Essential Reading From January 26
All The Good Macro I Read In January 2026
In this note, I outline the noteworthy macro I read in January, with my summaries. The full reading list is updated regularly here.
Greenland Gripes - Thin Ice Macroeconomics (blog), January 2026: Spyros Andreopoulos nicely lays out all the reasons why Europe won’t weaponise capital controls against the US, in spite of the vast stock of US assets that Europeans hold. There are major barriers to Europe actually implementing capital controls, while Europe has high exposure to possible US responses (the US has escalation dominance). This does not mean that European asset managers will not reduce allocations to the US, as is surely easier to justify as European equities outperformed US equities in same currency terms in 2025. However, this would be a private sector decision, and would largely sit outside of the geopolitical playbook.
My outlook for 2026: orchestration, the human edge, and the AI bubble – Azeem Azhar (podcast), January 2026: Fascinating discussion on AI use cases, focussing on individuals vibe coding their own apps. Vibe coding (using AI to generate code from your requests) adds another layer of how AI may revolutionise macro. It seems increasingly inadequate to be a conventional broad-scope analyst with LLMs able to write research reports for very low cost. My view is having mastery of a wide range of macro models, which you vibe coded yourself, seems like a great way to position yourself for macro’s AI upheaval. This joins being an actual subject matter expert, and having strong written and verbal communication skills.
Do Anecdotes Matter? Exploring the Beige Book through Textual Analysis from 1970 to 2025 – Fed (paper), January 2026. A paper exploring how to convert the Fed’s Beige Books into quantitative data, using Google’s FinBERT large language model. It increasingly appears that adapting new tech to economics can help turn anecdotes into signal.
Our work also speaks to broader questions in economics and finance about the value of qualitative versus quantitative information. The fact that carefully aggregated anecdotes contain systematic information about macroeconomic outcomes—information that may not be fully captured by traditional hard data—suggests that business contacts possess valuable ”soft information” that deserves analytical attention. In an era of increasingly sophisticated data science and artificial intelligence tools, the Beige Book demonstrates that human judgment and qualitative assessment, when systematically collected and analyzed, remain important for understanding economic reality.
Revamping public accounting rules to spur investment on energy, defence and resilience – OMFIF (note), January 2026. Another solid argument in favour of transitioning analysis of public finances away from a focus on gross debt to net worth (i.e. considering both government assets and liabilities). The UK scuppered this opportunity in the 2024 Autumn Budget (shifting to the PSNFL measure in a clear grab for more “fiscal headroom”). It will be hard to build international momentum behind this issue given 1) measurement issues with it hard to estimate several components of net worth; 2) how embedded analysis of gross debt is.
Fiscal sustainability cannot be assessed without reference to the full public sector balance sheet. Some countries have shown that a different approach is feasible. Where accrual accounting is embedded across financial reporting, budgeting and accountability, balance-sheet information becomes operational rather than decorative. Investment decisions improve, asset maintenance is taken seriously and fiscal buffers are built over time. Crucially, such systems tend to be more resilient in the face of shocks.
What Is Affecting the CPS Data on Shifts in Immigrant and Native-Born Populations? – St Louis Fed (note), December 2025: Data from the current population survey (CPS) suggest a huge (1.9mn) drop in the US immigrant population over Jan-Nov 2025, which some may suggest is a major success for Trump administration policies. However, St Louis Fed analysis “suggests that the drop in the immigrant population is overstated largely because of a drop in participation of non-naturalized immigrants in the CPS who remain in the country but are wary of participating in government data collection.”
Given the “CPS weighting system must match predetermined population totals, so when immigrant numbers fall, native-born numbers must rise,” it is no surprise that the same data suggest a huge increase (3.8mn) in the native born population (relative to a pre-pandemic average add of 1.5mn). The headline figures are triggered by a 16.6% drop in reporting for non-naturalised immigrants, and don’t reflect actual shifts in immigration.
Outlook 2026: Stablecoin fretting will calm down – OMFIF (blog), January 2026: Good roundup of the current state of stablecoins, and the outlook for 2026, across the UK, EU, US, and EMs. For the record, we remain skeptical of stablecoins as a payment solution in lieu of a combination of tokenised bank deposits and wholesale CBDC/tokenised central bank reserves.
The US trade deficit and foreign borrowing: How long can it continue? Bayoumi & Gagnon, PIIE, (paper), July 2025: Read this for a comprehensive history of US BOP dynamics, and analysis of the sustainability of recent large, persistent current account deficits.
This paper has explored the causes and consequences of persistent US external deficits over the last 45 years and whether the recent fall in the current account balance to –4 percent of GDP is a cause for concern. We argue that the persistent deficit reflects unique features of the United States, including the large size and relatively strong growth of its economy and the dynamism and creativity of its financial and technology companies. More specifically, the US seems to be better at creating marketable securities, including safe assets, that foreign investors wish to buy. These features make US assets attractive to foreign investors and enable the United States to run large current account deficits at comparatively low rates of interest. US trade deficits were also supported by mercantilist currency policies in some of its trading partners, especially during the period from 2003 through 2013 (Bergsten and Gagnon 2017).
A key contribution of this paper is improved estimates of stocks and rates of return on major categories of US international assets and liabilities. These estimates enable us to explain the longstanding puzzle of positive reported net investment income on a negative net investment position. They also allow us to conduct a more satisfying sustainability analysis than other studies of which we are aware. We find that the present level of the trade deficit is not likely to be sustainable as it would push the net international investment position (as a ratio to GDP) beyond levels that have been sustained in any advanced economy.
Setting the net investment position on a sustainable path requires a substantial but not unprecedented increase in the US trade balance. If exorbitant privilege is maintained, the adjustment is some 2 percent of GDP, implying a depreciation in the real effective exchange rate of some 15 to 20 percent. Were the United States to lose its exorbitant privilege, the adjustment rises to over 3 percent of GDP, implying a correspondingly larger depreciation and a faster accumulation of debt for the same level of the trade balance.
Continuing the present unsustainable path makes the net international investment position even more negative and increases the eventual adjustment needed. It also raises the risk that investors will no longer see US assets as safe, implying an end (possibly abrupt) to the favorable funding rates implied by exorbitant privilege. To minimize the risk of financial turbulence and an uncomfortably rapid adjustment, policymakers should act soon to reduce some of the underlying imbalances driving the deficit. Most notable is the large US fiscal deficit. Measures to stimulate domestic spending overseas would help to offset the contractionary effects of any US fiscal consolidation.
President Trump’s attempt to eliminate the US trade deficit through tariffs is not likely to succeed without either causing a recession or driving rates of return on US foreign liabilities up by more than rates on US assets. The response of bond and foreign exchange markets to the April 2 tariff announcements suggests that the latter possibility is in play. Reducing the trade deficit at the cost of higher interest payments to foreigners would be a pyrrhic victory, as it would not necessarily make the deficit more sustainable, and it would make any given net international investment position more costly to maintain.
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This newsletter is for informational purposes only. It does not constitute investment advice or an offer to invest. The views expressed herein are the opinions of JB Macro exclusively. Readers should conduct their own research and consult with professional advisors before making any investment decisions.