Financial markets have entered September in an awkward mood. Global equities have advanced, but long-term bond yields have risen towards multi-decade highs as the European Central Bank meets this week and the Federal Reserve and Bank of Japan prepare to follow. The common thread is a turn towards reflation: growth is firming while inflation remains stubborn. Growth surprises have improved relative to inflation surprises, supporting equities (chart 1), while policy uncertainty has retreated from its peak but remains unusually high (chart 2). Most major economies are now on the expansionary side of the growth-inflation cycle (chart 3). Yet supply-chain pressure is returning (chart 4), inflation has become more responsive to tight labour markets since 2020 (chart 5), and the rise in bond yields has been driven largely by higher real rates rather than inflation expectations (chart 6).
Introducing
Andrew Cates
in:Our Authors
Andy Cates joined Haver Analytics as a Senior Economist in 2020. Andy has more than 25 years of experience forecasting the global economic outlook and in assessing the implications for policy settings and financial markets. He has held various senior positions in London in a number of Investment Banks including as Head of Developed Markets Economics at Nomura and as Chief Eurozone Economist at RBS. These followed a spell of 21 years as Senior International Economist at UBS, 5 of which were spent in Singapore. Prior to his time in financial services Andy was a UK economist at HM Treasury in London holding positions in the domestic forecasting and macroeconomic modelling units. He has a BA in Economics from the University of York and an MSc in Economics and Econometrics from the University of Southampton.
Publications by Andrew Cates
Global| Sep 09 2026The End of Painless Disinflation
The latest round of inflation releases will help determine what central banks do next. A larger question lies behind the monthly numbers. Has inflation once again become more responsive to economic pressure? For much of the decade after the global financial crisis, falling unemployment generated surprisingly little inflation. That apparent flattening of the Phillips curve, the relationship between economic slack and inflation, encouraged policymakers to believe that economies could run hot at relatively little cost. Evidence since 2020 suggests that assumption is now less secure.
This argument complements, rather than overturns, the analysis in The age of abundance is over. That article argued that today’s inflation overshoot largely reflects scarcer labour, energy and productive capacity, none of which higher interest rates can directly replace. The evidence considered here makes a separate point. Even if supply constraints explain much of the current level of inflation, additional demand may now pass into prices more readily than it did in the 2010s. The source of inflation and its sensitivity to demand are related questions, but they are not the same question.
The evidence from the United States The US provides the clearest example. Comparing a real-time measure of economic tightness with inflation one year later reveals a marked break after 2020. Before then, a one-standard-deviation rise in the tightness measure was associated with an increase of about 0.4 percentage points in subsequent inflation. Since 2020, the estimated response has been roughly four times as large, at about 1.7 percentage points (Figure 1). Put simply, inflation now appears to react more strongly when demand presses against the economy’s capacity.
by:Andrew Cates
|in:Viewpoints
Global| Sep 03 2026Charts of the Week: The Turn Towards Tightening
Central banks dominated the financial-market narrative last week. In his first Jackson Hole address as Federal Reserve chairman, Kevin Warsh indicated that the next move in US interest rates was more likely to be an increase than a cut. The ECB, having raised rates in June, is also expected to tighten further. Government bond yields consequently remained under upward pressure across the advanced economies, with long-term yields close to their highest levels in two decades. Rising real yields weighed on equities and gold, while oil climbed back above $90 following US strikes on Iranian launchers near the Strait of Hormuz. The latest Blue Chip Financial Forecasts survey places this shift in a broader context. Panellists expect policy rates to rise over the next twelve months in Japan, Canada and the euro area, with more modest increases anticipated in the United States and Australia; the United Kingdom is the only economy in which rates are expected to fall (chart 1). At the same time, shipping costs and global supply-chain pressures are rising again (chart 2), with renewed inflationary pressure emerging at the factory gate (chart 3). US labour demand is also shifting towards sectors where supply constraints appear most pronounced (chart 4). Yet core inflation across the G10 is now relatively close to target (chart 5). The final chart places these developments within a longer-term shift: after declining for four decades, the real cost of capital has moved decisively higher (chart 6).
by:Andrew Cates
|in:Economy in Brief
- Global| Sep 02 2026
The age of abundance is over — and neither policy nor markets have caught up
Kevin Warsh used his first Jackson Hole address as chairman of the Federal Reserve last week to signal that the next move in US interest rates is more likely to be up than down. He is not alone. The European Central Bank raised rates in June and may go further, and several other central banks have turned hawkish. It is a puzzle. Growth has slowed, unemployment has drifted up, and core inflation across the advanced economies is not far above target. Why is the world's monetary tide turning towards tightening?
The official answer is that they are guarding against a shift in expectations. Supply-driven inflation need not persist; it does so only if firms and households come to expect it, and set wages and prices accordingly. Having misjudged the 2021 shock as transitory, central bankers are unwilling to take that chance a second time. So they are tightening not to reverse the shock, which no rate can do, but to keep expectations anchored.
That, though, is the lesser part of the story. The central banks are treating as a cyclical episode what is in truth a change of regime. For a generation the advanced economies enjoyed abundant supply and abundant capital: globalisation held down the price of goods, a global surplus of saving held down the price of money, and monetary policy had only to manage demand. Both conditions are now reversing, together. Supply has become scarce and costly; so has capital; and the two are related. The consequences are large. Inflation of this kind cannot be brought down by interest rates, only resisted at the cost of a recession. The real cost of capital has risen durably, not cyclically. And investors positioned for the old regime — a central bank that eases into every downturn, government bonds that hedge equities, real rates that subside to their former lows — are positioned for a world that will not return.
Supply has tightened on every front. In the past month alone the United States imposed 50 per cent tariffs on Canadian goods; American forces struck Iranian launchers at the Strait of Hormuz, returning Brent above $90; and a glacier collapse on the Nepal-Tibet border destroyed a regional trade route. Each raised costs, and none can be addressed by a policy rate. To these has been added a contraction in the supply of labour. The administration's immigration enforcement, recently extended to withdraw work authorisation from more than a million people, has reduced the workforce available to construction, agriculture and services, and raised wage costs in those sectors. None of this is a temporary deviation from a stable trend. The real cost of energy has risen for a quarter of a century to a record; reshoring is reconstructing supply chains at higher cost; and demographic change was tightening labour markets before enforcement intensified. The cheap and frictionless supply of the globalisation era has ended.
The data bear this out. Decompose US core inflation into demand- and supply-driven components and the demand-driven part has fallen to around one percentage point, with supply accounting for almost the entire excess over target (Figure 1). Across the G10, core rates are grouped close to target, none much above two and a half per cent (Figure 2). The demand that monetary policy governs has already been contained; wage growth is slowing, and market-based measures of inflation expectations remain near target. What sustains inflation above target is supply.
by:Andrew Cates
|in:Viewpoints
Global| Aug 26 2026Charts of the Week: Resilient Growth, Restless Yields
A dominant anxiety in financial markets remains the level of long-term interest rates. It is worth beginning, though, with the real economy, where the news of recent days has been more reassuring. Haver’s proprietary calculation of world GDP growth suggests the global economy held up well in the second quarter, expanding at close to its long-run average pace and defying the sharper slowdown many had feared (chart 1). The August flash purchasing managers’ indices tell a similar story, with most of the major economies both in expansion and still improving — though, as ever, the composite readings conceal a more uneven picture beneath (chart 2). From South Korea, whose trade figures are among the world’s most timely, comes the same message, and a pointed one about the artificial-intelligence boom: semiconductor exports have continued to surge (chart 3). Yet the market’s gaze stays fixed on US yields, and a decomposition explains why they are being watched so closely — the rise has come overwhelmingly from the real component, not from any meaningful revival of inflation expectations (chart 4). That, one might argue, is not a passing technical matter but a structural one, rooted in who is willing to fund the US government. The rest of the world now funds a steadily shrinking share of its debt (chart 5), and the surplus nations that once recycled their savings into Treasuries are turning, instead, to gold (chart 6). It is against this backdrop that Treasury Secretary Scott Bessent's recent remarks that the government may intervene in the market to support its debt have drawn attention.
by:Andrew Cates
|in:Economy in Brief
Global| Aug 20 2026Charts of the Week: The Cost of Capital Climbs
Financial markets have been unsettled this week by a familiar cast of forces, though the balance among them has shifted. Renewed tension in the Middle East has nudged oil prices higher without seriously disturbing the wider tone, while in Japan the yen’s slide to multi-decade lows kept the authorities on intervention watch and the Bank of Japan under pressure to act. But the development that has dominated is the continued climb in long-term interest rates, which across the major economies now stand close to their highest in two decades — a move driven far more by real yields than by any meaningful revival of inflation fears. That the long end should be rising even as disappointing US data have led investors to pare back their expectations of further Federal Reserve tightening — the short end falling as the long end climbs — is a thread running through this week's charts. We begin with that near-term picture: a softening in US data surprises and the accompanying, albeit very modest, easing at the short end of the curve (chart 1), together with the fragile state of domestic demand in Japan that complicates the yen’s defence (chart 2). We then turn to the deeper forces pushing long rates higher. Rearmament is adding a large and largely non-negotiable claim on the public purse, with defence budgets across Europe climbing steeply (chart 3). The flow-of-funds accounts show where the strain comes to rest, with governments across the advanced world in deficit and drawing on a finite pool of saving (chart 4) — saving that is concentrated, more than ever, in China (chart 5). And beneath it all lies the question of whether the investment now under way will deliver the productivity gains needed to justify a higher cost of capital; the latest US figures give little comfort (chart 6).
by:Andrew Cates
|in:Economy in Brief
- Global| Aug 19 2026
The Contest for Capital
The world is being pushed to invest more than it has in decades.
A world on autopilot Every few months the International Monetary Fund publishes a projection of the world economy, and the Blue Chip panel of forecasters, along with other bodies, does something similar each month; together they help to set the consensus against which everything else is judged. It describes a world returning gradually to normal: global growth a little above 3%, inflation drifting back to target, and US policy rates continuing to ease from their peaks. Its most consequential feature is one that is easy to miss, because it sits in an accounting identity rather than being stated as a view: investment in the advanced economies is projected to remain close to 22% of GDP for the rest of the decade, essentially flat, with national saving tracking it (chart below). The large external imbalances — the US deficit and the surpluses of China, Germany and the oil exporters — are expected to persist more or less unchanged, and the real interest rate that balances saving against investment drifts gently lower. It is, in short, a forecast of continuity, and this piece argues that continuity may well be the wrong assumption.
by:Andrew Cates
|in:Viewpoints
Global| Aug 13 2026Charts of the Week: Beneath the Calm
Global markets kept a composed tone this week even as the backdrop grew more unsettled. Renewed fighting in the Middle East lifted oil prices but left equities largely unmoved, the earlier decline in semiconductor shares having faded as earnings held up; long-term interest rates continued to grind higher, with the increase concentrated in real yields rather than inflation expectations; and the major central banks, having diverged over the course of the year, are now expected to move in different directions. Inflation, for its part, remained subdued. The charts that follow take up these themes. The first two draw on this month’s forecasting round: growth expectations for 2026 have been revised up across the AI-exposed economies of Asia and trimmed across much of the West, pointing to a global cycle growing at two speeds (chart 1), while in the United States the resilience of the expansion increasingly reflects business investment rather than household spending (chart 2). The next two concern the benign inflation backdrop: price data have continued to undershoot forecasts even as supply-chain pressures have edged higher (chart 3), and the oil market has remained well supplied in part because Chinese import demand has fallen sharply (chart 4). The final two look beyond the cycle: the current-account imbalance between the United States and China has widened close to record levels, a theme given fresh salience by Japan’s recent currency intervention (chart 5), while the longer-run shift towards wind and solar power has continued largely irrespective of the week’s events (chart 6).
by:Andrew Cates
|in:Economy in Brief
Global| Aug 06 2026Charts of the Week: A Resilient World Economy, and Its Price
The global economy has proved stubbornly resilient this summer, even as the backdrop has grown noisier. A fresh flare-up in the Middle East, reports of official intervention to arrest a slide in the yen, and a bout of nerves over the vast sums now being committed to artificial intelligence have all unsettled sentiment, while central banks — the Federal Reserve among them — have turned markedly more hesitant about cutting rates than they appeared only a few months ago. Yet the incoming data have held up better than feared, with a broad gauge of global activity climbing back above its normal trend and shrugging off the gloom (chart 1). If anything, the pressure on interest rates has been upward rather than down. Forecasters have spent recent months marking up their expectations for policy rates a year ahead across almost every major economy (chart 2), and the shift looks more than cyclical: estimates of the neutral rate, the resting point for real rates, now stand higher than they did in 2019 in every advanced economy (chart 3), lifted above all by the swelling supply of government debt (chart 4). Behind that repricing lies an investment cycle that is quietly gathering pace and, encouragingly, one still financed largely out of profits rather than borrowing (chart 5). It is not without its constraints, however. The real price of copper, the indispensable metal of electrification, sits close to a multi-decade high — a reminder that a capital-hungry world is beginning to strain against physical limits (chart 6).
by:Andrew Cates
|in:Economy in Brief
- Global| Aug 04 2026
The Real Rate Has Turned — and the World Still Expects the Old Normal
For much of the past decade, the working assumption was that interest rates, having collapsed after the financial crisis, would eventually fall back once the latest disturbance had passed. Events are now overturning that assumption—and not only in the United States. Both consensus forecasters and the Federal Reserve's model for estimating the equilibrium rate across advanced economies point to the same conclusion: the real rate of interest—the price of capital after inflation is stripped out—has risen and is likely to remain higher. The question is no longer whether this shift has occurred, but why so much of the financial system is still configured for a world we have left behind.
The evidence is clearest in the United States. The driver is the demand for capital: an investment cycle in artificial intelligence, defence and the reshoring of supply chains is competing for scarce savings, capacity and labour, and that raises the return the economy has to offer to fund it. It now shows up in the forecasts. Over the past six months the Blue Chip consensus for the US policy rate one year ahead has risen by about 44 basis points, while the consensus for inflation over the same horizon has barely changed; only around ten of those basis points reflect higher expected inflation. The remaining 34 are a higher expected real rate. Forecasters are not marking up the price outlook so much as the return on capital the economy can sustain.
by:Andrew Cates
|in:Viewpoints
Global| Jul 30 2026Charts of the Week: The Price of an Investment Boom
The Federal Reserve left its policy rate unchanged at the conclusion of last night’s meeting, a decision that had been widely expected — the futures market went in pricing only around a one-in-three chance of a hike — but one that split the committee unusually sharply, with three of its members dissenting in favour of an increase to counter inflation that has now run above target for more than five years (chart 1). Yet whatever the near-term path of official rates, the real cost of capital has already moved decisively. The real ten-year yield has climbed to around its highest in two decades, and it has done so in step with a run of firmer-than-expected economic data (chart 2). Behind that resilience lies an investment cycle that is quietly gathering pace. The July flash surveys show the upturn led, unusually, by manufacturing rather than services (chart 3), and the hard data are beginning to agree, with manufacturing orders across many major economies turning firmly higher (chart 4). Equity markets, for their part, have taken elevated real rates in their stride, the bond–equity relationships that fractured in 2022 having since been restored (chart 5) — the signature of a market that believes it has entered a higher-return, investment-led regime. The optimism is not unqualified. A fresh round of US tariffs and a sharp sell-off in chip stocks, led by South Korea, are reminders that the payoff from all this spending is far from assured. And the boom is colliding with a physical constraint: since the breakdown of the US–Iran understanding, Baltic tanker and gas freight rates have surged even as dry-bulk rates have stayed calm (chart 6), a pointed warning about the security of the world’s energy arteries.
by:Andrew Cates
|in:Economy in Brief
- Global| Jul 28 2026
An Investment Boom in a Constrained World
The world is investing on an extraordinary scale. The question is whether that investment expands productive capacity or merely offsets a more constrained world.
The global economy is entering its strongest investment cycle for a generation. Artificial intelligence, the energy transition, geopolitical fragmentation and higher defence spending are all driving capital expenditure. Unlike previous cycles, however, these forces increasingly compete for the same scarce inputs: energy, grids, critical minerals, water and skilled labour.
by:Andrew Cates
|in:Viewpoints
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