Friday Charts: How Fiscal Dominance Meets Super Intelligence in 2025’s Financial Revolution
Fiscal policy and AI collide—here's what happens when governments lose control to algorithms.
### The Rise of the Machines (and the Debt)
Central banks used to call the shots. Now, AI-driven markets bypass traditional policy levers—printing money just fuels algorithmic trading frenzies.
### Supercharged Speculation
Quant funds with neural nets parse fiscal decisions faster than Congress can pass them. Result? Volatility spikes that make 2022 look tame.
### The Cynic’s Take
Wall Street’s new mantra: ‘If you can’t beat the bots, lease them.’ (At 20% management fees, naturally.)
One thing’s clear—human policymakers are now just spectators in their own circus.
An academic study finds that tariffs have caused the price of imports to rise faster than the price of domestic goods. It hasn’t affected the US economy much as of yet, but Ben Cassleman explains why that doesn’t mean it won’t. Analysts at Morgan Stanley think the economy should start showing the negative impact of tariffs in the third quarter (which is now).
For now, things are pretty good:
Ed Yardeni highlights that the “misery index” — the sum of the unemployment and inflation rates — remains well below the long-term average.
Economists have been too worried lately:
Anna Wong notes that US growth and inflation data have both been better than consensus expectations recently.
It’s been worse than expected for male college grads:
The FT columnist John Burn-Murdoch notes that young men with college degrees are just as likely to be unemployed as young men without degrees. Women college graduates continue to fare better, probably because they’re more likely to work in health care.
Don’t blame COMP sci:
Contrary to popular belief, Burn-Murdoch notes as well that “relative to the pre-generative AI era, recent grads have secured coding jobs at the same rate as they’ve found any job, if not slightly higher.”
US companies are still the best:
Goldman Sachs reminds us that big US companies are far more profitable than companies in the rest of the world. They might get even more so: Amazon and Microsoft were both said to be reducing their payrolls by thousands of employees this week, reportedly because they believe they can ask AI to do more of the work.
On the other hand…
By multiple measures, China has pulled ahead of the US in scientific research. Maybe US mega tech companies will make up the difference. But if we’re in a two-country race to superintelligence, now seems like a bad time for the government to be cutting research grants.
New highs are normal:
This graphic from @ryandetrick is a reminder that making new highs is the norm for US equities. This year’s total of nine is still pretty modest.
Zimbabwe stocks made a lot of new highs, too:
Zimbabwean stock prices boomed during the bout of hyperinflation that started in 2019 — simply because stocks are denominated in the local currency. When the currency was revalued in March, stocks were revalued, too.
Not Zimbabwe yet:
Despite the rising risk of fiscal dominance, the market for forward inflation expectations implies that US inflation will be just 2.3% in five years’ time — which would be great news for the world.
If the market is keeping its faith in the Fed, shouldn’t we all?
Jamie Dimon would tell you that’s not how it works, but let’s hope he’s wrong.
Have a great weekend, predictive readers.
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