Reuters Econ World: Vigilantes, central bankers and Trump

By Carmel Crimmins

Jan 16 - Hello there,

We're inching towards the inauguration of Donald Trump, and it's suddenly feeling very retro for economists who lived through the 1990s.

"Bond vigilantes," once declared the nemeses of President Bill Clinton, are rearing their heads as a force for the incoming U.S. leader to contend with as he implements his agenda.

My colleagues on the finance team in the United States and the UK have taken a close look at this check on Trump's power.

Their review found several economic indicators are flashing red, and interviews with two dozen policymakers, economists and investors, including Trump advisers, reveal a risk of bond vigilantes stepping up.

The ripple effects around the world could, of course, be catastrophic. As my colleagues on the Viewsroom podcast delve into: UK policymakers are being forced to rethink policy.

Whether the chaos of the bond market has peaked or still has a ways to run, the UK economy is still in need of the kickstart promised by the Labour government.

GDP returned to growth in November, the first month after finance minister Rachel Reeves introduced tax increases for businesses, but the expansion was smaller than expected.

Meanwhile, the European Central Bank will continue to lower its interest rates to about 2%, says policymaker Mario Centeno.

Declaring inflation in the euro zone generally under control, he described the coming process of lowering rates would be "gradual over the next few months."

The timing of Fed interest-rate moves, however, is likely to influence the ECB, along with monetary policy around the world, Trump, bond vigilantes and regular traders.

We'll be watching closely.

As always, I'd love to hear from you. Find me on LinkedIn.

The headlines

• Republicans in Congress warn rising US bond yields could hit Trump's tax cut plans

• Pharma digs in on changes it wants from Trump's administration

• Dollar rules as investors eye Trump's economic policies

• Morning Bid: Inflation relief and bumper bank earnings

The chart

The U.S. debt-to-GDP ratio is pushing 100%, double the level in Clinton's time. Left unchecked, by 2027 it's projected to exceed the records set after World War Two, when the government borrowed heavily to fund the war effort.

The podcast

“ Everybody is kind of freaking out about this... Is the bond market finally seeing the advent of the bond vigilantes? ... But of course over in the UK it's getting even more acute than that..."

- Jonathan Guilford, Breakingviews columnist

Rising yields on long-term U.S. debt are having ripple effects across the globe. Leaders in Britain and beyond may be forced to rethink their policies. Listen to our sister Viewsroom podcast hosted by Breakingviews columnists Aimee Donnellan and Jonathan Guilford.

The real world

• Hanoi: Data from Trump's first run at upending trade shows U.S. imports shifted away from China to other countries, especially Mexico and Vietnam.

• Beijing: Economic woes not a dealbreaker as Chinese New Year travel begins

• Vienna: Ukrainian migrant exit could squeeze Eastern European economies

The week ahead

• Jan 19: TikTok prepares to shut down app

• Jan 20: Inauguration of Donald Trump

• Jan 21-24: World Economic Forum in Davos

(Editing by Rod Nickel)