Finance

JPMorgan Chase changed or expanded the roles of several executives considered frontrunners to eventually succeed CEO Jamie Dimon.
Jennifer Piepszak, co-head of JPMorgan’s giant consumer bank, will now became co-head of the firm’s commercial and investment bank along with Troy Rohrbaugh, a veteran leader of the bank’s trading operations.
Piepszak’s former partner, Marianne Lake, will transition from consumer banking co-head to being its sole CEO, JPMorgan said.

Jamie Dimon, President & CEO,Chairman & CEO JPMorgan Chase, speaking on CNBC’s Squawk Box at the World Economic Forum Annual Meeting in Davos, Switzerland on Jan. 17th, 2024.
Adam Galici | CNBC

JPMorgan Chase on Thursday said several executives considered frontrunners to one day take over for CEO Jamie Dimon had new or expanded roles.
Jennifer Piepszak, co-head of JPMorgan’s giant consumer bank, will now became co-head of the firm’s commercial and investment bank along with Troy Rohrbaugh, a veteran leader of the bank’s trading operations.

Piepszak’s former partner, Marianne Lake, will transition from consumer banking co-head to being its sole CEO, JPMorgan said. The business includes some of the country’s largest operations in retail banking, credit cards and small business lending.
The moves should give Piepszak and Lake more experience as the long-running succession race atop the nation’s largest bank drags on. When they were made co-heads of consumer banking in 2021, Piepszak and Lake were considered favorites to eventually succeed Dimon, who is now 67 years old. That year, the bank’s board gave Dimon a special bonus to retain his services for a “significant number of years.”
It wasn’t clear if there is a frontrunner for the job after the latest set of changes, or if Dimon intends to leave anytime soon.
The running joke within JPMorgan is that for Dimon, considered the top banker of his generation, retirement is always five years away. Over the years, several of his deputies have moved on to lead other organizations after losing patience that the top job would ever become available.
Rohrbaugh and global payments chief Takis Georgakopoulos round out the short list of potential successors along with Lake and Piepszak, who have both served as CFO before their current assignments, said a person with knowledge of the bank’s planning.
As part of the changes, the bank’s new commercial and investment bank run by Piepszak and Rohrbaugh now includes operations that had been a separate division run by Doug Petno. And Daniel Pinto, who had been CEO of the corporate and investment bank for a decade, relinquishes that title while remaining the bank’s president and chief operating officer. More

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European Central Bank President Christine Lagarde is due to give a press conference following the bank’s latest monetary policy decision.

The ECB on Thursday held interest rates steady for the third meeting in a row. The bank was widely expected to leave policy unchanged in light of the sharp fall in euro zone inflation.
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Each year the 193 member states of the United Nations General Assembly vote on dozens of resolutions, earnestly setting the world to rights. Last month, for example, they voted in favour of reducing space threats, eradicating rural poverty and combating dust storms, among other things. The votes count for little. The assembly’s resolutions are not legally binding. Its budgetary powers are small. And it has as many military divisions as the pope.But for scholars of international relations, these votes have long provided a handy, quantitative measure of the geopolitical alignments between countries. More recently, economists have also turned to them. Owing to the trade war between America and China, Russia’s invasion of Ukraine, the conflict in Gaza and recent blockades in the Red Sea, geopolitics has become impossible for dismal scientists to ignore. Although their models of trade and investment typically give pride of place to the economic size of countries and the geographic distance between them, they are now considering “geopolitical distance” as well.image: The EconomistThe latest such study was published this month by the McKinsey Global Institute, a think-tank attached to the consultancy of the same name. By analysing countries’ votes on 201 of the higher-profile resolutions between 2005 and 2022, McKinsey was able to plot countries’ geopolitical stances on a scale from zero to ten. America stands at one end of the spectrum, labelled zero. At the other end is Iran at ten. In between are countries like Britain at 0.3, Brazil at 5 and China at 9.6.The authors use this measure to provide a new perspective on each country’s trade. As well as measuring the average geographical distance that a country’s trade must travel, they also calculate the geopolitical distance it must traverse. In a hypothetical world in which half of Iran’s trade was with America and half with Brazil, its trade would cover a geopolitical distance of 7.5.Their results are illuminating. European countries trade mostly with one another. As a consequence, their trade for the most part flows to their friends and neighbours. Things are rather less comfortable for Australia, however. It must trade with countries that are both geopolitically and geographically remote.America is somewhere in between. Thanks in part to its continental size, it has few prosperous neighbours. Less than 5% of global GDP is generated by countries within 5,000km of America, as McKinsey points out. Its trade travels almost 7,200km on average, compared with 6,600km for China’s trade and a global average of less than 5,200km. Yet in the diplomatic realm, the world is not so far away. The geopolitical distance America’s trade must cover is only a little above the global average. It is far shorter than the diplomatic distances bridged by China. Indeed, China’s trade covers a greater geopolitical gap than that of any of the other 150 countries in McKinsey’s data, bar Nicaragua, which resents America, but is doomed to do business with it.The study finds some early evidence of “friendshoring”. Since 2017, America has managed to shorten the geopolitical distance covered by its trade by 10%, on McKinsey’s scale. It has, for example, sharply curtailed imports from China, although some of the goods it now buys from other countries, such as Vietnam, are full of Chinese parts and components. China has also reduced the geopolitical distance of its trade by 4%, although that has required it to trade with countries farther afield geographically.Yet the report identifies several limits to this trend. Much of the trade countries carry out with ideological rivals is trade of necessity: alternative suppliers are not easy to find. McKinsey looks at what it calls “concentrated” products, where three or fewer countries account for the lion’s share of global exports. This kind of product accounts for a disproportionate share of the trade that spans long geopolitical distances. Australia, for example, dominates exports of iron ore to China. Likewise China dominates exports of batteries made from neodymium, a “rare-earth” metal.The attempt to reduce geopolitical dangers may also increase other supply-chain risks. Friendshoring will give countries a narrower range of trading partners, obliging them to put their eggs in fewer baskets. McKinsey calculates that if tariffs and other barriers cut the geopolitical distance of global trade by about a quarter, the concentration of imports would increase by 13% on average.For countries in the middle of the geopolitical spectrum, friendshoring has little appeal. They cannot afford to limit their trade to other fence-sitters, because their combined economic clout is still too small. Countries that score between 2.5 and 7.5 on McKinsey’s scale—a list that includes rising economies such as Brazil, India and Mexico—account for just one-fifth of global trade. To avoid falling between two stools, they must seek to trade across the geopolitical spectrum, just as they do now.Friendshoring has limits for China as well. There are simply not enough big economies in its geopolitical orbit to compensate for reduced trade with unfriendly Western trading partners. For China, then, friendshoring is more about replacing rivals and antagonists with more neutral parties among the non-aligned world, such as in Central Asia and the Middle East.Check mateIn studying how trade might contort itself along geopolitical lines, the McKinsey study assumes that the lines themselves remain fixed. But as the report freely admits, that might not be the case. The invasion of Ukraine and the conflict between Israel and Gaza is already causing new divisions and allegiances. It is conceivable that non-aligned countries might move closer to China politically, as China embraces them economically. Certainly, by spurning Chinese trade and investment, the West would give China added incentive to ingratiate itself with the rest of the world. After all, there are two ways to shorten the geopolitical distance of trade: trade more with friends or make more friends to trade with. ■Read more from Free exchange, our column on economics:What economists have learnt from the post-pandemic business cycle (Jan 17th)Has Team Transitory really won America’s inflation debate? (Jan 10th)Robert Solow was an intellectual giant (Jan 4th)For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter More

Sports are big business in America. The country’s four largest professional leagues generate about $45bn in revenues a year, more than half of the total produced by leagues worldwide. That makes for plenty of richly paid stars—and income-generating opportunities for governments. Enter the “jock tax”, an attempt by states and cities to stake a claim to the earnings of visiting athletes.Jock taxes gained attention in 1991 when Michael Jordan’s Chicago Bulls defeated the Los Angeles Lakers in the finals of the National Basketball Association—and California taxed them for their efforts. Illinois followed up with “Michael Jordan’s revenge” tax. Other states soon got in on the act, too. The public was pleased: not only were states taxing the rich, they were hitting the despised rivals of much-loved home teams.But a recent ruling in Pennsylvania may mark the end of the most egregious jock taxes. The city of Pittsburgh had charged non-resident athletes a 3% fee for using its baseball, football and ice-hockey facilities. Resident athletes, by contrast, pay only a 1% income tax to the city. On January 10th a court struck down the levy, finding that it violated the state’s constitution, which calls for uniform taxes. Similar taxes have been revoked in Ohio and Tennessee, among others. Stephen Kidder of Hemenway & Barnes, a law firm, has represented players in such cases and says Pittsburgh was the last true outlier in slapping discriminatory taxes on athletes.The ruling does not, however, mean the end of jock taxes more generally. State income taxes apply to any income earned in-state, including by non-residents. In practice, authorities rarely keep tabs on people when they move around for a few days of work here and there. Not so for athletes, whose schedules are publicised. California, for instance, is estimated to bring in more than $200m a year from taxes on non-resident athletes. “Athletes definitely get singled out in a way that is unfair,” says Mr Kidder.Taxation based on location of work rather than residence does not constitute an extra levy, but a more complex filing process. So long as athletes come from a state with an income tax, they would have had to pay these taxes anyway—the question is to which government. Professional baseball players may need to file two dozen separate tax returns.In an era of remote work, the plight of athletes is becoming more familiar. Workers who straddle locations should file multiple tax returns, even if many do not. “The burden for athletes is a magnified version of what many taxpayers face now,” says Jared Walczak of the Tax Foundation, a think-tank. To simplify things, some states have introduced tax-filing thresholds. For instance, Montana exempts non-residents if they work there for less than 30 days. But it still charges athletes and entertainers for a single day of work within its borders. As Mr Walczak notes: “It doesn’t seem likely that pro athletes will get a break anytime soon.”■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

When Russia invaded Ukraine in 2022, the arrival of war in one of the world’s breadbaskets sent the price of foodstuffs soaring—with one exception, sugar. But last year was worse for folk with a sweet tooth. As grain prices fell, sugar prices jumped (see chart).Although they have fallen more recently, they remain high. So do prices of a varied class of non-essential agricultural materials we dub “gourmet commodities”. The price of cocoa, up by 82% in 12 months, is at a 46-year high. The wholesale price of olive oil, at €9,000 ($9,800) a tonne, has reached an all-time record (the previous peak was $6,200 in 2006). In New York “OJ” contracts, for future deliveries of frozen concentrated orange juice, are being traded at $3.07 a pound, some 50% higher than in January last year. The coffee market is sleepier, but prices for Arabica beans—the finer kind—are still up by 44% since 2021.image: The EconomistThe reason for surging prices is not that consumers have a sudden taste for Coca-Cola and KitKats, but a litany of problems in regions where gourmet commodities are produced. El Niño, a climate pattern, has caused droughts in Australia, India and Thailand, three of the four biggest exporters of sugar. Torrential rain in Brazil, the largest, has complicated shipping.A heatwave in Spain, which produces half of the world’s olive crop, has kept last year’s harvest on a par with the one in 2022, which was the worst in a decade. Hurricanes have wiped out about 10% of orange trees in Florida, where nine in ten American oranges are grown. Heavy rain through the summer months allowed the dreaded black-pod disease and swollen-shoot virus to spread in Ghana and Ivory Coast, the world’s two largest cocoa producers.Elevated prices for gourmet commodities are already feeding through into those of finished goods. The cost of sugar and sweets rose by almost 9% in America in 2023, and several confectionery giants have warned that such goods are likely to become still more expensive over the coming year. In theory, this should depress demand. Yet there is little sign of higher prices denting consumer appetite so far.Cake fans have little choice but to hope that prices will fall when El Niño fades, as is expected in June, and that farmers will start to plant more in response to existing prices. Any respite will probably prove short-lived, however. The EU’s “Deforestation-free Regulation”—tough new rules for exports into the bloc, which cover cocoa, coffee and palm oil—will come into force at the end of 2024. Increased compliance costs and uncertainty regarding enforcement may prompt European importers to stockpile before the deadline. Since Europe typically accounts for a third of global cocoa and coffee imports, such a rush for supply would give global markets a jolt.More worrying still are longer-lasting phenomena. In Ghana and Ivory Coast the prices at which farmers sell to wholesalers, which are fixed by the state, remain too low; something Paul Joule of Rabobank, a Dutch lender, says discourages new planting despite sky-high global prices. He does not expect policies to change soon. And as climate change makes extreme weather more frequent, the risk that several crucial production regions suffer at the same time—and that the world’s biggest producers curb exports in response—only rises.Thus consumers will have to pay up. Farmers will keep missing out. And the middlemen who feed on price swings will grab an ever greater slice of the pie. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Little is more symbolic of globalisation than a McDonald’s hamburger. The American fast-food chain opened its first Chinese branch in 1990. The outlet was in Shenzhen, a small town just across the border from Hong Kong, which was home to the country’s original “Special Economic Zone”—an area where the Chinese government could try market liberalisation before rolling it out to the rest of the country. The Big Mac was a little piece of American capitalism in a communist country.We started publishing our Big Mac Index—a tongue-in-cheek way to value currencies—a few years earlier, in 1986. Our latest update shows that the Chinese yuan is the most undervalued it has been against the dollar since shortly after the global financial crisis of 2007-09. Back then American politicians argued that China’s leaders were deliberately undervaluing their currency in order to get an unfair advantage, and boost exports. Do they have reason to be suspicious this time around?image: The EconomistThe index demonstrates the concept of purchasing power parity (PPP), which maintains that the real value of a currency is the amount of goods and services that you can buy with it, rather than the number on a trader’s terminal. Over a long enough time frame, however, the two values should converge: the relative cost of buying the same bundle of goods and services in two different countries should roughly equal the nominal exchange rate. Otherwise savvy traders could consistently make a risk-free profit by selling goods across borders. Admittedly, the theory works better for some products than others. Shipping a burger from Shenzen to Seattle might be inadvisable.Yet PPP conversion factors, which aim to show the gap in relative prices between two countries, and are produced by international bodies such as the World Bank, have to contend with something difficult. People buy different goods in different countries. Chinese branches of McDonald’s sell things such as boba tea and congee, for instance, and these delicacies are unavailable to American consumers. Fortunately, though, the Big Mac is a standardised product. Consumers in China enjoy the same meat patties as those in America. Comparing the price of the burger in different countries with their exchange rates gives a rough idea of whether their currencies are undervalued or overvalued.A Chinese Big Mac cost 23 yuan in December 2023, whereas the American version came to $5.69. Divide one by the other and the Big Mac index gives a dollar-to-yuan exchange rate of 4.04. That compares with a nominal exchange rate of 7.20 yuan per dollar. It therefore suggests that the yuan is undervalued by 44%. And the price of a Big Mac in China has fallen since we last updated our index in June. Deflation has come to the McDonald’s menu as well as the rest of the economy.Perhaps the Big Mac index will provoke Donald Trump. During his successful presidential campaign, Mr Trump promised to label China a “currency manipulator” on his first day in office. At the time, the country’s currency was just 37% undervalued according to our burger index. America did belatedly label China a currency manipulator in 2019, despite Chinese leaders intervening to support the yuan, only to then reverse the decision in 2020.Mr Trump would be well-advised to hold off this time, however. China is an outlier in seeing deburgerflation, but the undervaluation of its currency is not unusual. Although the dollar has weakened against the currencies of some richer economies, such as Britain and Canada, it has strengthened against all but a few poorer ones. Moreover, low inflation in Asia, compared with America and Europe, has led to relatively cheaper Big Macs: Japan, South Korea and Taiwan have also seen their currencies become more undervalued. If the appearance of burgers indicates the arrival of globalisation, their staying power (and good value) is testament to American capitalism’s continued success. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Starting Feb. 5, the People’s Bank of China will allow banks to hold smaller cash reserves, central bank governor Pan Gongsheng said at a press conference, his first in the role.
“The latest [PBOC] announcements may be interpreted as the beginning of a policy pivot from previous reactive and piecemeal measures by investors, and they will continue to look for further signs and acts of policy support,” Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank, said in a note.
Pan also told reporters the central bank and the National Financial Regulatory Administration would soon publish measures to encourage banks to lend to qualified developers. The document was released later that day.

BEIJING, CHINA – NOVEMBER 08: Pan Gongsheng, governor of the People’s Bank of China and head of the State Administration of Foreign Exchange, speaks during the Annual Conference of Financial Street Forum 2023 on November 8, 2023 in Beijing, China. (Photo by VCG/VCG via Getty Images)
Vcg | Visual China Group | Getty Images

BEIJING — Expectations for more support from China to boost its economy and stock markets are rising— especially after the central bank’s easing announcements on Wednesday.
Starting Feb. 5, the People’s Bank of China will allow banks to hold smaller cash reserves, central bank governor Pan Gongsheng said at a press conference, his first in the role.

Cutting the reserve requirement ratio (RRR) by 50 basis points is set to release 1 trillion yuan ($139.8 billion) in long-term capital, the central bank said.
“The latest [PBOC] announcements may be interpreted as the beginning of a policy pivot from previous reactive and piecemeal measures by investors, and they will continue to look for further signs and acts of policy support,” Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank, said in a note Thursday.
Beijing has been reluctant to embark on massive stimulus, which would also widen the yield gap between China and the U.S. given the Federal Reserve’s tighter stance on monetary policy. The PBOC kept a benchmark lending rate unchanged again on Monday, holding pat on loan prime rates.
The magnitude of the central bank’s announcement Wednesday on the RRR cut exceeded Nomura’s forecast for a 25 basis point reduction, said the firm’s chief China economist, Ting Lu.
“We think this larger-than-expected RRR cut is a further sign that the PBoC and top policymakers have become increasingly concerned about the ongoing economic dip, which we have been flagging since mid-October last year, and the latest equity market performance,” he said in a note Thursday.

“More interestingly, the policy decision was revealed in a less-usual fashion, as the PBoC Governor made the announcement personally during a Q&A session at the press conference,” Lu said.

Pan on Wednesday told reporters the central bank and the National Financial Regulatory Administration would soon publish measures to encourage banks to lend to qualified developers. The document was released later that day.
“It is a significant step from the regulators to enhance credit support for developers,” UBS’ Wang said. “For developer financing to fundamentally and sustainably improve, property sales need to stop falling and start to recover, which could require more policy efforts to stabilize the property market.”
Real estate troubles are just one of several factors that have weighed on Chinese investor sentiment. The massive property industry has dragged down growth, and along with a slump in exports and lackluster consumption, kept the economy from rebounding from the pandemic as quickly as expected.
The mainland Chinese and Hong Kong stocks have steadily dropped to multi-year lows.
Stocks turned higher this week after a series of government announcements and media reports indicating forthcoming state support for growth and capital markets.
Such efforts to stabilize the stock market helps put a floor to stop the market from capitulating and falling further, Winnie Wu, Bank of America’s chief China equity strategist, said Thursday on CNBC’s “Street Signs Asia.”
But she pointed out a fundamental turnaround in the economy is needed for investors to return to Chinese stocks, which will take time.

A 2 trillion yuan boost?

The world’s second-largest economy grew by 5.2% in 2023, according to official numbers released last week. That’s a marked slowdown from double-digit growth in decades past.
Chinese Premier Li Qiang on Monday called for much stronger measures to boost market stability and confidence, according to an official readout.
On Tuesday, Bloomberg News, citing people familiar with the matter, said Chinese authorities are looking to use state-owned companies’ funds to stabilize the market — in a package of about 2 trillion yuan ($278 billion).
PBOC Governor Pan on Wednesday did not mention such a fund, although he took the initiative to speak about the capital markets, Citi’s Philip Yin and a team pointed out in a report. They said the 2 trillion yuan in capital would need to be deployed over weeks or months given current regulations, and would only amount to a fraction of current trading volume.

HAIAN, CHINA – JANUARY 24, 2024 – A staff member of the personal finance business area of a bank counts and arranges the RMB deposited by customers in the daily account in Haian city, Jiangsu province, China, Jan 24, 2024. (Photo credit should read CFOTO/Future Publishing via Getty Images)
Future Publishing | Future Publishing | Getty Images

“Most importantly, it seems not sufficient to create a real impact on the underlying challenges in the economy,” the Citi analysts said.
For many consumers and businesses in China, uncertainty about the future remains high in the wake of recent Chinese government crackdowns on internet technology companies, the gaming sector, after-school education businesses and real estate developers.
Tensions between the U.S. and China, centered on tech competition, have also weighed on sentiment.
Chinese authorities since last summer have made it a point to talk up support for the non-state, private sector.
“Ultimately what is going to get fundamentals back on track is meaningful improvement in confidence and sentiment – which is why recent measures have been designed to give confidence a boost,” said David Chao, global market strategist for Asia Pacific (ex-Japan) at Invesco.
“The road forward to economic normalization lies in the wallets of Chinese households and businesses and less so in China’s stimulus toolkit,” he told CNBC.

Looking for fiscal support

But markets have generally been waiting for more action. Chinese authorities in October already announced the issuance of 1 trillion yuan in government bonds, alongside a rare increase in the deficit.
“To address the macro challenges, it still calls for opening the monetary box even wider — and arguably with broader fiscal policy and easing deleveraging policy,” Citi’s analysts said.
Governor Pan’s comments about the narrowing difference between the U.S. and Chinese monetary policy are “clues for more monetary accommodation down the road especially with the Fed expected to ease later in the year,” the report said.

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China is set to hold its annual parliamentary meeting in March, at which it could reveal a wider fiscal deficit and other policies for the year ahead.
The Economist Intelligence Unit on Thursday said in its China 2024 outlook that China’s leaders could aim for 5% growth in the year ahead, with the help of greater fiscal support.
The report pointed out that Chinese leaders called for a fresh round of fiscal reform during their annual Central Economic Working Conference in December. Those details could be released at the third plenary session of the Chinese Communist Party’s central committee, which is “likely to take place in early 2024,” EIU added.
— CNBC’s Clement Tan contributed to this report. More

The interest-rate market has a dirty secret, which practitioners call “the hairy chart”. Its main body is the Federal Reserve’s policy rate, plotted as a thick line against time on the x-axis. Branching out from this trunk are hairs: fainter lines showing the future path for interest rates that the market, in aggregate, expects at each moment in time. The chart leaves you with two thoughts. The first is that someone has asked a mathematician to draw a sea monster. The second is that the collective wisdom of some of the world’s most sophisticated investors and traders is absolutely dreadful at predicting where interest rates will go.Since inflation began to surge in 2021, these predictions have mostly been wrong in the same direction. They have either underestimated the Fed’s willingness to raise rates or overestimated how quickly it will start cutting them. So what to make of the fact that, once again, the interest-rate market is pricing in a rapid loosening of monetary policy?This time is different, and in an important way. A year ago investors betting that rates would soon be cut were fighting the Fed, whose rate-setters envisaged no such thing. Then, in December, the central bank pivoted. Rate cuts were now being discussed, announced Jerome Powell, its chairman, while officials forecast three of them (or 0.75 percentage points’ worth) in 2024. The market has gone further, pricing in five or six before the year is out. It is, though, now moving with the Fed, rather than against it. Mr Powell, in turn, is free to make doveish noises because inflation has fallen a lot. Consumer prices rose by just 3.4% in the year to December, compared with 6.5% in the month before that.Yet the past few years have shown how eager investors are to believe that cuts are coming, and how frequently they have been wrong. And so it is worth considering whether they are making the same mistake all over again. As it turns out, a world in which rates stay higher for longer is still all too easy to imagine.Begin with the causes of disinflation to date. There is little doubt that rapidly rising interest rates played a role, but the fading of the supply shocks that pushed up prices in the first place was probably more important. Snarled supply chains were untangled, locked-down workers rejoined the labour force and soaring energy prices fell back to earth. In other words, negative supply shocks gave way to positive ones, cooling inflation even as economic growth rebounded.Yet these positive shocks are now themselves fading. Supply chains, once untangled, cannot become any more untangled. America’s participation rate—the proportion of people in its labour force—increased from 60% in April 2020 to 63% last August, but has since stopped rising. Energy prices stopped falling in early 2023. Escalating violence in the Middle East, where America and Israel risk being drawn ever further into conflict with proxies and allies of oil-producing Iran, could yet cause prices to start rising again. This all leaves monetary policy with more work to do if inflation is to keep falling.At the same time as America’s participation rate has stopped rising, wages have continued to climb. According to the Atlanta Fed, in the fourth quarter of 2023 median hourly earnings were 5.2% higher than a year before. After adjusting for inflation, this is well above the long-run annual growth rate for workers’ productivity, which has been a little over 1% since the global financial crisis of 2007-09. A gap between wages and productivity growth will, all else equal, continue to force up prices. For the Fed, this makes rate cuts harder to justify.The case that rates may stay high is therefore plausible even if you ignore the political backdrop. In an election year, that is a luxury which central bankers do not have. The danger of easing monetary policy too early and allowing inflation to come back, as happened in the 1970s, already looms over the Fed. During a presidential campaign featuring Donald Trump, cutting rates too quickly could have even graver consequences. The cry would inevitably go up that officials had abandoned their mandate in an attempt to juice the economy, please voters and keep Mr Trump out of office.And Mr Trump may well win, in which case he will probably pursue deficit-funded tax cuts, driving inflationary pressure yet higher and forcing the Fed to raise rates. Such a scenario is still, just about, speculative fiction. It is certainly not what investors expect. But when you look at their predictive record, that is hardly a comfort. ■ More