Economic heresy

As the US economy hums along month after month, year after year, minting hundreds of thousands of new jobs and further embarrassing a long line of experts repeatedly proven wrong on recession calls, some on Wall Street are starting to entertain a fringe economic theory. What if, they ask, all those interest-rate hikes the past two years are actually boosting the economy? In other words, maybe the economy isn’t booming despite higher rates but rather because of them. It’s an idea so radical that in mainstream academic and financial circles, it borders on heresy. But the new converts (along with a handful who confess to being at least curious about the idea) say the economic evidence is becoming impossible to ignore. By some key gauges—GDP, unemployment, corporate profits—the expansion now is as strong or even stronger than it was when the Federal Reserve first began lifting rates. So, with that in mind, here’s how the theory works. —David E. Rovella

Maybe Jerome Powell is in on the secret, too. The Fed Chair signaled Tuesday that policymakers will wait longer than previously anticipated to cut interest rates following a series of surprisingly high inflation readings. Powell pointed to the lack of additional progress made on inflation after the rapid decline seen at the end of last year. If price pressures persist, he said, the Fed can keep rates steady for “as long as needed.”

The International Monetary Fund, however, isn’t buying it. It leveled an unusually direct criticism at US policymakers Tuesday, saying the country’s recent standout performance among advanced economies was in part driven by an unsustainable fiscal policy. US deficit spending has been driven in recent years by Covid-related rescue packages, aggressive investments in infrastructure and clean energy—and exploding interest costs.

The highest US yields since November are beginning to attract some opportunistic buyers even as negative sentiment remains firmly entrenched throughout the Treasury bond market. The latest client survey from JPMorgan showed that investors were net long on Treasuries by the most in three weeks. In the options market, traders appeared biased toward unwinding at least some of their bearish positions, potentially locking in profits as US two-year yields surged as high as 5%.

The US Securities and Exchange Commission has blocked third-party messaging apps and texts from employees’ work mobile phones, bringing its own practices closer to the standards it’s enforcing on Wall Street. It follows about $3 billion in fines imposed on financial firms to settle allegations that they failed to keep adequate records of work-related communications on mobile devices and apps such as Signal and Meta’s WhatsApp.

Russia’s escalating bombardment of Ukraine’s No. 2 city is being seen by officials in Kyiv and Washington as a way to make it uninhabitable. Kharkiv, a northeastern city less than an hour’s drive from the Russian border, has been hit with a barrage of missiles, drones and heavy guided bombs over the past month. The assault has battered power-generation infrastructure and left swathes of residential buildings in ruins.

Iran’s failed weekend attack on Israel in retaliation for the deadly April 1 strike on its Syrian consulate, as well as the prospect of further escalation, has threatened to embroil Jordan in the broadening conflict. A key Western ally, Jordan helped the US and Israel shoot down some of the Iranian drones and missiles that were launched. While Foreign Minister Ayman Safadi was quick to say the country would do the same if Israel were to use Jordanian airspace to attack Iran, the move led to a torrent of online abuse in the Islamic Republic.

Before the rains come this month, living in Lagos means enduring intense heat and the constant feeling of being wrapped in a wet blanket. For a city on the Atlantic Ocean with a vast coastline of white sand, it’s the sort of weather that anywhere else would call for a daily swim. But in Nigeria’s commercial capital, there are no free public beaches. Lagos’s capitalist bent and decisions by city officials mean that many of its 25 million residents can’t afford the simple joy of swimming in the ocean.

Paris will scrap the planned opening ceremony for the Olympics on the Seine river if it’s judged too risky, French President Emmanuel Macron said. The nation’s intelligence and law enforcement are devoting the necessary means to ensure there’s no terrorist attack during the games, he said Monday in an interview. Under the current planning for the July 26 ceremony, athletes will parade down the river in boats, with spectators viewing from the banks. “Depending on the analysis that we’ve done, if we think there are risks we have fallback scenarios,” he said. “There’s a Plan B and even a Plan C. We’re preparing them in parallel.”

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