Economy

Stanley Fischer was the Renaissance man of contemporary macroeconomists. He was among the most influential theorists of his generation. He taught many of the leading economic policymakers of the era, including the former chair of the Federal Reserve, Ben Bernanke, and ex-president of the European Central Bank, Mario Draghi. With his friend and colleague, the late Rudi Dornbusch, he co-authored a path-breaking textbook on macroeconomics. Above all, perhaps, while at the IMF he managed the financial crises of the 1990s and early 2000s.After obtaining his PhD at MIT in 1969, Fischer taught at the University of Chicago before returning to MIT as a professor. He was, therefore, ideally equipped to reconcile the free-market traditions of the former with the Keynesian ones of the latter. The result was his seminal article “Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule”, published in 1977. Fischer, who has died aged 81, was born into a Jewish family in Northern Rhodesia (now Zambia). His parents moved to Southern Rhodesia (now Zimbabwe) when he was 13 years old. In 1960, he visited Israel as part of a winter programme for youth leaders, where he studied Hebrew. Subsequently, he studied economics at the London School of Economics between 1962 and 1966 before going to MIT. He was a dual national of the US and Israel.In the words of Olivier Blanchard, his friend and colleague at MIT, “Stan saw early on that the right model of fluctuations combined a central role for expectations, together with important distortions, an essential one being nominal rigidities.” This rescued the arguments in favour of interventionist macroeconomic policy and was, therefore, the foundation stone for the “New Keynesian” macroeconomics that now guides central banks around the world. A complementary area, on which his work was just as “foundational” — according to his former pupil Maurice Obstfeld of the University of California, Berkeley — was “policy credibility”. This, too, has become a guiding principle of modern policymakers. In this vein, Mervyn King, former governor of the Bank of England, notes that, “he was instrumental in helping to promote the cause of Bank independence when he delivered the key paper at the Tercentenary conference of the Bank of England in 1994.”While at MIT, he co-authored another seminal paper, also published in 1977, on “Comparative Advantage, Trade, and Payments” with Dornbusch and the Nobel laureate Paul Samuelson. According to Kenneth Rogoff of Harvard — also a pupil of Fischer’s — this “provided the basis for the modern empirical work on gravity and trade, which has come to dominate international trade research”.Rogoff adds that Fischer’s textbook with Dornbusch (now, updated by Dick Startz of University of California Santa Barbara, in its 13th edition) was “the first to show how to think about the supply shocks that ravaged the global economy in the 1970s”. Also highly influential was Lectures on Macroeconomics, a graduate macroeconomics text, co-authored with Blanchard. His most important of many policymaking roles was as first deputy managing director of the IMF from 1994 to 2001. This turned out to be a period of devastating financial crises, including the Tequila shock which began with the decline of the Mexican peso in 1994. Even more important was the Asian financial crisis, which began in 1997 and was followed by a Russian default in 1998 and Brazilian and Argentine currency crises thereafter.Lawrence Summers, who was at the US Treasury at this time and became Treasury secretary, argues that Fischer “was to international financial crises what [Walter] Bagehot was to banking crises”. He was, he declares, a major architect of the strategy of large-scale, heavily conditional lending as the key tool of crisis response. Moreover, he adds, “no developed-country financial official before or since has been as widely trusted and respected by emerging market policymakers” as he was. This was due to his intellect, but also to his character — integrity, candour and deep respect for the victims of financial crises. His experience and abilities made his candidacy for the position of managing director of the IMF, to replace the disgraced Dominique Strauss-Kahn in 2011, credible. On the merits, he was the best candidate. But nothing could break the cartel between the US and Europe, which guaranteed the choice to the latter.Inevitably, the fund’s actions during his time were criticised. An emergency lender is bound to make what hindsight judges to be mistakes. Fischer thought the IMF had to give policymakers the benefit of the doubt. In some cases, notably Argentina in the late-1990s, I thought this was a mistake. But one had to respect the blend of intellectual rigour with commitment that characterised his approach.After leaving the IMF, the job that meant most to him was that of governor of the Bank of Israel, a position he held from 2005 to 2013. He had to navigate the turbulence of Israeli politics and the global financial crisis, and did so with great success. According to Jacob Frenkel, a distinguished predecessor in this role, the Bank of Israel, “did not ‘fall behind the curve’” in deciding when to loosen and when to tighten policy. Fischer held other important positions. He was chief economist of the World Bank, before going to the IMF, vice-chair of Citigroup and vice-chair of the Fed, under Janet Yellen. What made Fischer exceptional was his combination of abilities. He was a first-class theorist, rigorous analyst, superb manager, loyal friend, supportive boss and a decent human being. Not least, says King, he “always wanted to be where the action was and where he could help people make better policy decisions. It is rare to find someone with that commitment, and even rarer when it is combined with outstanding accomplishments as an economist”. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Russia’s central bank cut its key interest by a full percentage point on Friday to 20 per cent, its first cut since 2022, as Vladimir Putin’s war economy cools.“Domestic demand continues to outstrip the economy’s capacity to expand the supply of goods and services, but Russia is gradually returning to a more balanced growth path,” the CBR said in its statement explaining the decision. The move, which was expected by a majority of economists polled by Bloomberg, comes after a fall in inflation and underscores the end of a two-year GDP surge, fuelled by wartime spending.The drop in annual inflation to 9.8 cent in June after a months-long stretch of double-digit growth was probably central to the rate cut, several economists told the Financial Times. “The CBR made it clear that its main focus is the steady decline in inflation,” said Olga Belenkaya, head of macroeconomic analysis at Moscow-based FG Finam shortly before the rate announcement on Friday.But the bank stressed Friday’s cut would not mark the start of a rapid reduction in rates, adding that it would “maintain monetary conditions as tight as necessary” to return inflation to its 4 per cent target in 2026.The CBR noted that while inflationary risks have eased slightly, they still outweigh forces that would lead to cooling consumer prices over the medium term.The bank has found itself in a “very difficult spot,” said Janis Kluge, an expert on Russia’s economy with the German Institute for International and Security Affairs. Though inflation is easing, its staying power is uncertain, with non-food prices falling but food costs still rising and hitting the poorest hardest, he added.Since the summer of 2023, the Russian economy has been running hot, fuelled by soaring government military-linked spending. CBR governor Elvira Nabiullina had previously likened the situation to a car “racing at full speed”, warning that it “can go fast, but not for long.”CBR governor Elvira Nabiullina More

This article is an on-site version of our Moral Money newsletter. Premium subscribers can sign up here to get the newsletter delivered three times a week. Standard subscribers can upgrade to Premium here, or explore all FT newsletters.Visit our Moral Money hub for all the latest ESG news, opinion and analysis from around the FT Welcome back.The Trump tariff drive has run into legal trouble. Might the US president turn to carbon levies as a way to pursue his protectionist Maga agenda for boosting US industrial output? It seems unlikely. But stranger things have happened . . . CARBON PRICINGThe climate policy Trump might actually considerCould Donald Trump’s love of tariffs outweigh his dislike of climate policy? Two Republican senators seem to think there’s a chance.Bill Cassidy of Louisiana and Lindsey Graham of South Carolina in April introduced to the Senate a new version of their Foreign Pollution Fee Act, which they claim would “level the playing field for American manufacturers” by imposing carbon emission-linked levies on a range of imports.The bill is inspired by the fact that US manufacturers tend to have smaller carbon footprints than their Chinese rivals. That’s largely because the biggest means of electricity generation in the US is its abundant shale gas, while the Chinese grid has a greater reliance on coal (though new capacity in both countries is now mostly renewable). So imposing carbon-related levies could be a clever way of socking Chinese manufacturers and reducing the bilateral trade deficit, the logic goes.In a paper published this week, academics at Harvard’s Belfer Center have assessed the potential impact of the bill, which would apply levies to goods including steel, fertilisers, cement, aluminium, and solar and battery inputs (but not fossil fuels). The greater the carbon-intensity of manufacturing in the country of origin, the higher the charge applied to the product.The researchers found that the system would generate up to $40bn a year in federal revenues, if applied to current trade volumes. But while the senators have focused heavily on China in their justification of the bill, it wouldn’t be the country worst affected. That would be Canada, which is a far larger exporter to the US of goods such as steel and fertilisers, and would face $11.1bn of levies on its US exports under the FPFA, according to the Harvard research. China comes in fourth with $3.4bn, behind Mexico and Brazil.The Harvard team argues that the FPFA would have more “international credibility” if it adjusted levies to take into account carbon pricing systems in exporting countries, as the EU is doing with its incoming carbon border adjustment mechanism. That would mean far lower levies for Canada — which currently imposes a price of nearly $70 per tonne of carbon dioxide on large industrial emitters — while putting high ones on China, where the industrial carbon price is about $10.The paper also calls for the US to impose a national carbon pricing system at home — again, to bolster the perceived legitimacy of its carbon tariffs internationally, and also to boost long-term competitiveness by accelerating the clean energy transition.The latter policy seems unthinkable under this administration. But the idea of Trump throwing his weight behind the Cassidy-Graham bill is less far-fetched than you might think. The president has attacked China for polluting “with impunity” (and given his imperialist second-term stance towards Canada, the impact on his northern neighbour might look like a bonus). As judges throw his previously announced tariffs into doubt, this could be a means of doubling down on a policy tool to which he’s been attached for decades.Even if the bill were to pass, however, it’s not obvious that it would do much good for the climate, at least in the near term. A study last month by the think-tank Resources for the Future found that the law would “have a minimal effect on global emissions”.The bill would boost US output of the products covered, as well as imports from trading partners with less carbon-intensive industrial sectors such as the EU, RFF found. But it forecast a relatively slight $3.3bn annual contribution to the federal coffers, after the fall in imports from heavily emitting producers. And while the “embodied carbon” of US imports would decrease, this would be offset by a reshuffling of global trade as affected exporters sell their products elsewhere, and by an increase in the US’s own industrial emissions, RFF predicted.Still, for those who believe that price signals can be an effective means of driving emissions reduction, this Republican-backed bill (together with recent legislative efforts from Democrats) may encourage hopes of more serious US carbon pricing action under a future administration.Smart readsConsulting crisis Boston Consulting Group has fired two partners for “unauthorised work” related to a US-backed effort to overhaul aid distribution in Gaza.Lying low The co-founder of Ben & Jerry’s says corporate America’s retreat from diversity efforts amounts to “appeasement”.Don’t be greedy The pursuit of excellence is more likely to drive profit than the pursuit of profit, argues Tim Harford.Recommended newsletters for youFull Disclosure — Keeping you up to date with the biggest international legal news, from the courts to law enforcement and the business of law. 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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 bring you the latest on the extraordinary public feud between Donald Trump and Elon Musk. We’re also covering: Shares in stablecoin operator Circle surge JPMorgan’s threat to new analystsGlobal bond markets big readAnd Taco trade gameThe simmering feud between US President Donald Trump and his billionaire backer and the world’s richest man Elon Musk exploded into public view last night. Here’s what you need to know.What happened: In a flurry of bitter comments in the Oval Office the US president called Musk “crazy” and said he was “very disappointed” with the Tesla chief executive for criticising his trademark finance bill that is at present going through the Senate. Trump suggested that Musk had “become hostile” after being turfed out of government and accused the billionaire of intervening in politics to serve his business interests.How did Musk respond? Musk called for Trump to be impeached, suggested his trade tariffs would cause a US recession, threatened to decommission SpaceX capsules used to transport Nasa astronauts and insinuated that the president was associated with the late paedophile Jeffrey Epstein. Musk also talked of starting a new party and removing Republicans from office.Why this matters: The stand-off between two of the world’s most powerful men had an immediate impact on financial markets. Tesla’s market value suffered its biggest one-day drop on record, after its shares fell more than 14 per cent following Trump’s remarks. The Tesla sell-off reverberated through US stock markets, with the S&P 500 and the tech-heavy Nasdaq Composite ending the session down 0.5 per cent and 0.8 per cent respectively. Shares in rivals to Musk’s space exploration group SpaceX and its satellite broadband network subsidiary Starlink rose. AST SpaceMobile gained 7.5 per cent while communications group EchoStar jumped 17.4 per cent. The feud is also reverberating through Washington and the government. Last week, Trump pulled the nomination of billionaire astronaut Jared Isaacman, a close ally of Musk, to lead Nasa. Steve Davis, one of Musk’s lieutenants at SpaceX who led the so-called Department of Government Efficiency on a day-to-day basis, has also now left the administration, according to a government official. More senior figures close to the billionaire were set to abandon the initiative in the coming days, the official said.Read more on the end of the Trump-Musk “bromance” here, and here’s what else we’re keeping tabs on today:Economic news: The US government publishes May’s employment statistics. The number of new job openings is expected to have dropped sharply following the uncertainty caused by Trump’s on-off tariff policy.UBS: The Swiss government will lay out its long-awaited reforms to the country’s bank capital rules. Here’s why they matter for UBS. Italy: Voting begins on Sunday in Italy’s two-day referendum on reducing the time foreigners must live in the country before they can apply for citizenship. You can read more on the background to the vote here. How well did you keep up with the news this week? Take our quiz.Five more top stories1. India’s central bank reduced its key interest rate by half a percentage point and cut the amount banks must hold in their reserves, hoping to boost lending and support the economy as concerns ease over inflation. The Reserve Bank of India’s rate cut was deeper than anticipated and lowered the benchmark repo rate to 5.5 per cent. Here’s more on the RBI’s dramatic decision.2. Shares in Circle Internet, the stablecoin operator, climbed 168 per cent on their New York Stock Exchange debut yesterday in one of the largest US listings of the year. The US group raised $1.1bn and debuted at $31 a share before closing at $83.23, giving Circle a fully diluted market capitalisation of almost $22bn. The stock market listing raised hopes that the IPO market in New York is beginning to thaw.More bitcoin news: The Trump family media company is seeking to launch a bitcoin exchange traded fund in its latest push to capitalise on surging enthusiasm for digital currencies. And more IPO news: The owner of Pret A Manger has recently explored bringing in new investors to the sandwich and coffee chain ahead of a potential initial public offering.3. JPMorgan Chase has told its incoming graduates that if they accept future-dated job offers elsewhere within 18 months of starting their analyst programme, they will be fired. The revised policy is the latest escalation of the Wall Street giant’s battle with private equity firms over junior talent.4. Trump agreed with Xi Jinping to launch a new round of high-level trade talks between the US and China after the first conversation between the two leaders since the US president’s return to the White House. Trump said the Chinese president had invited him to China and that he had “reciprocated”. The high-level trade talks would begin soon, he added. 5. Builder.ai collapsed owing money to Big Tech, corporate spies, defamation lawyers and a “crisis communications” PR firm, the London tech group’s US bankruptcy filings have revealed. The latter three were hired after the Financial Times reported last year that the artificial intelligence start-up’s co-founders were embroiled in criminal investigations.Today’s big readWobbly investor appetite has pushed up 30-year government borrowing costs in countries such as the UK, Japan and the US to or near their highest in decades and moved the question of debt sustainability up the political agenda. Recent sovereign bond auctions in Japan and the US received lukewarm responses, raising questions about how economies are managed and the sustainability of government spending plans — just as finance ministries are planning record levels of issuance.We’re also reading . . . Corporate winners and losers under Trump: This data story illustrates how global companies have fared since the US president’s inauguration. 🎧 The Wolf-Krugman Exchange: In part one of a new six-part series Martin Wolf and Paul Krugman discuss how trust in the postwar world economic system is being lost and weigh the costs and consequences of that.European defence: The EU doesn’t need more spending to transform its military. It needs more co-operation across borders, writes Adam Tooze.Israel: The far-right Netanyahu government is destroying the foundations of a Palestinian state and must be held to account, writes the FT’s editorial board.Chart of the dayTest your knowledge of how Trump’s trade war has affected import duties. These charts are all incomplete — they form an interactive test of the Trump Taco theory. How accurately can you fill them in?Some content could not load. Check your internet connection or browser settings.Take a break from the newsHere are six new films for you to enjoy this weekend, including a documentary about the Columbia University protests, a new satire from the creator of Succession and the return to our screens of Gillian Anderson.Gillian Anderson and Jason Isaacs are husband and wife in ‘The Salt Path’ More

China’s manufacturing overdrive is rippling through global markets, stirring anxiety in Asia that a flood of cheap imports could squeeze local industries.
But for inflation-worn economies, economists say the influx of low-cost Chinese goods comes with a silver-lining: lower inflation.

Singapore-based online grocery retailer Webuy staff is offloading containers filled with goods shipped from China.

SINGAPORE — Vincent Xue runs an online grocery retail business, offering fresh produce, canned food, packaged easy-to-cook ingredients to cost-conscious local consumers in Singapore.
Xue’s Nasdaq-listed Webuy Global sources primarily from suppliers in China. Since late last year, one third of his suppliers, saddled with excess inventory in China, have offered steep discounts of up to 70%.

“Chinese domestic markets are too competitive, some larger F&B manufacturers were struggling to destock their inventories as weak consumer demand drags,” he said in Mandarin, translated by CNBC.
Xue has also gotten busier this year after sealing a partnership with Chinese e-commerce platform Pinduoduo that has been making inroads into the Southeast Asian country.
“There will be about 5-6 containers loaded with Pinduoduo’s orders coming in every week,” Xue said, and Webuy Global will support the last-mile delivery to customers.
At a time when steep tariffs are deterring Chinese exports to the U.S., while domestic consumption remains a worry, overcapacity has led Chinese producer prices to stay in deflationary territory for more than two years. Consumer inflation has remained near zero.
Still, the country is doubling down on manufacturing, and this production overdrive is rippling through global markets, stirring anxiety in Asia that a flood of cheap imports could squeeze local industries, experts said.

“Every economy around the world is concerned about being swamped by Chinese exports … many of them [have] started to put up barriers to importing from China,” said Eswar Prasad, senior professor of trade policy and economics at Cornell University.
But for inflation-worn economies, economists say the influx of low-cost Chinese goods comes with a silver-lining: lower costs for consumers. That in turn could offer central banks some relief as they juggle lowering living costs while reviving growth on the back of rising trade tensions.
For markets with limited manufacturing bases, such as Australia, cheap Chinese imports could ease the cost-of-living crisis and help bring down inflationary pressure, said Nick Marro, principal economist at Economist Intelligence Unit.
Emerging growth risks and subdued inflation may pave the way for more rate cuts across Asia, according to Nomura, which expects central banks in the region to further decouple from the Fed and deliver additional easing.
The investment bank predicts Reserve Bank of India to deliver additional rate cuts of 100 basis points during rest of the year, central banks in Philippines and Thailand to cut rates by 75 basis points each, while Australia and Indonesia could lower rates by 50 basis points, and South Korea by a quarter-percentage-point.

‘China shock’

In Singapore, the rise in costs of living was among the hot-button issues during the city-state’s election campaigning in the lead up to the polls held last month.
Core inflation in the country could surprise at the lower end of the MAS forecast range, economists at Nomura said, citing the impact of influx of cheap Chinese imports.
The city-state is not alone in witnessing the disinflationary impact as low-cost Chinese goods flood in.

“Disinflationary forces are likely to permeate across Asia,” added Nomura economists, anticipating Asian nations to feel the impact from “China shock” accelerating in the coming months.
Asian economies were already wary of China’s excess capacity, with several countries imposing anti-dumping duties to safeguard local manufacturing production, even before the roll-out of Trump’s sweeping tariffs.
In the late 1990s and early 2000s, the world economy experienced the so-called “China shock,” when a surge in cheap China-made imports helped keep inflation low while costing local manufacturing jobs.
A sequel of sorts appears to be under way as Beijing focuses on exports to offset the drag in domestic consumption.
Chinese exports to the ASEAN bloc rose 11.5% year on year in the first four months this year, as shipments to the U.S. shrank 2.5%, according to China’s official customs data. In April alone, China’s shipments to ASEAN surged 20.8%, as exports to U.S. plunged over 21% year on year.
These goods often arrive at a discount. Economists at Goldman Sachs estimate Chinese products imported by Japan in the past two years to have become about 15% cheaper compared to products from other countries.
India, Vietnam and Indonesia have imposed various protectionist measures to provide some relief for domestic producers from intense price competition, particularly in sectors facing overcapacity and cheap imports.
While for a large number of countries an influx of Chinese goods is a trade-off between lower inflation and the adverse impact on local production, countries such as Thailand could be facing a double-edged sword.
Thailand will likely be the hardest-hit by “China shock,” even sliding into a deflation this year, Nomura economists predict, while India, Indonesia and the Philippines will also see inflation falling below central banks’ targets. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.India’s central bank reduced its key interest rate by half a percentage point and cut the amount banks must hold in their reserves, hoping to boost lending and support the economy as concerns ease over inflation.The Reserve Bank of India’s rate cut on Friday was deeper than anticipated and lowered the benchmark repo rate to 5.5 per cent. Economists’ consensus forecasts were for a 0.25 per cent cut. The central bank has now reduced its benchmark rate measure by 1 per cent this year over three consecutive meetings.Governor Sanjay Malhotra said the central bank, which also reduced the cash reserve ratio for lenders by 100 basis points to 3 per cent, was “frontloading” rate cuts to drive economic growth.The moves came as the RBI lowered its annual inflation forecast to 3.7 per cent from 4 per cent for the financial year to March 2026.“As the global environment remains uncertain it becomes even more important to focus on domestic growth amidst sustained price stability,” Malhotra said, adding that the RBI had also changed its stance from “accommodative” to “neutral”.“Accordingly, today’s monetary policy actions can be seen as a step towards propelling growth to a higher aspirational trajectory.”India Business BriefingThe Indian professional’s must-read on business and policy in the world’s fastest-growing big economy. Sign up for the newsletter hereCentral banks around the world are wrestling with the turmoil caused by US President Donald Trump’s seesawing tariff threats. The European Central Bank on Thursday signalled that it is nearing the end of its rate-cutting cycle in response to that uncertainty.Trump plans to impose a 26 per cent tariff on imports from India if a trade deal is not ready by July.While India’s economy is more domestically focused compared with more export-dependent Asian neighbours, New Delhi in talks with the US has offered deep cuts to tariffs on a swath of goods, the Financial Times has reported.Cooling inflation in India as food prices have softened has given the RBI more scope to bolster the economy. The consumer price index in April rose at its slowest rate in nearly six years, at 3.2 per cent year-on-year.Even so, the dramatic rate “decision caught almost all Indian observers, including ourselves, off-guard”, said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, which now expects the RBI to take a “wait-and-see approach” at the next meeting in August before a further cut later in the year.Friday’s rate reduction follows official data last week that showed a recovery in India’s economy. GDP grew 7.4 per cent year-on-year in the three months ended March, up from 6.4 per cent in the previous quarter.However, the reading revealed the relative economic sluggishness during the Indian financial year through to the end of March. Annual GDP expanded at a rate of 6.5 per cent, compared with 9.2 per cent the previous year, following a broad slowdown across corporate India and weaker consumption.While India is registering the fastest expanding economy of any major country, many experts believe growth of at least 8 per cent is needed to achieve Prime Minister Narendra Modi’s goal of developed nation status by 2047, a century after independence. Since the slowdown became apparent last year, the RBI began a cycle of rate cuts and liquidity easing measures under Malhotra, who was chosen by Modi’s government in December following the two-term tenure of the hawkish Shaktikanta Das. More

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