so. Two biographies offer contrasting perspectives on the author, and the invisible life of his first wife.

George Orwell relaxes with a cigarette and cup of tea in 1945 © Estate of Vernon Richards/Orwell Archive/UCL Library Special Collections

Additional contributions by Tee Zhuo and Benjamin Wilhelm More

Pity the UK. Sure, inflation is slowing there as well, but from higher level and far more slowly than in most other countries. Here’s a Goldman Sachs chart showing just how much global price pressures have abated this year (and how its economists expect them to continue to ease):

And here is 2023 broken down by regions. As you can see, even emerging markets excluding China — which is flirting with deflation — now have a much lower core inflation rate than the UK (at 6.9 per cent in June).

The decline in core inflation rates has mainly been driven by falling goods prices, as well as lower service inflation (at least outside Europe).

These charts are from a new report by Goldman’s economists Joseph Briggs and Giovanni Pierdomenico on what they call the “anatomy of a global core inflation slowdown”. Here are their main points:— Global core inflation has slowed sharply. In DM economies, core inflation — defined as consumer prices excluding food, energy, alcohol, and tobacco — has fallen from a peak pace of 6% (3mma) to 4% today, while core inflation in EMs has retraced more than half of its overshoot. Details of the slowdown are even more positive, as trimmed core inflation has slowed to just over 2% in most major DMs, and core inflation is slowing at an increasingly rapid pace in the “early hiker” economies that are the furthest along in their hiking cycles.— The key drivers of the core inflation slowdown are fairly common across countries. Slower core goods ex vehicles inflation accounts for over 1pp of the broader slowdown in almost all economies, while vehicles inflation has on average lowered global core inflation by over 1pp relative to its peak. Core services ex shelter inflation has also cooled meaningfully in most countries (outside of Europe) because of progress on labor market rebalancing and wage growth.— The disinflationary forces that we had expected to lead core inflation lower — especially supply chain improvements and slower wage growth — are now arriving with a vengeance, as inflation surprises around data releases have recently turned negative. Combined with our view that all of these forces have room to run, the shift in the pattern of surprises adds to our confidence that global core inflation will fall back below 3% in 2024.Of course, the question is whether inflation continues to cool off from there and heads back below the 2 per cent targets of most central banks. If not, then the coming rate hiking pause might prove only prove a temporary respite rather than the cycle’s peak. More

The ECB raised rates for the ninth straight time in a year last week but signalled it may take a break at its next meeting in September as inflation continues to fall and growth weakens.Panetta, who has long called for a cautious approach to raising borrowing costs, argued “persistence” in keeping rates high would allow the ECB to bring inflation to its 2% target without unduly hurting the economy or jeopardising financial stability. “Emphasising persistence may be particularly valuable in the current situation, where the policy rate is around the level necessary to deliver medium-term price stability, the risk of a de-anchoring of inflation expectations is low, inflation risks are balanced and economic activity is weak,” Panetta told a webinar organised by Milan’s Bocconi University.Euro zone inflation fell further in July — to 5.3% — and most measures of underlying price growth also eased, in a largely comforting sign for the ECB marred only by a further acceleration in the prices for services.But a survey published on Thursday showed that even in the dominant, and so far booming, services industry activity was slowing, compounding a slump in manufacturing.This was likely to strengthen the hand of those ECB policymakers calling a pause in rate hikes at the Sept. 14 meeting, which would leave the rate that the central bank pays on deposits at its current 23-year high of 3.75%.”When steering the monetary policy stance, persistence is becoming as important as the level of our policy rates,” Panetta said. “This is particularly true given that risks to the inflation outlook have become more balanced, while risks to the economic outlook have shifted to the downside.”The 64-year-old Italian is set to step down from the ECB’s board at the end of October to take over as the Bank of Italy’s governor, thereby retaining a seat on the Governing Council of the euro zone’s central bank. More

Happy August — I hope readers in the northern hemisphere are enjoying their summer. And thanks to my splendid colleague Claire Jones for standing in on Free Lunch last week with an excellent piece on why consumer spending is holding up despite rising interest rates. With news being relatively thin on the ground in August, I am tempted to use this month to share thought-provoking reading I have come across rather than offer a lot of economic analysis. (I emphasise relatively thin on the ground — Russia is still pummelling Ukraine; a coup just happened in Niger; a former US president has been indicted for criminal conspiracies to overturn the 2020 election). But I also want to give you an opportunity to let us know what topics you would like to see covered, or covered more, in Free Lunch. Scroll down or click here to fill in the ultra-short (one question!) poll — and if you have other ideas than the suggestions here, we would love to hear from you at [email protected] me start by recommending three eye-opening long reads. Two are from last weekend’s FT: Henry Mance’s essay on the sudden respectability of asking whether aliens exist, and Sam Jones’s Lunch with the FT with the historian Tim Snyder. The third is economist Adam Posen’s Foreign Affairs essay on the end of China’s economic miracle. This China pessimism is clearly growing — Free Lunch readers will have noticed that it has cropped up several times recently here.Now, for two broader topics in my pile of reading — both so broad that they affect pretty much everybody.The story no one can ignore because it affects us all . . .There has been a lot of good economic journalism in recent weeks around the freakish climate events we are experiencing — from record high air and sea temperatures to record low Antarctic ice coverage. Let it no longer be said that the media (at least quality media) neglect global climate change and its effects!Start with my colleagues’ excellent Big Read on how extreme heat is reshaping our economies. In all kinds of ways, productivity suffers when the temperature rises. This is obviously true in sectors where humans are particularly exposed to extreme heat: tourism, typical outdoors activities such as agriculture, transport and construction, but also indoor activities when they take place in buildings designed for cooler weather only. Perversely, protection against other hazards may make workers more vulnerable to heatwaves: a New York Times article mentions the challenge hot weather presents for activities requiring heavy protective clothing, from slaughterhouses to gas leak repairs.And it’s not only humans that are made less productive, but infrastructure — with materials such as steel warping or concrete setting too fast in extreme heat.Then there are the droughts and floods leading to crop failures — in themselves a productivity hit — and in turn to higher food prices (on top of the effects of Russia’s war against Ukraine). A nice article in the Economist highlights big grain harvest declines in Australia and the US because of droughts, and India’s cut in rice exports after “debilitating rains”. As the piece points out, the resulting higher food prices, and high temperatures directly, tend to cause social unrest, a further threat to economic productivity. Move on to diseases, such as this report that cholera outbreaks are on the rise because of more frequent tropical cyclones. And that’s just one example of many, according to scientists. Climatic changes seem to have worsened a majority of known infectious diseases (and ameliorated many fewer). The World Health Organization expects climate change to cause 250,000 additional yearly deaths in the coming decades. Dengue fever is on the rise in Europe, and malaria could return there and to the US. The next global pandemic could be a well-known disease, spread more easily by climate change.. . . and the story everyone ignores but will affect us all anywayAnother text that caught my eye was Andy Haldane’s op-ed in the FT on central bank digital currencies, in other words government-banked e-money. In his trademark style, Haldane tells the story of the conspiracy theory-tinged opposition to CBDC via the petition once launched to stop him from “scrapping cash”. The then-chief economist of the Bank of England signed the petition himself, “in a failed attempt to lighten the mood”. The deep point is something else. Haldane says it is fear of such public opposition that has made CBDC designers recommend that any future digital pound (or euro, or dollar) should not pay interest, lest it becomes so attractive that people take money out of bank deposits and put it into CBDC. But this is the true scandal: it amounts to forcing holders of (digital) cash to subsidise the government, in a regressive way to boot. Three cheers to Haldane for pointing this out. For me, this prompted two further thoughts. First, we should ask the converse of Haldane’s question (why should we not pay interest on CBDC?) for banks. Why should central banks be paying interest on commercial banks’ reserves with them, which are (as Haldane rightly says) CBDC for banks? The answer I get when I ask this of central bankers or their advisers, is that not remunerating reserves at the central banks’ interest rates would amount to a “tax” on banks, so this would be “fiscal policy”. I disagree with this: we did not force banks to pay negative interest rates on most reserves when policy rates were below zero, and we do not need to pay them positive ones now — especially when government budgets are badly strained. But even accepting that view, for the sake of argument, why is the same not true for retail CBDC? Why is it OK for central banks to do fiscal policy and tax ordinary people, while this is anathema when it comes their treatment of banks? It seems like central banks really have to choose one or the other, and treat CBDC for people the same as they treat CBDC for banks (which is what reserves, in effect, are).Second, why should we even try to prevent people from choosing CBDC over bank deposits? One matter is a panic flight from banks in a crisis — but that can be addressed with good liquidity lines from central banks. Another is if people permanently prefer to keep their liquid money in CBDC rather than commercial bank deposits. But nothing would stop banks from offering a premium interest rate over the CBDC rate to make their deposits more attractive. And central banks could lower CBDC rates enough, including below zero, to get private deposit rates to what best benefits the economy. The advantage is that the payment system and the overall money supply could be kept safe from any recklessness banks may possibly show in their decisions to lend and allocate credit. We could, of course, trust the banks to be safe. But if we learn from history, we should welcome the CBDC alternative to deposits with open arms. Other readablesMariya Manzhos writes beautifully of her — and millions of other Ukrainians’ — efforts to fully adopt their native Ukrainian language.The high cost of housing is interposing itself in young people’s romantic choices. The dreadful possibility that we are returning to a Jane Austen mode of dating made me think of Thomas Piketty’s treatise on the history of inequality, and his frequent use of 19th century literature to reflect how it shaped society.In decoupling news: Some South Korean corporate giants have successfully reduced their reliance on the Chinese market.Numbers newsBefore Brexit, the price of emitting carbon in the UK was the same as elsewhere in the EU, since they shared the same emissions trading system. But since March, the price in the UK’s own successor scheme has fallen 40 per cent below the EU’s carbon price because of policy choices to make the scheme less restrictive.

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Ketchup-bottle economics: UK shop prices, UK producer prices and eurozone industrial producer prices are all falling.Vote in the poll by clicking here or make a suggestion via email. More