Notes on the Week Ahead Underreacting and then Overreacting to Policy Shocks
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Jul 14, 2025 The discussion dives into the contrasting resilience of U.S. financial markets versus the volatility of the UK gilt market during policy shifts. It highlights how American markets remain steady despite turmoil, while the U.K. reacts drastically to minor shocks. The podcast also delves into the economic repercussions of recent immigration and employment policies, spotlighting workforce challenges and potential job cuts that could spark further instability. Amidst these changes, it questions whether calmness under pressure is truly attainable.
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UK vs US Market Calmness
- UK gilt markets are much more sensitive to policy shocks than US markets.
- US markets have developed resilience due to frequent abrupt policy changes in Washington.
Delayed Impact of US Policy Changes
- Radical new US policies since early 2025 have not yet changed inflation or unemployment significantly.
- Other factors like AI excitement and lower gas prices may be offsetting policy impacts so far.
Tariff Revenue Lags Statutory Rates
- US tariff revenues have risen sharply but still reflect a fraction of statutory tariff rates.
- Delays in tariff enforcement and exemptions on goods shipped before new tariffs cause this lag.