The Higher-Rates Narrative: A Rebuttal

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Alongside the recent increase in U.S. interest rates has been the emergence of a narrative justifying it. A recent Wall Street Journal article nicely described the Fed’s version of the higher-rates narrative. The hedge fund version was eloquently put forward in a post on X (formerly Twitter) by Bill Ackman. While the hedge fund camp’s arguments are certainly compelling, there is a more compelling set of counterarguments, which I lay out below.

Deglobalization and wage pressures

Ackman started out his piece with the following:1

“I believe that long-term rates, e.g, 30-year rates, will rise further from here. As such, we remain short bonds through the ownership of swaptions.

The world is a structurally different place than it was. The peace dividend is no more. The long-term deflationary effects of outsourcing production to China are no more. Workers and unions’ bargaining power continues to rise. Strikes abound, with more likely to come as successful walkouts achieve substantial wage gains.”

The peace dividend is hardly gone. Though there are many tragic counterexamples, the global trend towards fewer war deaths that started in the wake of the Second World War is still in place to all of our benefit. It is true that outsourcing to China is being reduced – to a large extent because Chinese wages have gone up – but global trade and outsourcing have not diminished, with some countries like Mexico and Vietnam benefiting from the pivot away from China.

While there is evidence that these trends are leading to wage pressures in the U.S., this is more of a slow transition away from China than an abrupt shift towards deglobalization. Furthermore, the UAW strike targeting Detroit’s big three is driven largely by the union’s attempt to regain concessions given to the auto manufacturers during the global financial crisis (GFC), rather than an inflation-triggered demand for higher wages. Given the concession catalyst for the UAW strike, it is far from clear whether workers in other industries will follow suit and whether they have enough leverage to do so, even if they want to.


“Energy prices are rising rapidly. Not refilling the SPR was a misguided and dangerous mistake. Our strategic assets should never be used to achieve short-term political objectives. Now we must refill the SPR while OPEC and Russia cut production.”