Hello from London, Clouds are gathering over economies almost everywhere. In the coming days Jerome Powell, chair of America’s Federal Reserve, will give testimony to Congress, telling a Senate committee how he sees the state of the country’s economy. It’s hard to know what to fret about more: prices or a recession? Inflation expectations are creeping up as the public confronts steadily rising prices (and a gallon of petrol that costs more than $5, just in time for the summer driving season). We’ve just published our take on how these expectations will make it far harder for policymakers to restore the low-inflation era that endured for so long. We recently judged that the chance of avoiding a recession is pretty low, though the slowdown will (with luck) not be especially severe. It helps, for example, that unemployment has fallen to remarkably low levels. But even a mild slowdown would not be pleasant, and recovering from it could be slow and difficult. Investors have woken up to the fact that fighting inflation is going to be painful—which in turn has caused turmoil in the markets. The more speculative the investment (hello crypto and the like…) the worse the suffering. So we’ll be watching in the coming weeks for more volatility in all sorts of markets. For all its troubles, America is a safe haven (so brace for a stronger dollar). In contrast the euro zone is in a shakier position. The ECB looks anxious. Is Italy’s big pile of public debt (worth 150% of its GDP) a threat for the euro zone in the face of rising financing costs? When my colleagues started throwing around the phrase “European doom loop” at first I assumed it was something to do with the CERN particle accelerator. It turns out that investors’ fondness for Italian debt may be the bigger threat (at least to the markets). Beyond that, there’s the continuing drama of the January 6th hearings in Congress. Our Lexington columnist summed it up a few days ago, suggesting that Liz Cheney, in particular, is laying out what effectively is a criminal case against Donald Trump for his actions before and during the mob attack on the Capitol. These hearings will carry on for a time yet, but it’s yet to be seen whether they will have much impact on the wider electorate. What would be a much bigger deal—and is expected to land at some point in the next couple of weeks—is a ruling by the Supreme Court on the federal right to abortion, and in particular on whether Roe v Wade will be overturned. The court is likely to deliver its judgment before the end of its current term. There’s no fixed date for that, but it is likely to be before the July 4th holiday. Elsewhere we are watching elections, as ever. The French have just dealt Emmanuel Macron a bloody nose, taking away his majority in legislative elections. The rise of the far-left, under Jean-Luc Mélenchon, has caused him quite a headache. And by Monday we should also know who the next president in Colombia will be. Look out for our report on that. The other big story, of course, is Ukraine. We’ve been looking at some of the military hardware in use there. This interactive article on the vulnerability of Russia’s tanks is a remarkable piece of work, which I strongly recommend. And this article, on the future of artillery in the conflict, is well worth reading too. The main question of the coming week, I suspect, will continue to be whether the European Union will recommend that Ukraine be allowed to move ahead with an application to join the pan-European body. All signs point towards that happening. Thanks again for the feedback. Many of you wrote to offer your views on AI (I am assuming all my correspondents were real people…). Sophia Dallimore, a student, says she worries that young people are not well versed in the threats and opportunities posed by AI and warns, rightly, against fear-mongering over it. Bjorn Turmann, a writer, asks if we need to start thinking about AI as an audience for our words. Royston Snart, meanwhile, turns the tables and suggests that a pressing task is to think exactly what it is that counts as HI, or human intelligence. Please keep your comments flowing, whether about the state of our economies, if Ukraine should join the EU, or anything else, by writing to me at [email protected]. And you’re most welcome to follow me on Twitter. |