Economy

WASHINGTON (Reuters) -SpaceX’s towering Super Heavy booster, one half of the company’s Starship rocket system, briefly roared to life for the first time on Thursday in a test-firing that puts the behemoth moon and Mars vehicle closer to its first orbital flight in the coming months.Thirty-one of the Super Heavy’s 33 Raptor rocket engines fired for roughly 10 seconds at SpaceX’s facilities in Boca Chica, Texas, the company’s chief executive, Elon Musk, tweeted shortly after the test, shown during a livestream.”Team turned off 1 engine just before start & 1 stopped itself, so 31 engines fired overall,” Musk tweeted. “But still enough engines to reach orbit!”The engines were ignited in a roar of orange flames and billowing clouds of vapor while the 23-story-tall rocket remained bolted in place vertically atop a platform adjacent to a launch tower.When mated to its upper-stage Starship spacecraft, the entire vehicle will stand taller than the Statue of Liberty at 394 feet (120 meters) high, forming the centerpiece of Musk’s ambitions to eventually colonize Mars. But plans call for it to first play a leading role in NASA’s renewed human exploration of the moon.It was unclear whether SpaceX will decide to conduct another static-fire test of the Super Heavy, with all 33 engines, before the company attempts to launch the powerful, next-generation rocket for the first time in an uncrewed flight to space.That launch, a test mission lifting off from Texas and landing off the coast of Hawaii, could happen “in the next month or so,” SpaceX President Gwynne Shotwell told a conference on Wednesday, though the exact flight date hinged on the outcome of Thursday’s static fire test.”Keep in mind, this first one is really a test flight,” Shotwell said. “The real goal is to not blow up the launch pad, that is success.”A previous test firing of a Super Heavy booster in July of 2022 ended with the vehicle’s engine section exploding in flames. Before that, SpaceX had test-launched Starship’s top half in several “hop” flights to an altitude of roughly 6 miles to demonstrate that rocket’s landing abilities. All but one crashed.Thursday’s test-firing of the 31 Raptor engines appeared to set a new record for the most thrust ever produced by a single rocket – roughly 17 million pounds compared with 10.5 million pounds for the Russian N1, and 8 million pounds for NASA’s Space Launch System (SLS) rocket, livestream commentators for the space media group NASA Spaceflight said. They said it also marked the most rocket engines ever fired simultaneously, exceeding the 30 engines of the N1.Moreover, Super Heavy’s 33 engines will far surpass the thrust from the first stage of the Saturn V, the storied NASA rocket that sent humans to the moon during the Apollo program of the 1960s and ’70s.Starship’s development is funded partially by a $3 billion contract from NASA, which plans to use the SpaceX rocket in the next several years to land the first crew of astronauts on the moon since 1972, as part of the U.S. space agency’s multibillion-dollar Artemis program.On Wednesday, NASA engineers in Mississippi test-fired a redesigned version of the agency’s own rocket engines, the Aerojet Rocketdyne-built RS-25, which will power the SLS on future flights. SLS and Starship are the two spacecraft currently at the forefront of the Artemis program, which NASA said is aimed at establishing a permanent base on the moon as a stepping stone to human exploration of Mars.(Reporting and writing by Joey Roulette in Washington; Additional reporting by Steve Gorman in Los Angeles; Editing by Jonathan Oatis and Christopher Cushing) More

WASHINGTON (Reuters) -Joe Biden, his aides and his Democratic allies are shrugging off polls showing doubts about his age and leadership as they plot his expected re-election campaign, and point instead to the U.S. president’s flinty State of the Union speech to Congress this week as a sign of his political resiliency. Biden, who turned 80 in November, is the oldest president to hold office. He and his Democratic Party are laying the groundwork for a campaign that would put him in office for a second, four-year term in 2025. Recent polls show aging leaders are a concern for Americans in general, and Biden’s age in particular worries Democratic voters.Asked about the age concerns in a Noticias Telemundo interview that aired Thursday, Biden said “Well, that’s not what I hear.” He added, “Look, do you know any polling that’s accurate these days? You all told me that there was no way we were going to do well in this off-year election. I told you from the beginning we’re going to do well.”Biden’s public approval rating was just 41% in a Reuters/Ipsos opinion poll that closed on Sunday. That is close to the lowest level of his presidency, though similar to where former President Donald Trump was at the same time in his administration.Biden aides and advisors Reuters spoke to in recent days reiterated the idea that polling is irrelevant. Their reasoning: there is more than a year to go before ballots are cast, and U.S. political polls predicting a “red wave” of Republicans before the midterms were wrong. Instead, Biden and his team are studying polls showing the favorability of Biden’s message and the policies he is pushing, like higher taxes on companies and the rich, and lower insulin costs. They’re targeting key subsets of voters, such as those who flipped from supporting Trump in 2016 to Biden in 2020. “I feel good about where we are. I feel good about the way things are, and I feel good about the reception I get,” Biden said in the Telemundo interview. On Wednesday, Biden delivered a robust speech in the state of Wisconsin, which made such a flip in 2020, ribbing Republicans for heckling him over his remarks about some opposition party members’ Social Security plans, while reiterating a pledge to work with them at the same time. “People sent us a clear message: Fighting for the sake of fighting gets us nowhere. We are getting things done,” he said. SOTU DRAWS MILLIONS An estimated 23.4 million people watched the State of the Union, giving Biden one of his largest audiences of the year, and clips of an interchange between Biden and House Republicans circulating on social media may have drawn millions more viewers. How well he did depends on who you ask. A CNN poll conduced with 552 U.S. adults found that 72% regarded the speech positively. A Fox News-led focus group felt he didn’t address crime or education adequately. In swing state of Nevada, independents and moderates approved of Biden’s attacks on Republicans for threatening Social Security and Medicare benefits, and his pledge to cap insulin costs and make the wealthy pay their “fair share” in taxes, said Navigator Research, which hosted a small focus group. The left-leaning group’s research has been used before by the White House. Overall, Biden’s approval rating among the group rose from 31% to 52% during the speech, and six in ten liked the speech. His approval rating on handling of the economy rose from a net negative 38% to a positive 4%.However, Nevada voters are still finding it hard to feel good about the economy when they see prices for eggs and milk still rising, said Bryan Bennett, an adviser to Navigator. “It is hard for people to reconcile the personal economic indicators with the broader, more positive ones,” he said.Attacking Republicans for threatening Social Security and Medicare is expected to be particularly salient in competitive states like New Hampshire, Pennsylvania and Florida with large proportions of elderly voters. Biden heads to Florida to talk about the issue on Thursday. More

(Reuters) – PayPal Holdings Inc (NASDAQ:PYPL) forecast full-year profit above Wall Street estimates on Thursday but warned of pressure on discretionary spending, and said Chief Executive Dan Schulman will retire at the end of 2023. Macroeconomic pressures have begun to hurt American consumers, particularly those in the lower income bracket, but PayPal’s customers continue to spend largely undeterred by decades-high inflation.Even so, the company’s upbeat forecast comes alongside its previously announced commitment of lowering expenses in the backdrop of its key e-commerce segment feeling the pinch of a slowdown. “The rate of e-commerce growth in our core markets has decelerated. Inflationary pressures have affected discretionary consumer spending and post-COVID spending patterns are still evolving,” acting finance chief Gabrielle Rabinovitch said in a call with analysts. Shares in the payments heavyweight fell 1% in extended trading after results.In a divergence from prior quarters, PayPal said it will not provide a forecast for full-year revenue growth. “They don’t want to call out a revenue number at this point because of the macro uncertainty, they don’t want to put themselves in a box,” D.A. Davidson analyst Chris Brendler told Reuters. GRAPHIC: Total Payment Vols (TPV) come off pandemic highs – https://www.reuters.com/graphics/PAYPAL-RESULTS/egpbyaengvq/chart.png Schulman joined PayPal in 2014 to lead the company, after its separation from eBay (NASDAQ:EBAY) the following year.”Dan’s had notable success in growing PayPal materially over the years, however the change may remove an overhang for some investors given recent/post-pandemic volatility,” Wolfe Research analyst Darrin Peller said in a note. Shares in PayPal have lost about 66% of their value since 2021, through the stock’s last close.Last week, PayPal said it will lay off 7% of its workforce, or about 2,000 employees.PayPal said it expects full-year adjusted profit of roughly $4.87 on a per share basis. Analysts on average had expected $4.75 per share, according to Refinitiv IBES data. PayPal earned a profit of $1.24 per share on an adjusted basis in the fourth quarter ended Dec. 31, beating analyst estimates of $1.20 per share.Its revenue rose 9% on an FX-neutral basis to $7.4 billion. More

The Chinese balloon that crossed the continental US last week had multiple antennas for intelligence gathering and was part of a broader surveillance fleet, a senior US state department official said on Thursday. The US said the Chinese have used these surveillance balloons over more than 40 countries and five continents. It added that Washington will continue to brief allies on the scope of the programme, while senior state department and Pentagon officials will brief Congress on Thursday. “High-resolution imagery from U-2 fly-bys revealed that the high-altitude balloon was capable of conducting signals intelligence collection operations,” the official said, referring to US efforts to examine the balloon using spy planes while it was still airborne. “It had multiple antennas to include an array likely capable of collecting and geolocating communications,” the official added. The Biden administration is looking into blacklisting Chinese entities linked to the country’s military that supported the balloon’s crossing into the US, as well as other actions to tackle Beijing’s surveillance programme.Five more stories in the news1. Peltz calls off Disney proxy fight Nelson Peltz has ended one of the biggest corporate battles in recent years a day after Walt Disney unveiled a restructuring plan involving the loss of 7,000 jobs. The end of the activist investor’s push removes a distraction for chief executive Bob Iger, who is seeking to steer the company’s lossmaking streaming services towards profitability.2. Chinese revival for offshore listings Hesai Technology, a Shanghai-based maker of sensors for cars, has become the largest Chinese group to go public in the US since 2021, in a development that exchange executives hope will ease almost two years of tensions during which such listings ground to a halt. The company raised $190mn from investors in an initial public offering on the Nasdaq stock exchange that valued it at about $2.4bn.More markets news: Global investors have snapped up a record $21bn worth of Chinese equities this year, as robust economic data spurs traders to make larger bets that the reopening rally has further to run.3. Turkey-Syria death toll tops that of devastating 1999 quake Almost 20,000 people have died as a result of this week’s earthquakes in southeastern Turkey and neighbouring Syria, according to the latest figures released on Thursday by authorities in the affected area. The toll exceeds that of the devastating İzmit quake in 1999, underlining the scale of the unfolding disaster as rescue workers continued to pull bodies from the rubble. The earthquake in graphics: The FT lays out the scale, geology and human impact of the devastating quakes along the East Anatolian faultline.4. Toshiba receives $15bn buyout proposal A consortium led by private equity firm Japan Industrial Partners has proposed buying Toshiba for $15bn in what would be Japan’s largest buyout. After Toshiba’s plan to split into three was rejected by shareholders last spring, a private sale was launched, attracting interest from some of the world’s leading private equity groups like Bain Capital and CVC.5. MSCI to revise Adani Group weightings Global index provider MSCI is set to change its weightings for Adani Group stocks after reviewing how many shares can be freely traded, in a further setback for the Indian conglomerate reeling from fraud allegations.How well did you keep up with the news this week? Take our quiz. The day aheadChina inflation figures January consumer price index and producer price index inflation rate data will be released today.US consumer sentiment figures The University of Michigan will release its survey on consumer sentiment today.UK ambulance worker strikes Workers from the Unite and Unison unions are set to strike in London, the South West, North West, North East, Yorkshire and the West Midlands.Earnings Results are expected from Aker BP, Eneos, Honda Motor and Saab.Join us on February 23 at 1pm GMT for a subscriber-only webinar, Putin’s war on Ukraine: when and how will it end? with the FT’s Ben Hall, Chris Miller and guests. Register for your free ticket at ft.com/ukraine-event.

What else we’re reading Hong Kong reopens with post-Covid charm offensive Facing a challenge in luring workers back and resetting a woeful economic climate, Hong Kong has offered incentives including funds for international businesses to set up operations in the territory, new visas for graduates from top global universities and 500,000 free airline tickets to encourage tourism. “This is probably the world’s biggest welcome ever,” John Lee, the city’s current leader and former top police officer.‘Sam? Are you there?!’ The bizarre and brutal final hours of FTX Sam Bankman-Fried and his band of millennial millionaires lost $40bn following the collapse of the FTX crypto empire. FT reporter Joshua Oliver has pieced together the final, brutal hours (complete with screenshots) in a read for the weekend magazine. ‘Street fighter’ takes the helm at rudderless Carlyle After years of lacklustre performance and management unrest, Carlyle this week named the former Goldman Sachs executive Harvey Schwartz as its new chief executive. The FT spoke to former Goldman colleagues, including Lloyd Blankfein, for this profile. The urban ideal borrows from the past When done well, the 21st century enhances cities. WiFi has turned cafés, parks, even beaches into workspaces. Tinder and LinkedIn introduce you to people, and Google Maps helps you find them. But the best physical bits of today’s best cities were built by our ancestors. Modernity often just makes cities worse, writes Simon Kuper.How an MBA changed America’s top doctor Dr Vivek Murthy, the US surgeon general, had no plans to pursue an MBA. But he signed up when the Yale School of Medicine, where he was studying, offered a joint degree programme with its management school in 2001. “I felt like I was looking at the world with new glasses on and seeing opportunity much more clearly all around me,” he said.Sign up: The FT is launching a six-part email series that will take you through every stage of applying for an MBA. Register for free today.Take a break from the newsUp Helly Aa, Shetland’s wild, weird, annual Viking-inspired fire festival is back with blazing torches, a burning longboat and — for the first time — women.

For the first time girls have been able to join the ‘squads’ at Up Helly Aa © Euan Cherry/Getty Images More

The Federal Reserve has raised rates rapidly. But instead of cracking, some data point to an economy that’s thriving.Many economists and investors had a clear narrative coming into 2023: The Federal Reserve had spent months pushing borrowing costs rapidly higher in a bid to tame inflation, and those moves were expected to slow growth and the labor market so much that the economy would be at risk of plunging into a downturn.But the recession calls are now getting a rethink.Employers added more than half a million jobs in January, the housing market shows signs of stabilizing or even picking back up, and many Wall Street economists have marked down the odds of a downturn this year. After months of asking whether the Fed could pull off a soft landing in which the economy slows but does not plummet into a bruising recession, analysts are raising the possibility that it will not land at all — that growth will simply hold up.Not every data point looks sunny: Manufacturing remains glum, consumer spending has been cracking, and some analysts still think a mild recession this year remains likely. But there have been enough surprises pointing to continued momentum that Fed officials themselves seem to see a better chance that the nation will avoid a painful downturn. That resilience could even be a problem.While a gentle landing would be a welcome development, economists are beginning to ask whether growth and the job market will run too warm for inflation to slow as much as central bankers are hoping — eventually forcing the Fed to respond more aggressively.“They should be worried about how strong the U.S. labor market is,” said Ajay Rajadhyaksha, the global chairman of research at Barclays. “So far, the U.S. economy has proved unexpectedly resilient.”The Fed has lifted rates from near zero early last year to above 4.5 percent as of last week — the fastest series of policy adjustment in decades. Those higher borrowing costs have translated into pricier car loans and mortgages, and for a while they seemed to be clearly slowing the economy.But as the central bank has shifted toward a more moderate pace of rate moves — it slowed the speed of its increases first in December, then again this month — markets have relaxed. Rates on mortgages, for example, have come down slightly.That’s showing up in the economy. Mortgage applications have been bouncing around, but in general they have ticked back up. New home sales are now hovering around the same level as before the pandemic. Used car prices had been declining, but they have begun to rise at a wholesale level — which some economists see as a response to some returning demand for those vehicles.And while retail sales and other measures of household spending have been pulling back, according to recent data, several nascent forces could help to shore up consumer demand into 2023 — with potentially big implications for the Fed’s battle against inflation.Jerome H. Powell, the Fed chair, said some of the drag on inflation from goods could be “transitory,” meaning that it will fade away.Lexey Swall for The New York TimesSocial Security recipients just received a sizable cost-of-living adjustment in their first check of 2023, putting more money in the pockets of older Americans. More than a dozen states, including Virginia, California, New York and Massachusetts, sent tax rebates or stimulus checks late last year. And while Americans have been working their way through the excess savings that were amassed during the early pandemic, many still have some cushion left.Inflation F.A.Q.Card 1 of 5What is inflation? More

US Treasury secretary Janet Yellen has stepped up pressure on the leadership of the World Bank by urging it to “quickly” put in place reforms to free up more money to address climate change among other global challenges.The US is the largest shareholder in the international finance institution that provides funding for developing countries and has pushed for an overhaul along with several other major shareholders including Germany.Speaking in Washington on Thursday, less than a fortnight after a trip to three African countries, Yellen focused on her concerns about the bank. It should “expand its vision to include addressing global challenges” and help lower costs for countries needing funds to do so, as well as to engage in “stronger” mobilisation of private finance, she said.Yellen also noted that including global issues such as climate change or pandemic preparedness should not mean shifting the bank away from its existing goal of reducing poverty. “The world has changed, and we need these vital institutions to change along with it,” she said. “In today’s world, sustained progress on poverty alleviation and economic development is simply not possible without addressing the global challenges that face us all.”The World Bank’s leadership has come under fire for lagging behind in its efforts to help tackle climate change. It was exacerbated when the Donald Trump-appointed president David Malpass refused to say whether he believed in human-caused climate change at a conference last September, despite repeated questioning. He later said he had been misunderstood.Reform of the multilateral development banks has risen on the global policy agenda as wealthy countries are confronted by increasingly urgent questions about who pays for the catastrophic impact of hurricanes, floods and wildfires.Smaller and less-wealthy nations have pressed to build a UN coalition to secure funds that would help them tackle the consequences of global warming without increasing their debt burdens to crippling levels. Mia Mottley, the prime minister of Barbados, has put forward several proposals for action at the World Bank and IMF, including the redistribution of $100bn in special drawing rights and the new issuance of long-term, low-interest debt instruments to help finance clean energy projects.The US has led calls from developed countries for reform of the World Bank and other financing institutions. Last year, Yellen asked the bank to develop an “evolution road map” to show how it would incorporate climate and pandemic preparedness into its operating models. Yellen on Thursday increased the tempo by saying the US expected “to see ideas translated into action” over “the next few months”. She called on it make “straightforward” decisions first and to begin putting in place elements of its road map by the time of the spring meetings held by the financial institutions.

She also urged the bank to begin “quickly” stretching its existing financial resources by putting into practice some of the recommendations made by a report commissioned by G20 last year. The report outlined steps for the World Bank and other multilateral development banks to boost their spending, including adjusting the amount of capital they hold against loans, securitising private sector portfolios and piloting new types of financial instruments. Yellen on Thursday reiterated her previous suggestions that development banks broadly should make greater use of concessional finance, including grants, to fund investments where the benefits are shared globally.This could include finance to decommission coal plants and protect displaced workers during a clean energy transition, she said. More

Bank of England governor Andrew Bailey has called on public sector workers to take into account the central bank’s view that inflation will “fall very rapidly” when asking for pay rises.Under pressure from MPs to comment on the strike action that has hit the health service, schools, transport and the civil service, Bailey told the Treasury select committee on Thursday that it was important to recognise that inflation will fall this year when setting public sector pay. The central bank predicts it will drop from 10.5 per cent to 4 per cent by the end of 2023. “You have to be forward looking, here,” Bailey said. “What I would urge, particularly going forward because we believe inflation is going to fall very rapidly, is that that is taken into account.”The BoE governor stressed that public sector pay was not his responsibility and that he was not advocating a particular settlement for different groups of workers, but that he agreed with ministers that there were economic effects of higher pay settlements.“I don’t think you can say there’s no effect,” Bailey said, adding that the precise relationship between public sector pay and inflation depended on how any pay rises were funded. “The economics of it depends on whether you raise taxes [to fund public pay increases] or borrow, frankly,” he told MPs. Allies of Jeremy Hunt, the chancellor, seized on Bailey’s remarks to justify the Treasury’s tough stance on public sector pay. Talks with unions are deadlocked after ministers refused to reopen pay offers for the current financial year.“It’s tough but the chancellor has to resist inflation-busting public sector pay increases to finish off the mission to halve inflation this year,” said one.The BoE this year agreed a 3.5 per cent overall pay raise with its staff, with an additional one-off top up of 1 per cent. Bailey’s noted that private sector wage rises were higher than those in the public sector and also needed to come down if the BoE was going to hit its 2 per cent inflation target. He also worried that aggressive company pricing policies would keep inflation too high for too long. “We are concerned about persistence [of inflation] and that’s why, frankly, we raised interest rates this time,” he said, referring to the central bank’s decision to raise interest rates by half a percentage point to a 15-year high of 4 per cent earlier this month. Explaining why the bank’s Monetary Policy Committee was still raising interest rates even as inflation was starting to come down, he added: “I am very uncertain particularly about price-setting and wage-setting in this country.”Other members of the MPC agreed that if there were high public sector pay rises, the BoE would have to take them into account and they would make it more likely rates would have to rise further.

Huw Pill, the BoE’s chief economist, said that high natural gas prices meant the UK was poorer than hoped and a “fight for a bigger share of a smaller pie” would fuel inflation. Pill, like Bailey, made clear that he did not advocate public sector workers getting lower pay rises than those in the private sector or those receiving incomes from the government, but there would be consequences if pay increased. “[It] implies monetary policy will be tighter to keep aggregate behaviour in the economy in line with price stability,” he said. These fears of persistent wage and price pressures persuaded the majority on the MPC to put more weight on short term factors affecting wages and prices, rather than their medium term forecast that inflation will drop below 2 per cent. More

It’s a long time since we’ve been so inverted. The explanation might not be what you think.Conventional wisdom says yield curve inversion is a harbinger of recession — time is supposed to have value, so paying more to borrow for shorter periods makes very little sense. And as we type, the US 2-year yield has climbed to its highest level relative to the 10-year since the 1980s. Shorter-dated Treasury yields are nearly 87 basis points above longer-dated notes.Yet executives aren’t convinced the US will go into recession this year, jobs data has been strong and inflation might’ve crested. Each improvement in the US growth outlook in recent weeks appears to have been matched a deepening of the yield curve across all segments. What gives?According to Goldman Sachs, that’s because the bond market is wrong and we’re living in the past.“The most compelling reason for the discrepancy is the presence of a strong prior among investors about R* [the neutral long-run rate of interest that balances the economy] being low and similar to estimates from the last cycle, despite the very different nature of the current cycle,” it told clients.In other words, investors think that the Fed will have to make sharp rate cuts in the future, because rates were low for a long time before now. Many readers will remember old-timer bond traders arguing in 2012 that rates were too low, mostly because rates were higher when they were young. Goldman says that investors are now doing that in reverse. Remember, the yield curve can be best understood as a probability-weighted average of policy expectations. For short-term Treasuries, inversion can be “substantial” whenever the Fed is expected to cut rates in the near term. But the gap will look the same whether the cause of those rate cuts is a recession or a so-called soft landing.Meanwhile, for long-dated bonds, rates should stay higher when the consensus says recession can be avoided; investors will demand more compensation for the risk that steady (or high) inflation will erode their principal over that time period. What’s happening now is that, following the Fed’s short-sharp-shock approach, there’s an odd certainty that long-term yields will return to low levels:

As a result, all the usual duration comparisons have stopped working. The two ends of the Treasury market’s pantomime horse are no longer moving together.Here’s how: strong economic data implies that the Fed will wait longer to cut rates. That expectation causes short-term rates to rise. But long-term yields have been “sticky,” Goldman says, because investors assume that they will revert to their post-GFC mean. Because of this, a deepening inversion seems to “have the opposite implication for recession odds than commonly ascribed,” Goldman says. But that raises the question of whether the “stickiness” in long-term yields is reasonable to begin with. To guess whether it is, Goldman uses a nominal yield curve that’s framed around some complicated fair-value methodology you can read about here. Its adjusted yield curve finds that while the mid-range is approximately fine versus the natural rate and the long end is slightly steeper, the front end remains extremely inverted:

Why tho?First, markets may be assigning higher recession odds down the road than we think likely, which would entail more Fed easing than the consensus economist forecasts. But higher recession odds and anticipation of more easing over the next two years should produce a steeper 2s5s curve, all else being equal, unless, of course, the Fed were to cut the policy rate, and keep the rate low for a very long time. This does not strike us as particularly satisfactory, given that even if a recession were to materialize, we expect it would likely be shallow. Indeed, at least from a historical consistency perspective, it is somewhat abnormal, as evidenced by the clear discrepancy between the model estimate and the observed curve value.A second, more obvious explanation, is that investors are anchoring long run rates to a different level than our model. In our model above, we used (real) potential GDP growth as an anchoring device for the policy rate; investors’ real rate anchor would have been nearly 150-200bp below this level for the model estimate to match the current level of inversion in the 2s5s curve. This would mean an assumed R* of 0-50bp, roughly in line with what was commonly believed to be appropriate pre-Covid. When guessing long-term rates, investors have been suffering both from recency bias and credulity about Fed guidance. That “strongly suggests” the current inversion “comes not from high recession odds or inflation normalisation,” but investors’ reluctance to adapt to the New New Normal, says Goldman:Investors appear to be wedded to the secular stagnation, low R* view of the world from the last cycle. We believe this cycle is different, with an economy that can support a higher long run real rate than currently assumed. [ . . . ] If the low R* view is correct, the Fed’s policy stance would indeed be substantively restrictive, and we will likely have a decidedly worse growth outcome than we currently anticipate. If, on the other hand, our economists’ baseline for a still robust economy comes to pass, it will be hard to argue that the Fed has been severely restrictive, and investors will likely update their long run rate priors, thereby moderating inversion to more ‘typical’ levels.Or, this could be an example of the “this time it’s different” argument that invariably shows up whenever the yield curve inverts, when things are almost never actually different. Anyone’s guess, really. More