The private credit market raises many questions, and its lack of transparency is not helping. Official public data remain scarce. The available estimates come mainly from private sources, whose methodologies vary widely. The Financial Accounts of the Federal Reserve (Fed) now shed new light on the matter. They reveal that private credit finances 7.1% of US corporate debt through households (31% of funds’ total financing), insurers and pension funds (20%), and banks (19%).
The FOMC meeting on September 15–16 is expected to mark a turning point with the Fed’s first rate hike since May 2023. While there may have been economic reasons to hold off and maintain the status quo until now (some negative signals on the employment front and some encouraging ones on the inflation front), the conditions for a necessary recalibration now appear to be in place.
Central bank independence is not as hard-wired in modern institutions as they might appear to anyone born after the 1970s. That it went largely unchallenged in its first thirty years of history owes much to economic circumstances. But in today’s world of supply shock-driven inflation and large public debts, central banks face a much harder task. A series of controversial decisions since the global financial crisis, and years of above-target inflation leaves them more vulnerable than ever to political attacks on their independence. It is imperative to defend it, as there will be large costs to pay if it is lost.
23 June will mark the tenth anniversary of the Brexit referendum, which led to the UK’s official exit from the European Union on 31 January 2020 (followed by a transition period). Since then, the country has indeed regained control over certain policy domains, such as trade, migration and regulatory frameworks. However, both the anticipation of Brexit and its actual implementation in 2021 have been linked to a decline in the country’s performance across several key indicators. Against a backdrop of escalating geopolitical tensions and mounting shared challenges, the UK is now seeking to re-establish practical collaboration with its main economic partner: the European Union.
The US is pushing forward with banking deregulation. Following an in-depth review of capital requirements, the authorities have now prioritised easing liquidity rules, in a move aimed at restoring the Fed’s role as lender of last resort and potentially enabling it to shrink its balance sheet. Yet one key lesson from the March 2023 banking turmoil could potentially be overlooked: the need to expand the scope of liquidity regulations, which currently apply to far fewer institutions in the US than in Europe.
As in 2022, the energy shock will affect emerging and developing economies. Today, as in the past, this shock is a negative-sum game between importing and exporting countries. Furthermore, although this is basically a supply shock, central banks in emerging economies may tighten their policies if they need to counter downward pressure on exchange rates, in order to prevent inflation from rising too sharply. However, compared to 2022, there are mitigating factors: 1/ the absence of a shock to agricultural commodity prices so far; 2/ AI, which is an external growth driver for Asian countries in particular; and 3/ the Fed is expected to adopt a more accommodative stance than in 2022 in response to the anticipated rise in inflation
Ageing populations, rising long-term interest rates and increased defence spending are adding to the difficulties for public finances across the OECD. While fiscal consolidation – which can be measured by an improvement of the primary balance by at least 3% of GDP in 4 years – is essential for several member states, this is easier said than done. What can we learn from analysing 20 years of European public finance? Historical examples from EU countries show that expenditure-led consolidation can be an effective approach and tends to support stronger growth after it is completed.
Kevin Warsh is set to succeed Jerome Powell as Federal Reserve Chair in May 2026, pending Senate confirmation. President Donald Trump has picked a figure whose public and private track record is likely to reassure the financial markets. While Warsh has advocated lower rates and a reduction in the central bank's balance sheet, he will probably be constrained in his plans. Therefore, we do not expect any material shift in monetary policy in the short term.
The FOMC decided to keep interest rates steady at 3.5% – 3.75% at its 27–28 January meeting, following three consecutive rate cuts at the end of 2025. Solid economic growth and easing concerns about employment prompted this decision, and we now expect the Fed Funds target range to remain stable throughout 2026, with no interference from the question of Chair Jerome Powell's replacement. As such, the Fed would join the ECB in maintaining the status quo. The Bank of Japan and the Bank of England would continue to be exceptions: the former by raising rates and the latter by continuing its gradual easing.
The issue of European sovereignty has been on everyone's mind recently. Among its many dimensions, sovereignty in retail digital payments is often cited as an urgent gap to be filled. In fact, two-thirds of digital payments in the Eurozone rely on non-European providers, mainly American. However, this situation is not inevitable, and 2026 could well be the year when a European alternative takes off and reaches critical mass.
Since 1 January 2025, banks in the European Union have had to consider the loan-to-value (LTV) ratio of loans to households for house purchases when calculating their regulatory capital. This new prudential requirement is ill-suited to the French market. The criteria for granting home loans are based mainly on the debt service-to-income ratio, leading to historically low default rates. However, since mid-2025, the supervisor has been paying increasing attention to the LTV of home loans in France, which is fuelling concerns about higher borrowing costs and an increase in down payment rates.
Most years fade into the background as soon as a new one starts. Not 2025: a year of epochal shifts, in which the macroeconomy was the dog that did not bark. What to expect in 2026? The shocks of 2025 will not be undone, but neither will they be repeated. Instead, their effects will work their way through the system, in ways that are unlikely to be linear and smooth. In the baseline scenario, the macroeconomy will remain a dog that does not bark, either out of alarm or joy. However, there are a few potential path changers to look out for. Chances are, then, that 2026 will not feel any smoother on a day-to-day basis than its predecessor. However, that will not mean good outcomes cannot be reached for those who keep their heads.
While the Fed eased its monetary policy on 10 December for the third consecutive FOMC meeting, without making any guarantees about future action, the Bank of England (BoE), the ECB and the Bank of Japan (BoJ) are holding their respective meetings this week. The BoE is expected to cut its key interest rate, the ECB to keep it steady, and the BoJ to raise it. These decisions come amid resilient growth performance despite shocks, which should lead central banks to remain cautious, whether in terms of easing (a residual cut expected for the BoE and none for the ECB) or raising key rates (which should remain a gradual process in Japan). This climate of monetary policy neutrality could be accompanied by greater pressure on long-term sovereign rates than during the period of monetary easing.
September's US employment figures reported the highest payroll growth since April (+119k). However, this fairly positive reading could prove short-lived due to the impact of the government shutdown. For the Fed, these developments add to the uncertainty surrounding its December meeting. We are still expecting a 25bp rate cut, which is now a close call.
There has been remarkably limited interest in Europe at recent international economic and financial gatherings, as if “Europe’s moment”, as ECB President Lagarde dubbed it back in the Spring, has already passed in the eyes of many. Meanwhile, European media outlets have been indulging in negative narratives about political risks, persistent industrial doldrums, and inability to implement reforms that might preserve Europe’s place in a world increasingly dominated by the US and China. And yet, under the radar, a lot of good things have been happening.
Today's deficits are tomorrow's taxes. Therefore, it is logical for households to save rather than spend the public transfers they receive, since these are incurred through debt and will eventually need to be repaid.
Following PwC in June, the ECB presented its own assessment of the costs of a digital euro for banks in the Eurozone. Thanks to extensive cost synergies, their initial investment over the first four years, estimated at EUR 18 billion by PwC, would, according to the ECB, be within a more modest range (between EUR 4 and 5.77 billion). But this amount, which has attracted a lot of attention, is not the only issue at stake, as the recurring cost of replenishing banks’ reserves with the Eurosystem could, in the long term, weigh more heavily on financing conditions.
Responding to tangible signs of tension in the money markets, the Fed announced the end of its QT effective on December 1. In line with its operational framework, the Fed will maintain the size of its balance sheet for some time. Subsequently, to ensure its supply of reserves remains at a sufficiently “ample” level, it will increase it again. However, the Fed should be more cautious.
The Fed eased its monetary policy, with two expected announcements: the end of the central bank's balance sheet reduction process from 1st December; and a second straight cut (-25 bp) in the Fed Funds target, without unanimity, bringing it to +3.75% - +4.0%, due to downside risks in the labour market. We anticipate a further 25bp cut in December, driven by the Fed's bias towards employment and downward revisions to our inflation forecasts for the coming quarters. However, this easing cannot be taken for granted, as J. Powell insisted on keeping options open ahead of the upcoming meeting.
The unexpected element lies in the (highly likely) lack of surprises. The suspense surrounding the outcome of the FOMC meeting on 28-29 October and the ECB meeting on 30 October is, in reality, quite limited: a further 25 bp cut by the Fed and a continuation of the stance for the ECB are expected. In doing so, by narrowing the gap between policy rates and the extent of restriction in US monetary policy, the Fed's stance is aligning more closely with that of the ECB rather than moving away from it. Such a simultaneous lack of suspense for both central banks is uncommon, especially given the overall economic environment, which remains fraught with uncertainty.
Anxious relief, such was the mood in Washington DC last week during the Annual Meetings of the International Monetary Fund (IMF), from official and private sector participants alike. Relief that the global economy, and all its regional parts, are doing much better than expected in the Spring despite the US tariff shock. Anxiety that underneath the recent benign economy and markets, tectonic shifts are underway, still in their early stages and poorly understood.
Low in fat, high in fibre, with a large proportion of fruit and vegetables: in terms of health, the virtues of the Mediterranean diet are well-established, but what about in economic terms? For the past decade, the countries of the Economic and Monetary Union (EMU) forming the Mediterranean ‘arc’ (France, Italy, Spain, Greece) have been following a similar diet, aiming to improve their competitiveness. We take a look at this in our Chart of the week.
Modernity sometimes conceals, under new guises, a return to old precepts: a currency backed 100% by the safest assets, bank deposits guaranteed by tangible reserves, the search for unfailing financial stability. Stablecoins (digital tokens backed by highly safe and liquid assets) are part of this logic. However, in our modern economies, banks only keep a small fraction of deposits in reserve with the Central Bank: this is the principle of "fractional reserves" which gives them the ability to create money (the remaining deposits can be allocated to credit). Beyond the intellectual interest that they attract, stablecoins raise a broader question: if their use were to become widespread, would they not risk making it more difficult to finance the economy?
The Treasury market is one of the pillars of the global financial system. This is due to its size and liquidity, its role in setting borrowing conditions, and the safety that these securities provide.However, the announcement of so-called 'reciprocal' tariffs last April caused turmoil in the market, reminding us that Treasuries had become more sensitive to periods of stress…
What is the impact of the new US tariffs on the customs duties imposed on each country's exports as a whole? Estimates of the "average effective external tariff" show that the shock remains relatively limited for the European Union and the United Kingdom. The framework agreement signed on 27 July between the EU and the US imposes a uniform tariff of 15%, incorporating pre-existing tariffs, and includes a most-favoured-nation (MFN) clause for certain strategic sectors (aeronautics, certain pharmaceutical and chemical products).
