Geopolitical Update : Why Markets continue to get the Pivot wrong – Lower Rates, Elections.

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By Christian Takushi, Macro Economist, Switzerland – 4 May 2023 (Public release adapted and truncated)

Dear reader

After the latest FED policy moves, we have tested our working hypotheses and reviewed our assessments.

I remain convinced that markets are still getting the “pivot” wrong, because they are not fully aware of what the Big Picture is. The pivot being the long awaited shift from restrictive monetary policy to loose monetary policy by the FED. Stock investors are betting since the end of 2022 on the FED signalling or beginning to cut interest rates. Many investors and banks are suffering heavy losses, because of this.

Not grasping the Big Picture becomes costly

What is the biggest single factor shaping the Global Macro Picture since 2019? Emerging Markets are rising and now overtaking the Western nations in terms of economic power.

Having procrastinated during 40 years to address their structural deficits and having become highly indebted and saddled with huge asset bubbles, the so-called rich nations are now being overtaken by younger, powerful and confident emerging nations – some of them have much healthier economics than we in the West.

Change in priorities for Washington – The threat emanating from the BRICS and heir allied large emerging & developing nations (62% of the world population with a larger economic weight than the West) that are challenging the USD and our Western financial system is so existential for the USA, Washington cannot afford to prioritise investors and US economic growth in 2023.

The FED is handling inflation and economic growth, but  increasingly also defending US strategic interests.

The rise of powerful Emerging Markets and the struggle for supremacy by America explains, in my opinion, probably 80% of all we have witnessed and are witnessing in the world in the past three-four years.

(Chart removed)

FED and Treasury defending US strategic interests 

The FED and Treasury joined the fight to defend the USD and NATO three years ago and they are still at the core of a concerted effort that now also fully encompasses foreign policy and the military (as NATO deals with the invasion of Ukraine by Russia).

The biggest priority of FED and Treasury is to defend the strategic interests of America, and momentarily domestic factors are a secondary priority. To overlook this comes at a massive cost as so many banks and investors are realizing. Many banks did not increase their liquidity buffers despite massively increased geopolitical and inflationary strains.

Even more so, because the collapse of small and regional banks would also help advance the G7 consolidation strategy of a “larger role for the state” along larger banks and larger companies as well. Therefore the demise of regional banks is to some extent a welcome side effect of high US interest rates.

I therefore reiterate my assessment that Washington will keep interest rates at elevated levels for as long as possible. Probably for longer than investors and business leaders may like or understand.

For the same reasons the FED waited one full year before raising interest rates. Markets said it was Jerome Powell’s incompetence. I disagree, it was intentional (“inflation is temporary” was necessary to maximize the impact of the rate shock) to put maximum pressure on China, Emerging and Developing Nations.

In a war, if something hurts you, but it hurts your adversary even more, you do it.

Washington took most Emerging Markets and BRICS by surprise, but now they are responding .. and Washington, we ascertain, has put together a plan that could allow it to lower interest rates ahead of the 2024 elections. The problem is the pain it brings forward to 2023 and the uneven impact it will have.

Into the 4th year of global economic hostilities

The USA is in an economic-geopolitical war with Emerging & developing Nations led by China-Russia. Although some of this did not originate in Washington, over the past two-three years Washington is smartly taking advantage of the simultaneous pain that diverse and somewhat independent phenomena can inflict on developing and emerging nations. We are talking about the combined pain the following is exercising on the West’s rivals ..

  • Higher energy costs
  • Higher food costs
  • The sharpest increase in interest rates since WW2
  • Sustained high interest rates
  • Trade restrictions
  • USD Liquidity squeeze
  • Threat of sanctions.

Unsurprisingly, we discovered that this is not just our assessment. Actually some leading Emerging Markets came to this conclusion almost a year ago. And they go further: they do not only see the coherent pressure these phenomena puts on them, they believe all of them were orchestrated by Washington. I don’t think they have proof of that, but that doesn’t matter any longer – whose facts will be believed in the era of digitalized facts. The presumed intention suffices, given how far the hostilities have gone.

Understanding this gives you a much better feeling for the time horizon of future rate cuts.

Ironically independent geopolitical analysis also somewhat restores confidence and trust in crucial US institutions like the FED and the US Treasury. It doesn’t take US politics out of the equation, but it provides at least a working rationale and logics for their behaviour where much of consensus only sees incapacity and utter failure. In a time when most of the American public has lost confidence in politics and media, to have some degree of trust – at least in the operational level – in the FED and Treasury matters a lot. And these are issues they cannot talk openly about.

Our independent analysis allowed us to ascertain ..

This research report was truncated here. If you wish to read the full report and subscribe to our research newsletter, you can write to info@geopoliticalresearch.com


Investors and business leaders need to adjust to the new realities of a world driven by geopolitical warfare and US domestic politics. Both are powerful forces that are increasingly overshadowing and dictating FED policy. I expect this to continue until the year 2029. 

By Christian Takushi MA UZH, Independent Macro Economist and Geopolitical Strategist. Switzerland – Wed 4 May 2023. Public release has been truncated and adapted.

Geopolitical and economic conditions need close monitoring, because they can change suddenly. 

No part of this analysis should be taken or construed as an investment recommendation. 

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