Economy

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldThe writer is a former prime minister of Italy, president of the Jacques Delors Institute and a dean at IE UniversityDonald Trump’s actions in his second term make clear that we are dealing with a long-term strategic vision that aims to reshape America’s global role, weaken multilateralism and increase pressure on allies, especially Europe. The US president is pursuing an agenda that forces the EU to face an urgent reality: it must strengthen its autonomy and capacity to act. Paradoxically, Trump’s challenge offers an unprecedented opportunity for Europe to do just that. It could be the catalyst that drives deeper integration and a stronger, more decisive EU. This EU must begin by fully leveraging its two most powerful assets: the single market and the euro. The single market has given Europe economic weight and resilience, but it remains incomplete. In a world of continental powers and economic blocs, no single EU member state can act alone. To navigate today’s geopolitical storm, we must scale up and build a truly European market, starting with finance, energy, innovation and, yes, defence. Without scale in these domains, Europe risks becoming an economic colony. This is not a theoretical danger: Europe increasingly depends on foreign platforms for digital infrastructure, on non-European investors to finance its industrial base and on external powers for energy and military protection. The risks here are political as well as economic: this dependency constrains our ability to act in our own interest, leaving us vulnerable to decisions made elsewhere. The immediate priority is to unlock the full potential of the single market, starting with completing integration in financial markets. Europe is a capital-rich continent that, paradoxically, underinvests in itself. Each year, billions of euros in household savings flow out of the EU, and much of that capital lies idle in low-yielding deposit accounts. These resources must be mobilised in pursuit of our own strategic goals. A single European capital market would channel European savings towards European businesses, enhancing innovation, the green and digital transitions and industrial competitiveness. Achieving this goal requires, alongside national efforts, a coherent European strategy focused on concrete policies: the creation of attractive and secure pan-European savings products; consolidation of trading and post-trading infrastructures; centralisation of supervisory powers for cross-border activities; alignment of insolvency, tax and company laws, as well as the establishment of what European Commission president Ursula von der Leyen has called a “28th regime”, a single regulatory framework across the EU; globally competitive asset managers; and a stronger ecosystem for scale-ups. In short, the proposed savings and investments union — which was a central pillar of my report Much More Than a Market — offers a comprehensive policy framework to deepen EU capital markets. To implement it, we should introduce the binding deadlines that worked for the creation of the euro, for example by fixing July 1 2027 as the starting date.We must also do more to realise the full potential of the euro. Nearly 20 per cent of global reserves are held in euros, but the lack of a genuine European safe asset and fragmented financial markets limit its role. As Christine Lagarde, president of the European Central Bank, has repeatedly stressed, strengthening the euro is key to Europe’s resilience. In a world in which economic power is increasingly weaponised through sanctions, trade restrictions and financial coercion, this is no longer just an economic issue — it is a question of sovereignty. Amid growing uncertainty over the role of the dollar as the world’s reserve currency and global appetite for US Treasuries, Europe has a historic opportunity. Expanding the international role of the euro would enable the EU to reduce financing costs for both governments and businesses and to attract more investment. Recent initiatives such as NextGenerationEU, the Safe instrument for defence and the digital euro project have helped lay the groundwork for the emergence of a true European safe asset. Still, we must go further. One more far-reaching idea is scaling up the market for supranational EU bonds significantly, not necessarily through new debt, but by gradually replacing part of national debt with common bonds. Global investors are actively seeking alternatives to the US Treasury market. A large, deep and liquid Eurobond market would meet this demand and provide the foundation for a truly autonomous European financial system. The global order is being reshaped before our eyes. If Europe wants to remain a global actor, it must act now, together. Economic and financial integration is not an end in itself — it is the foundation of strategic autonomy.As Jacques Delors once warned, Europe faces a choice: renewal or decline. Without bold action, current economic and demographic trends will push Europe towards marginalisation and irrelevance on the global stage. But this is not an inevitability. Political will and strategic vision can still make the difference. By building on our unique assets — our market and currency, our history and values — we can equip the EU with the tools it needs not just to resist decline, but to shape its own future with confidence and purpose. More

Chinese manufacturers are racing to find buyers at home and abroad as trade tensions with the US threaten their single largest export market.Chinese trade data released since US President Donald Trump announced high tariffs in April shows increased exports to alternative markets partially offsetting a plunge in US-bound shipments.The value of exports to Europe in May climbed 12 per cent from a year earlier, with shipments to Germany up 22 per cent. Exports to south-east Asian countries rose 15 per cent.Analysts said China’s manufacturers would be able to make up in other markets at least some of the sales lost because of US tariffs, helping to ensure exports remain a pillar of a national economy still struggling with a property sector downturn and weak consumer confidence.“Consumption is weak and there’s less driving the economy on that front,” said Leah Fahy, China economist at Capital Economics. “China’s still going to have to export all this stuff, so it’s going to have to go to other countries and they’re going to face a surge in Chinese imports.”Some content could not load. Check your internet connection or browser settings.Manufacturers’ efforts are on display in Zhejiang, China’s second-biggest exporting province, where many factory owners are urgently shifting focus towards trading partners that look more stable than the US, or to the large but fiercely contested domestic market.“We want to find new customers in markets like Europe,” said Xia Shukun, a manager at Shaoxing Sulong Outdoor Technology, which until now has only exported to Asia and the US.Xia said a Norwegian buyer had recently toured their factory, where the screech of blades slicing metal for camp stoves reverberates across three floors, raising hopes the company might win its first customer in Europe. “We’re very eager — we can make anything,” Xia said.With average US tariff rates on Chinese goods still above 50 per cent, and the possibility Trump will reimpose sky-high rates that would make most trade unviable, factory owners and managers up and down the Zhejiang coast said they were looking for new markets.Chen Zebin, whose family runs nail lamp manufacturer Shaoxing Shangyu Lihua Electronic Technology, said the proportion of its output going to the US had fallen to about 30 per cent this year from 60 per cent in 2024, prompting it to shift to more domestic sales, where margins are thinner. A production line at Shaoxing Shangyu Lihua Electronic Technology More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Donald Trump’s tariffs have opened a schism at the Federal Reserve as top policymakers spar over whether to cut interest rates as soon as this summer or hold them steady for the remainder of 2025.Christopher Waller, a Fed governor seen as a candidate to replace Jay Powell as its next chair, on Friday called for a rate cut as soon as next month and played down the risks that US president’s levies would push up inflation. “We’ve been on pause for six months thinking that there was going to be a big tariff shock to inflation. We haven’t seen it,” Waller, who became a Fed governor in 2020 after Trump nominated him to the post during his first term, said in a CNBC interview. “We should be basing policy . . . on the data.”Waller’s comments came just two days after the Fed kept rates on hold for its fourth meeting in a row in a unanimous decision, following 1 percentage point of reductions in 2024. Trump has sharply criticised the Fed for not slashing rates, with the president on Friday evening calling for cuts of up to 3.5 percentage points and deriding Powell as a “dumb guy and obvious Trump Hater”. “I don’t know why the Board doesn’t override this Total and Complete Moron,” the US president posted on Truth Social. “Maybe, just maybe, I have to change my mind about firing him? But regardless, his Term ends shortly!” The president mused earlier in the week about whether he should “appoint myself” to the world’s most influential central bank. A set of projections released on Wednesday showed a widening divide among the central bank’s top policymakers on whether or not they would be able to cut rates multiple times this year — or not at all.Powell, whose term as Fed chair ends in May 2026, acknowledged on Wednesday that there was a “pretty healthy diversity of views on the committee”, but noted that there was “strong support” for the decision to keep interest rates on hold for now. The Fed chair also expected that differences among committee members would “diminish” once more data on the economy came in over the coming months. “With uncertainty as elevated as it is, no one holds these rate paths with a lot of conviction,” he said. There were still 10 members expecting two or more quarter-point cuts this year, according to Wednesday’s economic projections. But seven now forecast no rate cuts and two are expecting one cut.“One notable thing is the number of Fed officials who think there should be no cuts has grown. There is clearly a difference in opinion among the committee,” said Rick Rieder, BlackRock’s chief investment officer for global fixed income, who oversees about $2.4tn in assets. The debate at the Fed centres on whether to keep borrowing costs higher because of expectations that Trump’s tariffs will raise prices, or cut rates to offset any softening of economic growth. Rates at 4.25-4.5 per cent are considered to be above the so-called neutral level, which neither accelerates nor slows the economy.The Fed’s projections this week showed that policymakers overall expect a significant slowdown in growth this year and an increase in inflation. But price increases from tariffs so far have remained muted, with the May reading for consumer price index inflation last week coming in softer than expected, with prices rising 2.4 per cent from the previous year. Mary Daly, president of the Federal Reserve Bank of San Francisco, said on CNBC on Friday that she had become less concerned about the impact of tariffs on inflation. She added that while she didn’t envision a cut in July, there would be a greater possibility in the autumn.“I don’t think the concerns [on inflation] are as large as they were when the tariffs were first announced,” Daly said. “But we cannot wait so long that we forget that the fundamentals of the economy are moving in the direction where an interest rate adjustment might be necessary.”While some officials think the US jobs market remains solid, others believe the labour market is weakening in some sectors.Powell on Wednesday warned that the central bank’s “obligation is to keep longer-term inflation expectations well anchored”. Inflation remains above the Fed’s target of 2 per cent.“For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance,” he said.Futures markets signal that investors expect two quarter-point cuts this year, beginning in October, according to Bloomberg data. “I think Waller was reflecting honestly on how the Fed is a lot closer to cutting than they’re letting on, they just need some sort of a more definitive confirmation from the economy that they need to move,” said Steven Blitz, chief US economist at TS Lombard. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Observers might be forgiven for thinking that financial markets don’t care much about geopolitical shocks. The world’s largest economy is threatening to put itself behind a tariff wall. War rages on in Europe. And since June 13 a fresh Middle East conflict has broken out. Yet, the S&P 500 remains near record highs. It has been resilient this week even as the US considered joining Israel’s war on Iran. Brent crude prices are up, but only to a tame $77 per barrel. Have investors lost touch with reality? A look at historical market reactions to global events suggests not.Using data going back to the second world war, Deutsche Bank finds that, on average, the S&P 500 tends to fall by around 6 per cent in the three weeks following a geopolitical shock, only to recover fully three weeks later. In other words, if history is any guide, there is still time for the market reaction to the Israel-Iran conflict to evolve.Each shock also manifests itself in different ways. Adolf Hitler’s annexation of Czechoslovakia in 1939 triggered a 20 per cent crash in the main US equity index. That took over a month to bottom out. The 9/11 attacks sparked a sell-off of over 10 per cent in just six days that recovered in three weeks. The 1973 oil embargo by Arab countries following the Yom Kippur war sparked an inflation crisis from which developed markets took years to recover. Europe’s high dependence on Russian gas meant its industries were hampered by high costs for a long period after Vladimir Putin invaded Ukraine in February 2022. Germany’s Dax index continued trending downwards until October that year.What can we learn from these events? The market reaction typically comes in two parts. First, the shock buffets investor confidence, stoking a flight to safety. Second, depending on the event’s economic significance and persistence, it eventually seeps into earnings, investment plans, prices and jobs, which then leads traders to price in a changed economic outlook.Right now, confronted by both the tariff and Middle East shocks, investors are trying to ascertain their effects on the real economy. The sharp initial sell-off triggered by Donald Trump’s “liberation day” duties was only staved off by a 90-day pause in its enforcement. That deadline is up on July 8, with little clarity over what happens next.As for the Israel-Iran war, the more restrained immediate reaction, at least relative to historical energy shocks, makes sense. Oil is less significant in powering the global economy than it was in the 1970s. Supply is also less concentrated. Iran’s oil exports account for less than 2 per cent of global demand, and in 2020, the US became an annual net exporter of total petroleum for the first time since at least 1949.This has focused investors’ minds on what matters most for the global economy from the crisis. The greatest risk is an escalation, potentially with the US entering the conflict, that leads to the closure of the Strait of Hormuz, through which a fifth of the world’s daily oil consumption flows. If that were to happen, analysts reckon oil could push above $120 a barrel. A temporary price shock could then turn into more sustained inflation, with knock-on implications for central banks.This leaves traders carefully watching developments on both tariffs and the Middle East war, recalibrating probabilities for worst-case scenarios in real time. Only when uncertainty clears up can investors properly reassess their forecasts for economic fundamentals, which underpin asset valuations. For now, however, July 9 remains a big unknown. And, though President Trump appeared on Thursday to be allowing time for negotiation with Iran, as he warned earlier, “nobody knows what I’m going to do”. Despite recent appearances, geopolitics does matter for markets — as soon as it affects the real economy. Today may prove to be the relative calm before the storm. More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldThe US Federal Reserve should begin cutting interest rates as soon as next month, a top official has said, underscoring the deepening schism at the central bank on whether to reduce borrowing costs this year. Fed governor Christopher Waller, a top contender to succeed chair Jay Powell, said that economic data supported lowering rates in the near-term despite the threat of higher inflation from President Donald Trump’s tariffs. “I think we’re in that position and that we could do this as early as July,” Waller, who joined the Fed’s policy-setting panel in 2020 after being nominated by Trump during his first term, told CNBC on Friday. “You’d want to start slow and bring them down just to make sure that there’s no big surprises. But start the process. That’s the key thing.”Fed policymakers are divided on whether to lower rates at all this year amid fears that tariff turbulence could cause a fresh surge in inflation while also cooling economic growth.The Federal Open Market Committee this week opted to hold rates steady in a range of 4.25-4.5 per cent for the fourth consecutive meeting, even as Trump piles pressure on Powell, whose term as Fed chair expires in May 2026, to slash them. Ten members of the committee forecast two or more quarter-point cuts by the end of the year, while seven forecast none. Two expect just one cut. Powell said on Wednesday “We are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance” and warned “our job is to make sure that a one-time increase in inflation doesn’t turn into an inflation problem.”But Waller said that any serious tariff price impact had yet to materialise and would be a once-off effect when it did. “We’ve been on pause for six months thinking that there was going to be a big tariff shock to inflation. We haven’t seen it,” he said. “We should be basing policy . . . on the data.”“I don’t think we need to wait much longer, because even if the tariffs come in later, the impacts are still the same, it should be a one-off level effect and not cause persistent inflation.”Trump lashed out at Powell following this week’s FOMC decision and said rates should be 2.5 percentage points lower in order to reduce the cost of interest payments on US government debt. “‘Too Late’ Jerome Powell is costing our Country Hundreds of Billions of Dollars. He is truly one of the dumbest, and most destructive, people in Government, and the Fed Board is complicit,” the president wrote on his Truth Social platform on Thursday. Asked about the president’s comments, Waller insisted that for the Fed, it “not our job” to address the cost of financing government debt. “Our mandate from Congress tells us to worry about unemployment and price stability, and that’s what we’re doing. It does not tell us to provide cheap financing to the US government,” he said. “That is really the job of Congress and the Treasury to make sure you have a fiscal situation that is sustainable that will bring the deficits down and that will put downward pressure on interest rates all by itself.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The UK’s grocery watchdog has launched an investigation into whether Amazon has been delaying payments to food suppliers after preliminary “evidence” was brought to its attention.The Groceries Code Adjudicator, which helps ensure the UK’s largest grocers treat suppliers fairly, said in a statement on Friday “it has reasonable grounds to suspect” Amazon had delayed payments to suppliers between March 2022 and June 2025. Amazon sells groceries in the UK through its own website and a small chain of Amazon Fresh convenience stores, but has struggled to mount a serious challenge to the likes of Tesco and Sainsbury’s. Since 2022, Amazon’s grocery operation has faced increased scrutiny in the UK. It has been required to comply with the Groceries Supply Code of Practice, a set of guidelines on how retailers should manage supplier relationships, after surpassing £1bn in annual sales. The GCA said it would look into the nature, extent and impact of practices that may have resulted in Amazon delaying payments, and would focus in particular on the period since January 2024 to the present. The watchdog’s investigation comes after it warned Amazon last year it must swiftly demonstrate compliance with GSCOP, following complaints made to the GCA by Amazon suppliers about the company’s conduct. The GCA decided to launch an investigation after monitoring the remedial actions taken by Amazon and receiving further “detailed evidence” from its suppliers. The adjudicator Mark White said on Friday the alleged breaches could expose Amazon’s suppliers to excessive risk and unexpected costs. If a breach is found, the GCA can force retailers to publish details of the case or, in the most serious breaches, impose a fine of up to 1 per cent of their annual UK revenues.The GCA, established in 2013, conducted its first major investigation into Tesco, following its accounting scandal in 2014. The UK’s largest supermarket chain was found to have deliberately delayed payments to suppliers to help it meet its own financial targets. On the whole, fewer grocery suppliers were experiencing issues with major retailers, the GCA said last year.The GCA on Friday also flagged “other issues” at Amazon, relating to its practices around delisting products and unspecified payments made by suppliers, which could include an obligation to contribute to marketing costs, for example. The watchdog threatened to launch a further investigation unless these other issues are resolved. Amazon said that it took the grocery code “incredibly seriously” and would co-operate fully with the watchdog during the investigation. It was “disappointed” with the probe, but would use the investigation as an opportunity to demonstrate its compliance. The company added: “We have already made significant improvements . . . including to payment practices.” More

It’s time for another FTAV Q&A, as we continue to try to have interesting chats with hopefully interesting people doing hopefully interesting things in and around finance, economics and business.As Robin mentioned last week, we’re on the lookout for future victims interlocutors, so do let us know in the comments if there’s someone you’d like us to speak to!This week, we caught up with Freya Beamish, chief economist at TS Lombard and a veteran of the “FTAV has a conversation” genre. Here’s a transcript of our chat, which has been edited for clarity and length. FTAV. Hi Freya. Let’s start with a broad question. You’ve been chief economist at TS Lombard for about four years. What makes a good macroeconomist?I think that question has to be answered in the context of the type of economy that we have right at this moment in time. Sometimes it’s going to be one type of economist that is going to excel: it might be a more monetarist-leaning economist, it might be a more Keynesian-leaning economist and that’s going to depend on the context.Sometimes you can sort of get away with it for a while, but in today’s context, there’s just so many shocks that macroeconomic debate is leaving a very clear trace in markets. So if you’re wedded to any one type of economic dogma you are probably going to be wrong quite a lot of the time. It’s much more about picking the right model for the right moment in time.That Muhammad Ali quote comes to mind: you win the fight not in the ring, but on the road. It’s about having a playbook.As an outfit, TS Lombard has a tendency to refer a lot to what else is being said within the broad research world. Is that a conscious choice? It’s really interesting that you’ve picked that up. It’s definitely a conscious choice that we are trying to understand what the debate is, how much of that debate is priced in, and which narrative is driving at this moment in time. I’ll bring it back to what I think is the most important economic concept that is shifting — and therefore where people are most likely to be either proven right or wrong over short time periods. That is the bond/equity correlation, which in turn is a function of the type of shock that is hitting the economy. A lot of us are used to a very demand-led story where there aren’t so many negative supply shocks. And in fact, for most of my career we’ve been living under this positive supply shock of the demographic dividend that has been provided by hyperglobalisation. And now that’s reversing.Do you think a conscious consideration of wider debates makes you more likely to be a contrarian?There’s actually a very strong role for the contrarian in this environment. People are taking such extreme views because we’re essentially at an inflection point. Nobody has a crystal ball, nobody knows what the ultimate truth is, but that debate is playing out literally month-by-month in markets. So if you can — especially if you’re a sort of a shorter-term enough investor — get ahead of that and see what the triggers are, identify when there might be a sort of a fragile narrative coming into the market, you can play both that fragile narrative and play the invalidation of that fragile narrative on the other side.One of the big market stories at the moment is gold. A big narrative driving gold investors is an almost-millenarian notion that we’re approaching a moment of huge fiscal adjustment, and a major shift in the way governments approach spending. Do you agree? And what does it say about the world that these arguments are becoming so prominent?Even though in general I don’t worry as much about fiscal sustainability as a lot of investors do, I do think gold has staying power. I think we’re seeing a genuine shift away from the dollar as central to the global financial system, to instead a multi-polar financial system as it pertains to currencies.That’s reflective of the shift from a unipolar to multi-polar global order, simply because there’s a demand for a non-dollar by countries that are afraid of being sanctioned after the experience of Russia. And at a deeper level, the reason why people have wanted to hold the dollar is because of its strong risk-adjusted returns. That risk adjustment is very much a function of the rule of law and institutions. [With Trump] people are going to want more compensation to hold these assets.What is your approach to thinking clearly about such tricky, interconnected issues? There’s a nimbleness argument. I have my belief about what is going to happen in the global economy over the next three, four, five years. That is fundamentally rooted in political economy rather than just, you know, correlations from the 2010s which are all pretty much out the window. But in the current context — for one thing, even if I am right, I’m not going to be validated in markets every month of the year. And so to be useful to people and to be useful to investors, I have to say, ‘OK, well, actually what I think about the long term is just not going to be relevant this month. And it’s going to go in the opposite direction from that.’ It’s about continuously updating your priors, and having a deep grounding for your long-term belief — which, to me, is that the political economic cycle is not necessarily turning, but reaching serious limits.You’re quite a collaborative outfit. How do you reconcile your views as a team?The way that we stay nimble is to stay small. That does put a lot of pressure on us individually, but we structure the team so that our more junior economists are thematic. So they will go across countries and they’ll get the opportunity to work with a lot of different, more experienced people. And they’ll get the geographical basis so that as they grow they are already schooled in the global economy as an entity rather than just siloed research for each different region. So we’re very holistic and the way that we do that is to sort of stay small and develop really trusting relationships.We like to laugh at each other as well, Dario [Perkins] and I have that kind of relationship where we can knock chunks out of each other and do it with a smile on our face. There’s a balance between having a cohesive team and also allowing for individual creativity.So as a chief economist, I would send [a junior economist] out there and say: ‘OK, see what you come up with’. And they might notice something that I haven’t noticed, and if they convince me then we’ll have an open debate about things. And I think clients often find that process of seeing both sides of the argument quite useful. What are the big economic trends that you expect will define the next decade or so?My concern is that the labour share of income in the US is very historically low. Inequality has risen very rapidly at both poles of the global economy in the US and China, and has risen in other ways in other places. There’s lots of different ways of thinking about inequality. That’s the underlying driver for a lot of the things that we are seeing. I don’t think — when we’re thinking really big picture here — I actually don’t think that democracy has entirely failed at this point in time. I think democracy was tested in the 1970s and it managed to stand up at a moment in time when labour power was too strong, and push back in favour of the power of the owners of capital essentially. Now it’s being tested at the other end of the spectrum, at the other end the super cycle. And I think the so-called liberal left essentially neglected that group of people that has now become an electorate for populist movements. Some of the policies being prescribed I don’t find to be particularly useful in addressing the issues that specific electorate is facing. My worry is that if that electorate is not addressed and to some degree appeased, then this trend that we seem to be on in terms of testing democracy can only get worse. I don’t find the left/right divide particularly useful at this stage in the game. I think policies are being offered from all sorts of places that could actually start to shift that social threat.From the sublime to the ridiculous: you’re based in London, which means as well as thinking about the future of the planet you also have to think about the Bank of England. Your current call is that you think the Bank will scrap active quantitative tightening at the end of the year. Firstly, why is that? And secondly: the Bank uniquely jumped feet first into this process of active QT, despite being unsure about how it would work. Why do central bankers behave this way?The cynical answer would just be virtue signalling, but I think there is somewhat more to it than that. I don’t buy all this stuff about, ‘Oh, we need to contract the balance sheet so that we have space to expand it again in future’. In an accounting sense, that’s just not how it works.‘Virtue signalling’ is an interesting phrase to use in the context of macroeconomic policy. What virtue are they signalling?A clean balance sheet and not being too involved in markets, and I do hold some sympathy for that. Moving away from [quantitative easing] was, I think, important. But going to the extent of sticking its neck out with active QT wasn’t necessary, and has probably contributed to the underperformance of gilts.Should the Bank of England even care if QT is having non-disorderly effects on the gilt market?Gilt yields should be reflective of the real economy to as much of an extent as possible. In Japan, the [Japanese government bond] yield has been useless in terms of actually playing the role that government debt should play in the real economy. So it’s not just that I don’t think that they should do too much QT, it’s also that I didn’t think they should not do too much QE. And maybe central banks have relied too much on balance sheets in both directions.Let’s talk about the pandemic. We’re five years on from the start of Covid-19’s economic impact, and we’re still seeing its effects on the economic cycle. When people look back at this period in economic history, how do you think they’ll think about the pandemic? Was it a catalyst for changes that were already occurring, or did it completely change things?I think it certainly catalysed some of the big trends. In some ways, it’s damaged the political repair that was starting to happen prior to Covid. I talked about the so-called liberal left having just somewhat abdicated their responsibility for the working class in developed nations. We also need to think about central banks. Central banks in the ’80s were sort of set up to guard against excessive power of labour, which was the necessary prescription at that moment in time. And then you had hyperglobalisation, and nobody really needed to push back against worker power in that environment, but there was still a mentality of ‘Oh my gosh, at the end of the cycle, wage growth is picking up. We mustn’t let that turn into a wage price spiral’. And actually, that’s precisely the moment in the cycle when workers are getting sort of their share of the pie, because wage growth lags the rest of the cycle.So if you’re continuously, in every cycle, cutting off the part of the cycle where workers get their share of compensation, then the labour share of income is going to continue to decline. I think that’s part of some of the big trends that we saw in the US over the past several decades. And going into Covid, we did see some beginnings of acceptance of that. There was a lot of research coming out of the Fed suggesting that the end of the cycle is when minorities get pulled into the labour market, and that the end of the cycle is actually a really important part that shouldn’t necessarily just be cut off for fear of wage price spirals. Then they got transitory [inflation] wrong and they had to react against all of that and the whole question of are we back in the ’70s reared its head and all of those knee-jerk reactions came back with a vengeance.It’s very sad and ironic, but before Trump’s re-election the Fed had just managed to get to the stage where it was saying, ‘Yeah, OK, let’s make sure we’re prioritising this soft landing. Let’s prioritise the labour market trends’. That was the read. And then because of the pressure that is coming out of the political establishment on to the Fed at this stage in time, they’ve had to sort of be quite standing their ground effectively and not just caving in.So instead of a continuation of the policies that perhaps were starting to address those imbalances, then the Fed is having to concern itself with tariffs and the threat to independence — and the Republican Party and Trump then feel justified in turning around and saying, ‘You know, these guys have messed things up’. More

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning. Today we’ll be covering:Trump’s deliberation on whether to attack IranFrance’s plan to topple the dollarThe SEC’s regulatory about-faceAnd Mark Zuckerberg’s macho makeoverDonald Trump has said he will decide whether to join Israel’s attack on Iran “within the next two weeks”, as the shadow of the 2003 Iraq invasion and the president’s promise to end America’s “forever wars” during the election campaign hang over US foreign policy strategy.What we know: Trump appeared to signal that he was delaying his decision about entering the war, even as American military assets are being sent to the region. European stocks rose and Brent crude prices fell on the news.How are other countries responding? Britain, France and Germany are set to hold the first high-level, face-to-face talks with Iran’s foreign minister today in Geneva, with aims to agree a framework to restart monitoring Iran’s nuclear programme. They will also discuss whether Tehran could cut its ballistic missile stockpile.You can follow the latest updates on the FT’s live blog.Here’s what else we’re keeping tabs on today and over the weekend:Economic data: The European Central Bank issues its economic bulletin, while the UK reports on public sector finances. The US Conference Board publishes leading indicators.Results: Accenture, Berkeley, CarMax, Darden Restaurants and Kroger report. How well did you keep up with the news this week? Take our quiz.Five more top stories1. The new Securities and Exchange Commission chair has withdrawn 14 rules proposed by his predecessor, embracing a light-touch approach to regulation and reversing the aggressive style of Gary Gensler. The rules scrapped by Paul Atkins range from climate disclosures to cryptocurrency exchanges and artificial intelligence.2. Canadian Prime Minister Mark Carney will impose measures to counter the oversupply of steel and aluminium imports, including potentially increasing levies on the US. Trump’s 50 per cent tariffs on the two metals has been “catastrophic” for a domestic industry already buffeted by production shutdowns and widespread job losses. 3. France has lobbied EU countries to pledge additional measures aimed at raising the euro’s profile as a global reserve currency, as part of Paris’s campaign to encourage the bloc to commit to more joint borrowing. Trump’s policies have weakened the dominance of the dollar and challenged the safe-haven status of US Treasuries, providing a generational opportunity for the EU.4. The BBC is threatening legal action against AI search engine Perplexity, in its first effort to clamp down on tech groups scraping its vast troves of content to develop the technology. The broadcaster told the US start-up to delete stored material used for AI training and asked for compensation for alleged IP infringement. 5. Inditex’s chief executive says the conditions for its return to Russia are “certainly not” in place, more than two years after the Zara owner sold its local business following the invasion of Ukraine. Moscow previously claimed that western companies would begin coming back by June this year.FT Magazine© Cat SimsMark Zuckerberg’s transformation, from a computer nerd skulking around in grey T-shirts to a martial artist advocating for more “masculine energy” in the corporate world, shocked liberals at Meta. But his closest allies say this is who he was all along. Hannah Murphy delves into the truth about the Big Tech chief’s macho-man makeover.We’re also reading . . . Chart of the day Labubu, a collectable elf doll taking TikTok by storm, has sent its Chinese maker, Pop Mart, stratospheric. The company’s market capitalisation is now far ahead of competitor toymakers, such as the US’s Mattel and Hasbro.Take a break from the newsMozambique’s Gorongosa National Park is flourishing after years of devastation during the country’s civil war. David Pilling takes you on a tour through the world’s most ambitious conservation project.A lion sleeps on a tree branch in Gorongosa National Park More