Geopolitics & macro policy

History shows that big power geopolitical rivalry shapes fiscal and monetary policy: expect more expansive macro policy

I spent time before Christmas reading through a mountain of 2024 notes from investment banks.  There were common themes, such as a slowing global economy as well as ongoing reductions in inflation and interest rates.  Geopolitics was also widely thought to be central to the global outlook, with increased global economic fragmentation and the potential for global supply chain disruptions. 

But the changed geopolitical environment will have a broader economic impact in 2024 and beyond: intense strategic competition will also shape macro policy. 

The common macro policy outlook for 2024 is that there will be some tightening of fiscal policy across advanced economies in response to high debt levels; as well as loosening monetary policy as inflation moves back to target levels.  However, the contingency of macro policy on the geopolitical environment is likely to contribute to a more complex path for fiscal outcomes, inflation, and rates.

History rhymes

The historical record over the past seve…