Stanley Fischer’s impact on our journey as economists is both profound and personal. From the moment we encountered his co-authored textbook Macroeconomics—a work that distilled the complexity of the dismal science into practical, accessible insight—Fischer became a silent guide along our academic and professional path. But it wasn’t just his texts—it was his imprint on the entire field of macroeconomics that shaped us. He didn’t merely study macroeconomics; he helped define its modern contours.
Fischer’s intellectual architecture stands behind some of the most foundational frameworks in contemporary macro policy. His influence radiated through his groundbreaking research, his textbooks, and especially his students, who went on to helm central banks and global institutions. As chief economist of the World Bank during our own time there, he wasn’t just a senior figure; he was a beacon. His clarity of thought and firm grasp of both theoretical nuance and practical application brought coherence to chaos and helped us appreciate the true scale and responsibility of macroeconomic policymaking.
When we began grappling with the real-world stakes of fiscal reform and financial crises, it was Fischer’s example that pointed the way. From stabilizing Israel’s inflation-wracked economy to orchestrating IMF responses to systemic shocks in Asia and Latin America, he showed us that macroeconomics—done right—can be both precise and humane. He modeled a discipline anchored in analytical rigor but guided by ethical responsibility.
What stands out most, though, is Fischer’s legacy as a teacher. We were never in his classroom, but we worked with those he mentored—Bernanke, Draghi, Summers—and through them, learned much, the seriousness of purpose, clarity of thought, and devotion to the public good.
Stanley Fischer didn’t just teach macroeconomics; he embodied its highest ideals. We remember him not only as an intellectual giant but as the mentor we never met, whose influence quietly shaped every meaningful step of our professional journey.
Some sage advice and very relevant to the current economic situation.
Global markets ended the month of May on relatively firm footing, with equity indexes rebounding modestly, inflation easing slightly, and consumer confidence stabilizing. However, beneath this surface calm lies a deeper undercurrent of concern—a growing alarm over sovereign debt and deficits that is beginning to reverberate through financial markets, particularly in the U.S. bond market. As summer approaches, deficits and debt sustainability are poised to dominate financial and policy discourse, propelled by mounting warnings from influential voices in finance and an increasingly precarious fiscal landscape.
Market Snapshot
Markets digested a mix of macroeconomic signals during the holiday-shortened week. U.S. equities rallied early on news that President Trump postponed a 50% EU tariff, but ended the week below their highs due to revived trade friction with China and legal uncertainties surrounding the administration’s tariff authority.
Treasury yields, which had spiked the previous week, cooled off, with the 30-year bond slipping from its psychological 5% threshold. Meanwhile, PCE inflation data—closely watched by the Federal Reserve—showed a continued moderation, offering tentative hope for rate cuts later in the year.
Globally, the ECB is widely expected to cut rates in June, while Japan and China are contending with both inflation pressures and deteriorating industrial output. Latin America’s current accounts remain manageable, but risks tied to global trade policies persist.
Spotlight on Debt & Deficit
The most urgent issue facing global markets is not immediate trade disruption or short-term inflation—it is the increasingly untenable trajectory of U.S. government debt. This theme was sharply underscored in two pivotal developments this week:
Jamie Dimon’s Alarm Bell: The JPMorgan Chase CEO warned that the U.S. bond market could “crack” under the weight of federal debt expansion. “I just don’t know if it’s going to be a crisis in six months or six years,” he cautioned, referencing rising yields, foreign investor retreat, and mounting Treasury issuance.
Wall Street’s Pushback on Trump’s Tax Plan: According to a Washington Post investigation, top Wall Street executives have privately warned the Trump administration that its new tax package—projected to add at least $2.3 trillion in new debt—could destabilize bond markets and raise borrowing costs across the economy.
Investors are increasingly vocal, describing the tax plan as a “poisoned chalice” that could exacerbate term premiums and crowd out private investment. The Treasury’s ballooning $29 trillion market, already strained by high rates, faces diminished demand from foreign buyers and banks, many of which are urging regulators to ease bond trading restrictions to prevent a liquidity crunch.
Why This Matters: The Long-Term Implications
Rising deficits may feel abstract, but their impact is concrete: higher interest rates on mortgages, car loans, and business credit; lower government spending on essential services due to growing debt-service obligations; and potential erosion of confidence in the U.S. dollar as the global reserve currency.
The convergence of fiscal expansion, global de-dollarization trends, and mounting geopolitical tensions suggests that the bond market is at a critical inflection point. With the Congressional Budget Office projecting debt-to-GDP to exceed WWII-era highs and rating agencies like Moody’s already downgrading the U.S., this is not a distant threat—it is a present and pressing one.
Outlook: Summer of Reckoning
The summer of 2025 may mark a pivotal period in global market evolution. With major fiscal legislation under debate, expected central bank moves in the U.S., Europe, and Asia, and judicial rulings looming over tariff legality, investor sentiment may become increasingly reactive. The Treasury market will likely serve as a sensitive barometer for investor confidence in U.S. fiscal responsibility.
Expect further volatility in long-duration bond yields, persistent debates over deficit-financed growth strategies, and a growing chorus of market voices calling for structural fiscal reform.
Recommended Summer Reading: Understanding Debt and Deficits
To deepen understanding of these pivotal issues, consider these insightful books:
“This Time is Different” by Carmen Reinhart & Kenneth Rogoff – A historical analysis of sovereign debt crises and why fiscal excess often ends badly.
“Fiscal Reckoning: The Looming Debt Crisis and What It Means for You” by James L. Payne – A clear-eyed examination of the political and economic roots of America’s debt problem.
“Debt: The First 5,000 Years” by David Graeber – A broader anthropological and historical take on the social contracts behind monetary debt.
Markets may appear stable for now, but this equilibrium is fragile. As summer begins, the conversation must shift from short-term trade skirmishes to long-term fiscal strategy. The U.S. bond market’s ability to absorb vast new issuance without significant dislocation will define not only domestic financial conditions but also global capital flows and investment strategies. Investors, policymakers, and voters alike must confront the reality that fiscal sustainability is no longer a theoretical debate—it is an urgent, market-moving imperative.
Markets
U.S. Market Analysis
U.S. equity markets posted weekly gains despite late-session volatility, driven by easing Treasury yields and improved consumer confidence data.
The S&P 500 rose 1.88%, while the Nasdaq led major indexes with a 2.01% gain; small-cap indexes underperformed but finished in positive territory.
Treasury yields cooled after a strong 7-year auction, with the 30-year yield pulling back below 5%, calming recent rate pressure.
Trade tensions re-emerged after President Trump accused China of violating their trade deal, briefly reversing earlier gains in tech stocks.
Positive inflation data and delayed EU tariffs helped sustain bullish momentum through most of the week.
Global Market Analysis
European stocks advanced modestly, supported by softening inflation and postponed U.S. tariff hikes; the STOXX Europe 600 added 0.65%.
Japan’s Nikkei 225 rebounded 2.17% as U.S.-Japan trade talks showed signs of progress, while BoJ policy remained steady amid strong Tokyo inflation.
Chinese markets declined slightly due to light economic data and limited trade news; infrastructure stimulus is expected to support growth in the near term.
Hungary’s central bank left its base rate unchanged at 6.50%, citing persistent inflation risks and uncertainty tied to global trade dynamics. Policymakers flagged potential upside risks to inflation from international market volatility and maintained a restrictive stance.
South Korea’s central bank cut its policy rate by 25 bps to 2.50%, responding to expectations of slowing domestic growth. Officials noted stable inflation near 2% but expressed concern over rising household debt and currency volatility under accommodative conditions.
Economics
U.S. Economic Overview
April’s core PCE inflation cooled to 2.5% YoY—the lowest since 2021—boosting market expectations for potential Fed rate cuts later in 2025.
Consumer confidence rebounded sharply in May, with the Conference Board index rising to 98.0, breaking a five-month decline.
The U.S. bond market remains under scrutiny as Wall Street and policymakers grow increasingly concerned over the sustainability of federal deficits.
Jamie Dimon and other financial leaders warned of an impending “crack” in the Treasury market if debt levels continue rising unchecked.
A federal court’s temporary block on Trump’s tariffs raised short-term uncertainty, though markets appeared resilient in the face of legal and policy volatility.
Global Economic Overview
The ECB is widely expected to cut rates next week as headline inflation eased in Spain, Italy, and France, reinforcing a dovish policy outlook.
Germany reported a larger-than-expected increase in unemployment and weakening business sentiment, highlighting diverging growth patterns across the EU.
Japan’s Tokyo core CPI rose to 3.6% YoY in May, the highest in over two years, while industrial production and job data signaled a mixed outlook.
China’s economy showed signs of stabilization, but structural reforms remain elusive; planned infrastructure investment may support momentum into Q3.
Hungary’s inflation outlook remained elevated, with core inflation at 5.0% in April. Central bank officials emphasized caution amid tariff-related uncertainty and vowed to maintain tight monetary conditions to anchor expectations.
South Korea’s economic growth forecast was revised down, with policymakers anticipating modest recovery in domestic demand. Inflation is expected to hover around 2%, while exports face downside risks from U.S. tariffs and slowing global demand.
Week Ahead
Key U.S. & Global Events
Markets will watch for White House commentary following renewed tariff threats against China and the EU.
G7 meetings in mid-June may set the stage for broader policy coordination on trade, fiscal strategy, and geopolitical risk.
Legal proceedings related to U.S. tariff authority could shape investor sentiment around trade and inflation expectations.
Upcoming Economic Data
Monday: ISM Manufacturing Index, Construction Spending
When President Donald Trump took office in January 2017, he inherited a relatively stable fiscal environment. The federal budget deficit stood at approximately $581 billion, or 3.05% of GDP—a level widely regarded as sustainable by historical standards. Ironically, that same 3.0% benchmark has since resurfaced as the stated deficit target for the Trump 2.0 administration.
Trump 1.0
Early in his first term, President Trump pledged to restore fiscal discipline and reduce the deficit. However, those ambitions quickly faded amid sweeping legislative changes. The passage of the Tax Cuts and Jobs Act of 2017 reduced federal revenues, particularly from corporate and individual income taxes, while discretionary spending, most notably on defense, continued to climb. As a result, the deficit steadily expanded throughout Trump’s first term.
COVID Deficits
The fiscal situation worsened dramatically in 2020 with the outbreak of the COVID-19 pandemic. In response to the public health emergency and economic shutdowns, the federal government launched a series of massive relief packages, including direct stimulus payments, enhanced unemployment benefits, and business assistance programs. While these measures were crucial in mitigating the economic fallout, they came at a steep fiscal cost. By March 2020, the rolling 12-month deficit had already reached $1.036 trillion (4.77% of GDP). Within months, it ballooned to $3.35 trillion, or 15.17% of GDP, by the end of Trump’s first term.
Federal Reserve Financing of COVID Deficits
This explosion in borrowing marked the largest one-year deficit expansion since World War II, underscoring the magnitude of the crisis and the aggressive fiscal response. What began as an effort to rein in a manageable deficit quickly morphed into an era of unprecedented federal borrowing, all or most of it monetized by the Federal Reserve, laying the groundwork for subsequent inflationary pressures and long-term fiscal challenges (see, No Trouble… table below).
Biden Administration
President Joe Biden inherited this fiscal turbulence, taking office with a deficit nearing 15% of GDP. His administration enacted additional large-scale spending, including the American Rescue Plan, while also attempting to wind down pandemic-era outlays. Although the deficit declined from its peak, it remained far above pre-pandemic norms. By December 2024, at the close of Biden’s term, the rolling 12-month deficit was $2.03 trillion (6.84% of GDP) and ticked up slightly to $2.07 trillion (6.92% of GDP) by March 2025. The cumulative deficit during Biden’s tenure reached $7.8 trillion, or 26.3% of GDP, mirroring the scale of Trump’s borrowing.
Fiscal Revenues
On the revenue side, thus far during FY 2025 (October 2024–April 2025), individual income taxes were the largest source, totaling $1.681 trillion, up 7.0% from the prior year. Social insurance and retirement receipts followed at $1.018 trillion (+3.5%), while customs duties surged 34.4%, likely reflecting renewed tariff enforcement. In contrast, corporate tax revenues fell 9.2%, signaling economic softness or increased use of tax offsets.
Government Expenditures
On the spending side, the Department of Health and Human Services led all agencies at $1.058 trillion, a 10.7% year-over-year increase. Social Security expenditures rose 8.7% to $945 billion, and interest on the national debt jumped 9.6% to $684 billion—now exceeding defense spending ($509 billion) by over 30%, highlighting the growing weight of debt service in an era of higher interest rates.
In sum, the U.S. fiscal trajectory over the last two presidential terms has shifted from post-recession recovery under Obama to crisis-driven deficits under Trump, and into a structurally imbalanced, high-deficit environment under Biden. The road ahead requires confronting unsustainable entitlement growth, rising interest burdens, and sluggish revenue expansion, while safeguarding the broader economic foundation.
The big question is: can we get there before investors throw in the towel and a bond market crisis erupts?
Remembering our fallen – the best of the best – in France.
Every year, I share this video of French caretakers who take sand from Omaha Beach in Normandy, and scrub them into the letters to give them the gold coloring.
On this Memorial Day, let us pause—not just for a moment, but with full hearts—to remember the men and women who made the ultimate sacrifice. Their courage, their devotion, and their willingness to lay down their lives are the very reasons we are free to gather, to speak, to live, and to hope.
It has been said—perhaps callously —that “a single death is a tragedy, a million deaths a statistic.” But today, we push back against that cold arithmetic. Today, we say each life matters. Each name etched in stone is someone’s son, someone’s daughter, someone’s love. Their absence is not a number—it is a wound felt in homes, in memories, in empty seats at the table.
Some of us know that grief firsthand. Some have felt that sharp, silent moment when the knock comes at the door and time stands still. Others have been spared that pain, but few among us do not have, somewhere in our family tree or in our circle of friends, someone who answered the call and never came home.
So today, let us remember them—not just as soldiers, but as people. Let us summon empathy, and let that empathy stir us to action. Comfort those who mourn. Stand with those who carry silent sorrow. Uplift those who feel forgotten.
And most of all, live with gratitude. Let your freedom remind you that it came at a cost. Let your daily joys be acts of honor for those who can no longer share in them.
Take courage, as they did. Live well, as they hoped we would.
And let us never, ever forget.
Thank you. Gregor
It’s staggering to consider that the Civil War claimed the lives of roughly 750,000 Americans—about 2% of the population at the time. To put that in perspective, it would be equivalent to losing over 7 million people today. In the wake of such immense national grief, Americans across the country began holding tributes to honor those who had fallen. These observances coalesced into what became known as Decoration Day, a solemn tradition of adorning soldiers’ graves with flowers and flags. The first official nationwide commemoration took place on May 30, 1868, as declared by Union veterans’ leader General John A. Logan. Chosen because it was not the anniversary of any particular battle, the date symbolized unity and remembrance. Over time, Decoration Day evolved into Memorial Day, a national holiday dedicated to honoring all U.S. military personnel who gave their lives in service. What began as a gesture of mourning became a cornerstone of national memory and gratitude.
Last week’s Global Risk Monitor (GRM) warned of potential instability in global tariff negotiations, and unfortunately, those concerns proved prescient. Markets stumbled under the weight of fiscal volatility, erratic policy pronouncements, and renewed trade threats—all driven by the chaotic and impulsive style of President Donald Trump. The deterioration in investor confidence was not merely a reaction to weak economic data or disappointing earnings; rather, it was the product of policymaking that has come to resemble more of a hostile boardroom than a functional democracy.
Trump’s latest salvo—a proposed 50% tariff on European Union imports and a 25% penalty on iPhones—has thrown global supply chains and diplomatic alliances into disarray. These punitive measures, which followed a social media tirade declaring that trade talks with the E.U. were “going nowhere,” came without congressional input or interagency coordination. Apple’s stock fell over 7.6% for the week, wiping billions in market value, a move emblematic of the broader market damage caused by unfiltered threats and unpredictable governance.
New Jersey Generals
This isn’t the first time Trump has weaponized unpredictability as a strategy. One need only revisit his ill-fated foray into professional sports with the New Jersey Generals in the USFL. Then, as now, Trump demonstrated a profound misunderstanding of strategic pacing, long-term coalition building, and institutional integrity. His push to move the USFL to a fall schedule—directly challenging the NFL—was driven more by ego, revenge, and spectacle rather than viability. The result? Collapse. And it’s hard to ignore the parallels: antagonizing allies, ignoring systemic constraints, and opting for maximalist stances that backfire economically and diplomatically.
Flop and Chop
Markets this week bore the brunt of that same impulsiveness. The S&P 500 dropped 2.6%, the Dow fell 2.2%, and the Russell 2000—particularly sensitive to fiscal and trade shocks—plunged 3.5%, extending its year-to-date loss to 8.6%. Small caps, discretionary stocks, energy, and tech all led to the downside. Treasury yields spiked following a disastrous 20-year bond auction, sending the 30-year yield to a cycle high above 5%. The root cause? Rising fiscal deficits, compounded by Trump’s budgetary “Big Beautiful Bill,” add more long-term debt, undermining the U.S.’s creditworthiness.
Despite positive May PMI data showing a modest rebound in U.S. business activity, any optimism is being offset by a resurgence in price pressures, most of them, ironically, linked directly to tariffs. Export orders fell, and supply chain delays worsened. Chris Williamson of S&P Global noted that much of the demand surge was likely front-running further policy risk. Companies aren’t investing in growth—they’re bracing for another round of economic whiplash.
Threat of Retaliation
Even America’s allies are growing wary. The EU is preparing a carefully measured but firm response to Trump’s tariff threats, signaling the potential for a tit-for-tat escalation that markets are ill-prepared for. Japan, similarly, has hardened its negotiating position amid Trump’s economic belligerence, recognizing the dangers of being dragged into a game of political brinkmanship that endangers long-term regional stability.
And while Trump insists these moves will “bring back jobs,” the data suggests otherwise. Manufacturing gains remain elusive, with firms citing labor shortages, automation challenges, and investment hesitancy—issues that tariffs alone cannot solve. As his tenure in the USFL compellingly illustrates, Trump has long confused aggression with strategy and disruption with innovation. The net result—then and now—is institutional erosion and self-inflicted damage.
Heavy Metal Rock & Roll
Gold, copper, and platinum all surged this week, up 5%, 6%, and 10% respectively—some some, of which are traditional hedges in times of political instability. Meanwhile, the dollar weakened 2% and the Chicago Fed’s NFCI showed significant easing in financial conditions, more a function of defensive repositioning than macro strength.
In conclusion, the current administration’s erratic policymaking, marked by threats instead of treaties and volatility instead of vision, is exacting a growing toll on markets, governance, and global credibility. Like the USFL, this experiment in economic brinkmanship may well end not in resurgence but in collapse. Investors, allies, and citizens alike would be wise to prepare for more turbulence unless—and until—strategic sobriety returns to the helm.
Markets
U.S. Market Analysis
U.S. equities declined across the board, with small- and mid-cap indices underperforming; the Russell 2000 fell over 3.5% on the week, now down 8.6% YTD.
Market pressure intensified after a weak 20-year Treasury auction and a surge in long-term yields, signaling increased investor concern over fiscal stability.
President Trump’s announcement of a proposed 50% tariff on EU goods and a 25% tariff on iPhones triggered a late-week selloff, contributing to a sharp pullback in tech stocks, including a 7.5% drop in Apple shares.
The Dow Jones Industrial Average and S&P 500 closed the week back in negative territory for the year, reversing gains from the prior week.
Global Market Analysis
European equity markets were shaken by tariff threats from the U.S., with the EU preparing limited but deliberate retaliatory measures.
Japan’s financial sector faced headwinds amid a sharp rise in domestic bond yields and pressure from rising global interest rates.
Chinese markets were supported by a continued pause in U.S.-China tariff escalation, although the absence of structural reform progress remains a concern.
Economics
U.S. Economic Overview
Moody’s downgraded U.S. sovereign debt, citing mounting deficits and fiscal risk, pressuring Treasury markets and contributing to yield curve volatility.
April existing home sales dropped to their lowest level since 2009, while new home sales surprised to the upside, albeit amid declining median prices.
Flash PMI data for May showed a rebound in both manufacturing and services sectors, but firms warned that tariffs were driving input costs higher and export orders lower.
Inflation expectations surged: 1-year expectations hit 7.3%, their highest since 1981, intensifying concerns about future consumer behavior and purchasing power.
Global Economic Overview
Eurozone trade surplus hit a record high, supported by March’s robust industrial production; however, services PMIs declined, reflecting uneven growth.
Japan’s core CPI strengthened into the new fiscal year, with inflation led by food and services.
China’s retail sales moderated in April but remained stronger than Q1 averages, while industrial production growth slightly outperformed expectations.
Week Ahead
Key U.S. & Global Events
Investors will monitor formal responses from the EU regarding retaliatory trade measures following Trump’s 50% tariff proposal.
The White House’s public messaging on trade, particularly in relation to Japan and Apple, will be key for sentiment.
G7 meetings in Canada could serve as a backdrop for coordinated pushback or policy alignment on U.S. trade actions.
Manufacturers stocked up on inputs, generally citing concerns over potential tariff-related price increases and supply shortages, the latter reflected in suppliers’ delivery times lengthening in May to the greatest extent since October 2022. The increase in buying activity was the highest since July 2022 and the resulting rise in inventories of purchases was the largest recorded in the 18-year survey history.
Prices
Average prices charged for goods and services jumped higher in May, rising at a rate not witnessed since August 2022, when pandemic-related shortages caused widespread price inflation.
An especially steep rise was seen for manufacturers’ selling prices, which posted the largest monthly increase since September 2022. Charges levied for services rose to the greatest extent since April 2023
The latest rise in output prices was overwhelmingly linked to tariffs, having directly driven up the cost of imported inputs or caused suppliers to pass through tariff-related cost increases. Manufacturing input costs rose at the sharpest rate since August 2022 while service sector costs rose at the fastest rate since June 2023. – S&P Global
Global Macro Monitor 