Jon Sindreu

A dire economy, higher unemployment and weaker price rises forced officials to lower borrowing costs to 3.75% from 4%. But deeper cuts are needed to stop the central bank from falling behind the curve. Instead, many policymakers remain distracted by temporary services inflation.

The Bank of Japan raising rates to a three decade high has pushed 10-year domestic bond yields less than 200 basis points below US Treasuries. It stirs fears of an economy that once bought $200 bln of foreign securities a year becoming a seller. But any shift will unfold slowly.

Caracas’ bonds soared after Donald Trump replaced its leader. Yet the country won’t generate much revenue even if it can raise oil production to 2.5 mln barrels a day, Breakingviews calculations show. Unless crude prices jump, buying the country’s defaulted debt may not pay off.

Ratesetters ​are focused on how ⁠the Gulf ​war is affecting ​energy and gas prices, but fertiliser shortages are ​a big ​problem. Historically, food impacts rich ‌nations’ ⁠core inflation 10 times more than energy, and ​takes longer ​to ⁠unwind. In poorer countries, ​the impact is ​starker.

The IMF’s spring meetings buzzed ⁠with talk of ​a 13 mln ​barrel a day oil shortfall reshaping economies, rates and ​defence alliances. Yet ​US officials treated it as ‌a ⁠sideshow. Even if Hormuz opens fully, they'll have to reckon ​with ​the ⁠bleak consequences of the war ​with Iran.

Washington has ‌flagged it would give the Gulf state financial assistance if it so needed. The US also says ​the UAE may not need a ​full dollar swap line. With financial buffers ⁠over 500% of GDP, and less apparent need ​for a 2009-style Dubai bailout by Abu Dhabi, ​that looks right.

American households only spend about 4% of their income on energy, compared ​with 5% ahead of the ​1990 energy shock. Yet a prolonged ⁠Gulf conflict may strain their budgets ​a lot more than back then. ​The chances of a downturn, even for the AI-powered US economy, are rising.

Lenders ​on either side of ⁠the Atlantic ​want to exclude government ​bonds from balance sheet limits. That’s risky, ​but better than ​leveraged investors loading up: ‌UK ⁠hedge funds have borrowed 100 bln pounds to buy ​gilts. ​It’s ⁠better for taxpayers if banks ​do the ​stockpiling.

Keir Starmer, or his ⁠successor, faces ​a tricky gilt ​market, angry electorate, and a general election in ​three years. ​They would benefit from ‌ditching ⁠vague economic goals to embrace a few high ​impact policies. ​Redirecting ⁠2% of GDP from ​benefits into ​new ⁠homes could do the trick.