Donald Trump is keen to lower US interest rates substantially and rapidly in order to provide a boost to the US economy. He is also keen to reduce the cost of living for US citizens and sees lower interest rates as a means of reducing the burden of debt servicing for both consumers and firms alike.
But interest rates are set by the US central bank, the Federal Reserve (the ‘Fed’), which is formally independent from government. This independence is seen as important for providing stability to the US economy and removing monetary policy from short-term political pressures to cut interest rates. Succumbing to political pressures would be likely to create uncertainty and damage long-term stability and growth.
Yet President Trump is pushing the Fed to lower interest rates rapidly and despite three cuts in a row of 0.25 percentage points in the last part of 2025 (see chart below), he thinks this as too little and is annoyed by suggestions that the Fed is unlikely to lower rates again for a while. He has put great pressure on Jerome Powell, the Fed Chair, to go further and faster and has threatened to replace him before his term expires in May this year. He has also made clear that he is likely to appoint someone more willing to cutting rates.
The Federal Reserve headquarters in Washington is currently being renovated. The nine-year project is costing $2.5 billion and is due to be completed next year. President Trump has declared that the project’s costs are excessive and unnecessary.
On 11 January, Federal prosecutors confirmed that they were opening a criminal investigation into Powell, accusing him of lying to Congress in his June 2025 testimony regarding the scope and costs of the renovations.
Powell responded by posting a video in which he claimed that the real reason that he was being threatened with criminal charges was not because of the renovations but because the Fed had ignored President Trump’s pressure and had set interest rates:
based on our best assessment of what will serve the public, rather than following the preferences of the President. This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions – or whether, instead, monetary policy will be directed by political pressure or intimidation.
The Fed’s mandate
The Federal Reserve Board decides on monetary policy and then the Federal Open Market Committee (FOMC) decides how to carry it out. It decides on interest rates and asset sales or purchases. The FOMC meets eight times a year.
The Fed is independent of both the President and Congress, and its Chair is generally regarded as having great power in determining the country’s economic policy.
Since 1977, the Fed’s statutory mandate has been to promote the goals of stable prices and maximum employment. Because of the reference to both prices and employment, the mandate is commonly referred to as a ‘dual mandate’. Its inflation target is 2 per cent over the long run with ‘well anchored’ inflationary expectations.
The dual mandate is unlike that of the Bank of England, the European Central Bank, the Bank of Japan and most other central banks, which all have a single key mandate of achieving a target of a 2 per cent annual rate of consumer price inflation over a particular time period.
With a dual mandate, the two objectives may well conflict from time to time. Moreover, changes in monetary policy affect these objectives with a lag and potentially over different time horizons. Hence, an assessment may have to be made of which is the most pressing problem. This does give some leeway in setting interest rates somewhat lower than if there were a single inflation-rate target. Nevertheless, the assessment is in terms of how best to achieve the mandate and not to meet current political goals.
Statement by former Fed Chairs and Governors
On 12 January, three former Chairs of the Federal Reserve (Janet Yellen, Ben Bernanke and Alan Greenspan), four former Treasury Secretaries (Timothy Geithner, Jacob Lew, Henry Paulson and Robert Rubin) and seven other top former economic officials issued the following statement (see Substack link in the Articles section below):
The Federal Reserve’s independence and the public’s perception of that independence are critical for economic performance, including achieving the goals Congress has set for the Federal Reserve of stable prices, maximum employment, and moderate long-term interest rates. The reported criminal inquiry into Federal Reserve Chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine that independence. This is how monetary policy is made in emerging markets with weak institutions, with highly negative consequences for inflation and the functioning of their economies more broadly. It has no place in the United States whose greatest strength is the rule of law, which is at the foundation of our economic success.
Response of investors
What will happen to the dollar, US bond prices, share prices and US inflation, and what will happen to investment, depends on how people respond to the threat to the Fed’s independence. Initially, there was little response from markets, with investors probably concluding that President Trump is unlikely to be able to sway FOMC members. What is more, several Republican lawmakers have begun criticising the Trump administration’s criminal investigation, making it harder for the President to influence Fed decisions.
Even if Powell is replaced, either in the short term or in May, by a chair keen to pursue the Trump agenda, that chair will still be just one of twelve voting members of the FOMC.
Seven are appointed by the President, but serve for staggered 14-year terms. Four have been appointed by President Trump, but the other three were appointed by President Biden, although one – Lisa Cook – is being indicted by the Supreme Court for mortgage fraud, with the hearing scheduled for January 21. She claims that this is a trumped-up charge to provide grounds for removing her from the Fed. If she is removed, President Trump could appoint a replacement minded to cut rates.
The other five members include the President of the New York Fed and four of the eleven other regional Fed Presidents serving in rotation. These four are generally hawkish and would oppose early rate cuts.
Thus it is unlikely that President Trump will succeed in pushing the Fed to lower interest rates earlier than they would have done. For that reason, markets have remained relatively sanguine.
Nevertheless, Donald Trump’s actions could well cause investors to become more worried. Will he try to find other ways to undermine the Fed? Will his actions over Venezuela, Cuba, Greenland and Iran, let alone his policies towards Ukraine and Russia and towards Israel and Gaza, heighten global uncertainty? Will his actions towards Venezuela and his desire to take over Greenland embolden China to attempt to annex Taiwan, and Russia to continue to resist plans to end the war in Ukraine or to make stronger demands?
Such developments could cause investor confidence to wane and for stock markets to fall. Time will tell. I think we need a crystal ball!
Videos
Articles
- Federal prosecutors open criminal investigation into the Fed and Jerome Powell
CNN, Bryan Mena (11/1/26)
- The Fed just gave a rare look at its $2.5 billion renovation — right before Trump’s tour
CNN, Bryan Mena (24/7/25)
- ‘A bone-headed move’: Trump’s shocking battle with Powell could badly backfire
CNN, Matt Egan (12/1/26)
- Why Powell is fighting back against Trump: The US economy is at stake
CNN, Bryan Mena (13/1/26)
- Fed chair Powell hits out at ‘unprecedented’ probe by US justice department
BBC News, Ana Faguy and Osmond Chia (12/1/26)
- Justice department opens investigation into Jerome Powell as Trump ramps up campaign against Federal Reserve
The Guardian, Callum Jones (12/1/26)
- Some Republicans speak out against DoJ investigation into Fed chair
The Guardian, Joseph Gedeon (12/1/26)
- Trump’s attempts to influence Fed risk 1970s-style inflation and global backlash
The Guardian, Richard Partington (12/1/26)
- Statement on the Federal Reserve
Substack, 14 signatories (12/1/26)
- Yellen says Powell probe ‘extremely chilling’ for Fed independence, market should be concerned
CNBC, Jeff Cox (12/1/26)
- Global central bankers unite in defense of Fed Chair Jerome Powell
CNBC, Holly Ellyatt (13/1/26)
- Trump attacks Powell again amid Fed independence fears: ‘That jerk will be gone soon’
CNBC, Kevin Breuninger (13/1/26)
- Former Fed chairs condemn criminal investigation into Jerome Powell
BBC News, Danielle Kaye (12/1/26)
- Fed: Towards a very divided Fed in the coming months and quarters
CPR AM, Bastien Drut (28/11/25)
- Treasury Yields Diverge as Powell Probe Rekindles Fed Independence Risk
Investing.com, Khasay Hashimov (12/1/26)
- Instant View: Investors react as Trump-Fed feud escalates
Reuters (12/1/26)
- Fighting the Fed, Trump tries credit easing by decree
Reuters, Mike Dolan (13/1/26)
- Trump’s attacks on the Federal Reserve risk fuelling US inflation and ending dollar dominance
The Conversation, Emre Tarim (13/1/26)
Questions
- What are the arguments for central bank independence?
- What are the arguments for control of monetary policy by the central government?
- Assess the above arguments.
- Find out what has happened to interest rates, the US stock market and the dollar since this blog was written.
- How do the fiscal decisions by government affect monetary policy?
- Compare the benefits of the dual mandate system of the Fed with those of the single mandate of the Bank of England and ECB.
Every year, world leaders gather to find ways of limiting global warming. The latest of these ‘COP’ meetings, COP30, is in Belém, Brazil from 10 to 20 November 2025. COP stands for ‘Conference of the Parties’, the decision-making body of the United Nations Framework Convention on Climate Change (UNFCCC).
Perhaps the best-known of these meetings was in Paris in 2015. This resulted in the Paris Agreement. This is a legally-binding international treaty to limit global warming to well below 2°C and preferably to 1.5°C above pre-industrial levels. This would involve reducing greenhouse gas emissions and/or taking carbon absorbing measures. All UN countries except for Iran, Libya and Yemen are signatories to the agreement.
However, on coming to office in January 2025, President Trump announced that the USA will withdraw from the agreement in January 2026. Instead, he would prioritise fossil fuel production, under the mantra, ‘drill, baby, drill’. Previously he had claimed that global warming is a hoax concocted by China designed to undermine the competitive power of the USA.
Progress in reducing emissions and mitigating climate change
Since 2020, each country has been required to submit its own emissions-reduction targets, known as ‘nationally determined contributions’ (NDCs), and the actions it will take to meet them. Every five years each country must submit a new NDC more ambitious than the last. New NDCs are due this year. As of 12 November, 112 of the 197 countries had submitted a new NDC (including the USA, China, the EU and the UK). These 112 countries account for around 71 per cent of global emissions.
Implementing all new NDCs would reduce global CO2 emissions by between 15 and 25 per cent from current levels by 2035. But this would merely reduce global warming to around 2.6°C above pre-industrial levels. Approximately 35 per cent emissions reductions by 2035 would be required to restrict global warming to 2°C and 55 per cent to restrict it to 1.5°C.
But implementing the Paris Agreement has still had a high degree of success. Without the action taken and being taken over the past 10 years, it is predicted that global temperatures by 2050 would rise by 3–3.5°C.
Rich countries are expected to provide finance to low-income countries. This is required to help such countries adopt green technologies and to adapt to the harmful effects of climate change (e.g. through irrigation schemes and flood defences). At COP29 in Azerbaijan, the ‘Baku Finance Goal’ was agreed. This is an agreement to provide climate finance of $1.3 trillion per year by 2035 to developing countries from all public and private sources.
The subsequent ‘Baku to Belém Roadmap’ provides a set of suggested actions for governments, financial institutions and the private sector to bridge the gap between current climate finance flows and the $1.3 trillion agreed to meet global climate goals. The roadmap is a central focus of the COP30 conference in Belém, with discussions between countries on how to translate the Baku finance goal into concrete, tangible actions and integrate it into formal decisions.
The role of Donald Trump
As well as announcing that the USA will withdraw from the Paris Agreement in January 2026, since coming to office in 2025, President Trump has given billions of dollars of tax cuts to fossil fuel firms and allowed drilling for oil and gas on federal lands. At the same time, he has described renewable energy as ‘a joke’ that will bankrupt countries and has slashed subsidies and tax breaks for solar and wind power, withdrawn permits for wind and solar farms, and cut funding for green energy research.
He wants the USA to be world leader in fossil fuel energy, calling on governments to buy US oil and gas, threatening some countries with tariffs if they do not. Already, Japan, South Korea and several European countries have agreed to buy huge quantities of US oil and liquefied natural gas (LNG). A worry is that other similarly inclined governments, such as Argentina, may roll back on their commitments to a green transition and instead boost their fossil fuel industries.
This gives added urgency to the Belém talks. It is crucial for the rest of the world to stick together in pushing ahead to combat global warming and in adopting and sticking to tough NDCs. It is also crucial for rich countries to support dlow-income countries in adopting climate-friendly investment and in measures to mitigate the effects of global warming.
The economics of climate change
Climate change is directly caused by market failures. One of the most important of these is that the atmosphere is a common resource: it is not privately owned; it is a global ‘commons’. Individuals and firms use it at a zero price. If the price of any good or service to the user is zero, there is no incentive to economise on its use. Thus for the emitter there are no private costs of using the atmosphere in this way as a ‘dump’ for their emissions and, in a free market, no incentive to reduce the climate costs.
And yet when firms emit greenhouse gases into the atmosphere there are costs to other people. To the extent that they contribute to global warming, part of these costs will be borne by the residents of that country; but a large part will be borne by inhabitants of other countries.
These climate costs are external costs to the firm and are illustrated in the figure. It shows an industry that emits CO2. To keep the analysis simple, assume that it is a perfectly competitive industry with demand and supply given by curves D and S, which are equal to the marginal private benefits (MPB) and marginal private costs (MPC), respectively. There are no externalities on the demand side and hence MPB equals the marginal social cost (MSB). Market equilibrium is at point a, with output at Qpc and price at Ppc. (Click here for a PowerPoint.)
Assume that the emissions create a marginal cost to society equal to MECc. Assume that the MEC increases as output and total emissions increase. The MECc line is thus upward sloping. At the market price of Qpc, these external climate costs are equal to the purple vertical line. When these external climate costs are added to private costs, this gives a marginal social cost given by MSC = MPC + MECc. The gives a socially optimal level of output of the product of Q* at a price of P*, with the optimum point of c.
In other words, other things being equal, the free market overproduces products with climate externalities. If the output is to be reduced to the social optimum of Q*, then the government will need to take measures such as those advocated in the Paris Agreement. These could include imposing taxes on products, such as electricity generated by fossil fuels, or on the emissions themselves. Or green alternatives, such as wind power, could be subsidised.
Alternatively, regulations could be used to cap the production of products creating emissions, or caps on the emissions themselves could be imposed. Emissions permits could be issued or auctioned. Only firms in possession of the permits would be allowed to emit and the permits would cap emissions below free-market levels. These permits could be traded under a cap-and-trade scheme, such as the EU’s Emissions Trading Scheme. Again, such schemes are advocated under the Paris Agreement.
COP30 and progress in tackling climate change
The USA is not attending COP30 in Brazil. Nor is the Chinese leader, Xi Jinping. However, there are growing opportunities for translating aims into practical policies for specific sectors, such as energy, transport and carbon-intensive industries. These policies may require some degree of government action – taxes, subsidies or regulation – to internalise climate externalities. But increasingly, green alternatives are becoming economically viable without subsidies or with just initial government funding to ‘crowd in’ private investment, which will then attract further private capital as external economies of scale kick in. Increasingly investors will find profitable opportunities in climate-friendly projects.
At the same time, while the USA is moving away from climate-friendly investment (as least for the term of the Trump Presidency), China is moving in the opposite direction, with massive investment in solar panels, wind turbines, EVs and batteries – investment that is bringing down their cost and thereby encouraging their adoption around the world. Such technologies create huge opportunities for low-income countries to provide affordable energy and to create local jobs, both skilled and unskilled. It also helps them achieve much greater energy security by reducing their reliance on fossil fuel imports
Chinese advances in green technology are also providing a stimulus to other countries to invest in renewable industries to prevent Chinese dominance. The danger, however, of Chinese dominance in the renewable sector in high-income countries is that it may encourage them to impose tariffs on Chinese imports of EVs, solar panels, etc. to protect their own industries.
But despite the growing opportunities for profitable adoption of green technologies without government support, there is still much that governments need to do to encourage the process. COP meetings are an important forum for discussing such policies and holding governments to account for meeting or not meeting their targets.
The agreement
The agreement reached at the end of the conference marked relatively small progress. There was agreement to increase finance from developed to developing countries to help them adapt to climate change. This would triple to $120bn per year, up from the previously agreed doubling, but the target date was pushed back to 2035 from the previously agreed 2030.
By the end of the conference, 122 of the 197 countries had submitted a new NDC – still 75 countries short, although others are expected.
The conference also agreed to establish a ‘just transition mechanism (JTM)’ to ‘enhance international cooperation, technical assistance, capacity-building and knowledge-sharing, and enable equitable, inclusive just transitions’. However, this is voluntary and no funding was attached, but it could act as the basis for future funding.
The biggest failure of the conference was probably the lack of agreement on phasing out of fossil fuels. This is not surprising given the opposition of the major oil producers. The hope is that the reduction in costs of renewable energy will drive the process anyway – a process that China is keen to accelerate with its investment in solar power and other renewable energy. One hopeful development, however, was the pledging of more than $9bn to halt deforestation, a major source of global warming. (See the Travers Smith article at the end of the Articles list below for a very useful summary of the outcome.)
Articles
- What is COP30 and why does it matter for the climate?
Chatham House, Anna Åberg (5/9/25)
- COP30 in Brazil: What is at stake for global collaboration on climate and nature?
World Economic Forum, Pim Valdre (5/11/25)
- What is COP30 and why does it matter?
CNN, Laura Paddison (11/11/25)
- Why COP 30 in Brazil Matters for a Thriving Economy and a Safe, Livable Planet
Union of Concerned Scientists (UCS),Rachel Cleetus (7/11/25)
- Nationally Determined Contributions: The Action Plans Behind Global Efforts To Fight the Climate Crisis
Center for American Progress (CAP, Kalina Gibson and Courtney Federico (22/9/25)
- New climate pledges only slightly lower dangerous global warming projections
UN Environment Programme, Press Release (4/11/25)
- COP30: Trump and many leaders are skipping it, so does the summit still have a point?
BBC News, Justin Rowlatt (10/11/25)
- Trump dismisses clean energy as ‘a joke.’ But Americans deserve facts, not fear
USA Today, Mark McNees (23/9/25)
- The surprising countries pulling off stunningly fast clean energy transitions
CNN, Ella Nilsen and Samuel Hart (7/11/25)
Could the world’s biggest polluter be its savior against climate change?CNN, Simone McCarthy (17/11/25)
- COP 2025: Outlook and Implications for Investors
RankiaPro, Joanna Piwko, Allegra Ianiri, Marie Lassegnore and Jean-Philippe Desmartin (10/11/25)
Post-agreement
- Belém: yet another cop out
Zero Hour, Allan Gray (25/11/25)
- Cop30’s watered-down agreements will do little for an ecosystem at tipping point
The Guardian, Fiona Harvey, Jonathan Watts, Damien Gayle and Damian Carrington (22/11/25)
- COP30: Five key takeaways from a deeply divisive climate summit
BBC News, Justin Rowlatt and Matt McGrath, (25/11/25)
- COP30: What were the key outcomes?
Travers Smith (1/12/25)
Information and Data
Questions
- Summarise the Paris Agreement.
- Summarise the Baku to Belém Roadmap to 1.3T.
- What incentives are there for countries to stick to their NCDs?
- Using a diagram similar to that above, illustrate how the free market will produce a sub-optimal amount of solar power because the marginal social benefit exceeds the marginal private benefit. How might the calculation be changing?
- How might game theory be used to analyse possible international decision making at COP conferences? How might this be affected by the attitudes of the Trump administration?
- Is it in America’s interests to cease investing in green energy and green production methods?
The productivity gap between the UK and its main competitors is significant. In 2024, compared to the UK, output per hour worked was 10.0% higher in France, 19.8% higher in Germany and 41.1% higher in the USA. These percentages are in purchasing-power parity terms: in other words, they reflect the purchasing power of the respective currencies – the pound, the euro and the US dollar.
GDP per hour worked (in PPP terms) is normally regarded as the best measure of labour productivity. An alternative measure is GDP per worker, but this does not take into account the length of the working year. Using this measure, the gap with the USA is even higher as workers in the USA work longer hours and have fewer days holiday per year than in the UK.
The productivity gap is not a new phenomenon. It has been substantial and growing over the past 20 years. (The exception was in 2020 during lockdowns when many of the least productive sectors, such as hospitality, were forced to close temporarily.)
The productivity gap is shown in the two figures. Both figures show labour productivity for the UK, France, Germany and the USA from 1995 to 2024.
Figure 1 shows output (GDP) per hour, measured in US dollars in PPP terms.
Figure 2 shows output (GDP) per hour relative to the UK, with the UK set at 100. The gap narrowed somewhat up to the early 2000s, but since then has widened.
Low UK productivity has been a source of concern for UK governments and business for many years. Not only does it constrain the growth in living standards, it also make the UK less attractive as a source of inward investment and less competitive internationally.
Part of the reason for low UK productivity compared to that in other countries is a low level of investment. As a proportion of GDP, the UK has persistently had the lowest, or almost the lowest, level of investment of its major competitors. This is illustrated in Table 1.
It is generally recognised by government, business and economists that if the economy is to be successful, the productivity gap must be closed. But there is no ‘quick fix’. The policies necessary to achieve increased productivity are long term. There is also a recognition that the productivity problem is a multi-faceted one and that to deal with it requires policy initiatives on a broad front: initiatives that encompass institutional changes as well as adjustments in policy.
So what can be done to improve productivity and how can this be achieved at the micro as well as the macro level?
Improving productivity: things that government can do
Encouraging investment. Over the years, UK governments have increased investment allowances, enabling firms to offset the cost of investment against pre-tax profit, thereby reducing their tax liability. For example, in the UK, companies can offset a multiple of research and development costs against corporation tax. The rate of relief for small and medium-sized enterprises (SMEs) allows companies that work in science and technology to deduct an extra 86% of their qualifying expenditure from their trading profit in addition to the normal 100% deduction: i.e. a total of 186% deduction. Meanwhile, since April 2016, larger companies have been able to claim a R&D expenditure credit, initially worth 11 per cent of R&D expenditures, then 12 per cent from 2018 and 13 per cent from 2020. This was then raised to 20 per cent from 2023.
Strengthening competition. A number of studies have revealed that, with increasing market share, business productivity growth slows. As a result, government policy sought to strengthen competition policy. The Competition Act 1998, which came into force in March 2000, and the Enterprise Act of 2002, enhanced the powers of the Office of Fair Trading (OFT) (a predecessor to the Competition and Markets Authority) in respect to dealing with anti-competitive practices. It was given the ability to impose large fines on firms which had been found guilty of exploiting a dominant market position. Today, one of the strategic goals of the Competition and Markets Authority (CMA) is the aim of ‘extending competition frontiers’ in order to improve the way competition works.
Encouraging an enterprise culture. The creation of an enterprise culture is seen as a crucial factor not only to encourage innovation but also to stimulate technological progress. Innovation and technological progress are crucial to sustaining growth and raising living standards. The UK government launched the Small Business Service in April 2000, later renamed Business and Industry. Its role is to co-ordinate small-business policy within government and liaise with business, providing advice and information. However, according to the OECD, there remains considerable scope for increasing the level of government support for entrepreneurship in the UK.
Improving productivity: things that organisations can do
In the podcast from the BBC’s The Bottom Line series, titled ‘Productivity: How Can British Business Work Smarter’ (see link below), Evan Davis and guests discuss what productivity really looks like in practice – from offices and factories, to call centres and operating theatres.’ The episode identifies a number of ways in which labour productivity can be improved. These include:
- People could work harder;
- Workers could be better trained and more skilled and thus able to produce more per hour;
- Capital could be increased so that workers have more equipment or tools to enable them to produce more, or there could be greater automation, releasing labour to work on other tasks;
- Workplaces could be arranged more efficiently so that less time is spent moving from task to task;
- Systems could put in place to ensure that tasks are done correctly the first time and that time is not wasted having to repeat them or put them right;
- Workers could be better incentivised to work efficiently, whether through direct pay or promotion prospects, or by increasing job satisfaction or by management being better attuned to what motivates workers and makes them feel valued;
- Firms could move to higher-value products, so that workers produce a greater value of output per hour.
The three contributors to the programme discuss various initiatives in their organisations (an electronics manufacturer, NHS foundation trusts and a provider of office services to other organisations).
They also discuss the role that AI plays, or could play, in doing otherwise time-consuming tasks, such as recording and paying invoices and record keeping in offices; writing grants or producing policy documents; analysing X-ray results in hospitals and performing preliminary diagnoses when patients present with various symptoms; recording conversations/consultations and then sorting, summarising and transcribing them; building AI capabilities into machines or robots to enable them to respond to different specifications or circumstances; software development where AI writes the code. Often, there is a shortage of time for workers to do more creative things. AI can help release more time by doing a lot of the mundane tasks or allowing people to do them much quicker.
There are huge possibilities for increasing labour productivity at an organisational level. The successful organisations will be those that can grasp these possibilities – and in many cases they will be incentivised to so so as it will improve their profitability or other outcomes.
Podcast
Articles
- Steeper UK productivity cut of more than £20bn makes tax rises more likely
The Guardian, Kalyeena Makortoff, Phillip Inman and Richard Partington (28/10/25)
- Reeves could face £20bn Budget hole as UK productivity downgraded
BBC News, Faisal Islam (27/10/25)
- To boost UK productivity, ordinary workers must bear more of the tax burden
Financial Times, Anatole Kaletsky (1/11/25)
- Neither China nor Japan – now it is the United States that adopts the brutal 9-9-6 model that redefines productivity and attrition
UnionRayo, Laura M. (1/11/25)
- ‘The money machine is misfiring’: City blames Brexit for UK’s £20bn productivity headache
The Guardian, Richard Partington (31/10/25)
- Organisations can achieve greater productivity and employee engagement with improved performance management, new research finds
WTW Press Release (29/10/25)
- Why does lower productivity mean tax rises are more likely?
BBC Verify, Ben Chu (4/11/25)
- Why is technology not making us more productive?
BBC News, Jonty Bloom (24/7/23)
Data
Questions
- In what different ways can productivity be measured? What is the most appropriate measure for assessing the effect of productivity on (a) GDP and (b) human welfare generally?
- Why has the UK had a lower level of labour productivity than France, Germany and the USA for many years? What can UK governments do to help close this gap?
- Find out how Japanese labour productivity has compared with that in the UK over the past 30 years and explain your findings.
- Research an organisation of your choice to find out ways in which labour productivity could be increased.
- Identify various ways in which AI can improve productivity. Will organisations be incentivised to adopt them?
- Has Brexit affected UK labour productivity and, if so, how and why?
The gold market has become one of the most talked-about commodity markets in 2025, with prices reaching record highs. This is largely due to increased demand from investors, who see gold as a ‘safe haven’ during times of economic and political uncertainty. Central banks are also buying more gold as a way to reduce their reliance on currencies like the US dollar. With many analysts predicting prices could reach over $4000 per ounce in the next year, the gold market is showcasing how supply and demand, confidence, and global events can all influence a commodity market.
The commodities market is where basic agricultural products, raw materials and metals, such as gold, are bought and sold, often in large quantities and across global exchanges. Commodities are typically traded either in their physical form (like gold bars) at current market prices (spot prices) or through financial contracts, where investors buy or sell in futures markets. These are where a price is agreed today to buy or sell on a specific future date.
As with other commodities, the price of gold is determined by supply and demand. Demand for gold typically rises during times of economic uncertainty as investors want a safer store of value. This results in an increase in its price. Supply and demand, and hence price, also respond to other factors, including interest rates, currency movements, economic growth and growth prospects, and geopolitical events.
Record high prices
This year, the gold market has seen a remarkable rally, with the price of gold hitting a record high. Demand for the precious metal has resulted in spot prices surging over 35% to date (see the chart: click here for a PowerPoint). Rising prices earlier this year have been attributed to the US President, Donald Trump, announcing wide-ranging tariffs which have upset global trade. On 2 September, the spot gold price hit $3508.50 per ounce, continuing its upwards trend.
The price has also been lifted by expectations that the Federal Reserve (the US central bank) will cut its key interest rate, making gold an even more attractive prospect for investors. If the Federal Reserve cuts interest rates, the price of gold usually increases. This is because gold does not pay any interest or yield, so when interest rates are high, investors can earn better returns from alternatives, such as savings accounts or bonds. However, when interest rates fall, those returns become less attractive, making gold relatively more appealing.
Lower interest rates also tend to weaken the US dollar, which makes gold cheaper for foreign buyers, increasing global demand. Since gold is priced in dollars, a weaker dollar usually leads to higher gold prices.
Additionally, interest rate cuts are often a response to economic problems or uncertainty. As gold is viewed as a safer asset for investors during times of economic uncertainty, investors will typically increase their demand.
Unlike the market for currencies or shares, gold doesn’t rely on the performance of a government or company. This makes it attractive when people are worried about things like inflation, recession, war or stock market crashes. Gold is thus seen as a ‘safe haven’.
Gold and the Federal Reserve
The rise in the price of gold by more than a third this year can be linked to the US election last year, according to the director of research at BullionVault (see the BBC article below). Attitudes of the Trump administration towards the Federal Reserve have created concerns among investors. Fears that the US administration could erode the independence of the world’s most important central bank have fuelled the latest flows into the metal, which is traditionally viewed as a hedge against inflation.
According to the BBC article, Derren Nathan from Hargreaves Lansdown claims that it is Trump’s ‘attempts to undermine the independence of the Federal Reserve Bank’ that were ‘driving renewed interest in safe haven assets, including gold’. Investors are concerned that a politicised Fed would be more inclined to cut interest rates than would otherwise be the case, sending long-term inflation expectations higher.
This could lead to fears that future interest rates would then be pushed higher. This would increase the yields on longer-term government bonds by pushing down their price, as investors demand higher compensation for the increased risk of higher future interest rates reducing the value of their fixed-rate investments. This would force the US Treasury to pay higher interest on new bonds, making it more expensive to service US government debt.
Expected price rises for 2026
As we saw above, it is predicted that the price of gold will rise to $4000 per ounce next year. However, if the market sees investors move away from dollar assets, such as US Treasuries, the price increases would be even higher. Daan Struyven, co-head of global commodities research at Goldman Sachs explains ‘If 1 per cent of the privately owned US Treasury market were to flow to gold, the gold price would rise to nearly $5000 per troy ounce’ (see Financial Times article below).
If the Federal Reserve does come under political pressure, it could affect the stability of the US economy and beyond. When gold prices rise sharply, demand usually falls in countries like China and India, which are the world’s largest buyers of gold jewellery. However, in 2025, this trend has changed. Instead of reducing their gold purchases, people in these countries have started buying investment gold, such as bars and coins, showing a shift in consumer behaviour from jewellery to investment assets.
At the same time, global events are also influencing the gold market. Suki Cooper, a metals analyst at Standard Chartered, said that events like Russia’s invasion of Ukraine have added to political uncertainty, which tends to increase demand for gold as a safe-haven asset. She also highlighted how changes in international trade policies have disrupted supply chains and contributed to higher inflation, both of which have made gold more attractive to investors. Additionally, a weaker US dollar earlier in the year made gold cheaper for buyers using other currencies, which boosted global demand even further.
Conclusion
Although the gold market is expected to remain strong over the next six months, some uncertainty remains. Many analysts predict that gold prices will stay high or even increase further, especially if interest rates in the US are cut as expected. Continued global instability, is also likely to keep demand for gold as a safe haven high. At the same time, if inflation stays elevated or trade disruptions continue, more investors may turn to gold to protect their wealth.
However, if economic conditions stabilise or interest rates rise again, gold demand could fall slightly, leading to a potential dip in prices. Overall, the outlook for gold remains positive, but sensitive to changes in global economic and political events.
Articles
- Gold price hits record high as investors seek safety
BBC News, Faarea Masud (2/9/25)
- Safe-haven gold rally gains further momentum after soft US data
Reuters, Sherin Elizabeth Varghese and Ashitha Shivaprasad (3/9/25)
- Gold vaults $3,000 in rush for safety from market, political worry
Reuters, Sherin Elizabeth Varghese and Anmol Choubey (14/3/25)
- The foundation of gold’s rally to historic highs started back in 2022
CNBC, Suki Cooper (17/3/25)
- Gold could hit nearly $5,000 if Trump undermines Fed, says Goldman Sachs
Financial Times, Emily Herbert (4/9/25)
- London’s bullion market set to trial digital gold
City AM, Maisie Grice (3/8/25)
- Gold price hits record high as investors seek safe haven
The Guardian, Julia Kollewe (2/9/25)
Data
Questions
- What factors influence the price of a commodity such as gold on the global market?
- Use a demand and supply diagram to illustrate what has been happening to the gold price in recent months.
- Find out what has been happening to silver prices. Are the explanations for the price changes the same as for gold?
- Why might investors choose to buy gold during times of economic or political uncertainty?
- How will changes in interest rates affect both the demand for and the price of gold?
- What are the possible consequences of rising gold prices for countries like India and China, where there is a traditionally high demand for gold jewellery?
- How do global events impact commodity markets? Use gold as an example in your answer.
Following the controversary over the sale of tickets for popular live events such as Taylor Swift’s Eras tour and the Oasis Live ’25 Tour, the government launched a consultation exercise in January 2025 on the resale of tickets. Titled, ‘putting fans first’, the exercise sought the views of individuals and organisations on a range of policy proposals. One of these was the implementation of a cap on the resale price of tickets.
The government is not only considering whether to implement a cap but also the level at which it might be set. The following question was included in the consultation exercise.
What is the maximum uplift that you think should be applied if ticket resales were to be subject to a price cap? Please state the reason for your selection.
• no uplift at all
• 10% or less
• between 10 and 20%
• between 20 and 30%
• other – please state
Some platforms such as Twickets and Ticketswap already cap resale prices on their platforms at between 5 and 10 per cent above the face value of the ticket. They are, therefore, less likely to be affected by any new price regulation unless the ‘no uplift at all’ option is chosen. On other platforms, such as Viagogo and Stubhub, resellers are free to list tickets at whatever price they choose. This is often referred to as the uncapped market, and tickets for the Oasis tour with a face value of £150 were listed on these websites for £14 000. The implementation of a price cap is likely to have a big impact on this part of the resale market. The chief executive of StubHub stated in June 2025 that the business would probably have to exit the UK if a cap was introduced.
Although many fans dislike the uncapped secondary ticketing market, most economists take a more positive view. They see them as a way of facilitating mutually beneficial trade and helping to reallocate tickets to those with the highest willingness to pay. This reduces levels of allocative inefficiency/deadweight welfare loss in the market.
Economists also tend to argue against the use of price controls in competitive markets because of their negative impact on supply. If price controls reduce the available returns to sellers, they have an incentive to do something else with their time/resources i.e. switch to supplying other goods and services in markets not subject to price controls. This reduces supply in the regulated market and so could have a negative impact on consumer surplus.
What are the issues with the secondary market?
Given the benefits outlined by economists of having an uncapped secondary ticketing, why is the government considering the implementation of a price cap? One potential issue of having an uncapped secondary ticketing market is that developments in technology make it easier for professional resellers to buy very large quantities of tickets. This makes it increasingly difficult for fans who want to attend the event from being able to purchase a ticket.
Reports also suggest that professional resellers use illegal methods to both mass purchase and resell tickets. For example, to overcome any limits on sales imposed by the sellers in the primary market, some use automated software, fake IDs and multiple credit cards. Two people convicted of fraudulent trading in 2024 were found to have bought 47 000 tickets over a 212-year period, using 127 names and 187 different e-mail addresses.
Some resellers have also acted in ways that do not comply with consumer law when advertising tickets for sale. For example, not providing information such as the ticket number and other details about where the seat is located i.e. the block/area and row.
These rent seeking activities by professional resellers could outweigh the positive impact of uncapped secondary market on allocative efficiency.
Implementing a resale price cap would reduce the incentives for professional resellers to purchase large quantities of tickets and engage in these rent-seeking activities. However, in the consultation document the government recognises that the implementation of a resale price cap would be a ‘significant and complex intervention’.
An important implementation issue
To calculate the resale price cap for any live event, the original price of the ticket in the primary market needs to be known. This raises an interesting question – should the cap apply to the initial face value of the ticket or the total price the customer pays?
The face value of the ticket may only represent a proportion of the actual cost of buying a ticket because of the widespread use of drip pricing. This is the practice of applying additional fees as the consumer proceeds through the online purchasing process. These fees can sometimes add around 25 per cent and more to the price of a ticket. In the consultation document, the government suggested that the cap should apply to the face value of the ticket plus all compulsory fees.
One issue raised in the response to the consultation by the Competition and Markets Authority is that these fees are not always made clear by sellers in the primary market in a clear and transparent way. Therefore, for the policy to be effective, primary market sellers would have to make information on both ticket prices and any fees clearly and easily available. Recent changes to the law that prohibit drip pricing might help to address this issue.
The potential impact of a resale price cap on fraud
To avoid the price cap, there is a danger that increasing numbers of buyers and sellers stop using capped secondary ticket platforms, where activity is easier to observe/regulate, and switch to other non-specialist platforms where detection of illegal behaviour and enforcement of consumer law is more difficult. Examples of non-specialist platforms where sales might increasingly take place include Facebook Marketplace, Instagram Shop, X (formerly Twitter) and internet forums. With lower levels of consumer protection and the greater difficulty of detecting illegal behaviour, sales via these non-specialist platforms are more vulnerable to scams and fraud.
When referring to the impact of a resale price cap, the chief executive of StubHub argued that:
It will have a massive negative impact on consumers. It’s not like the demand is going to go away, it’s just going to move somewhere else, and that somewhere else is going to be the black market [where] consumers aren’t protected.
To test the hypothesis that price controls lead to greater incidences of fraud, one study used polling data to compare ticket fraud rates in the UK with Victoria, Australia and Ireland. In 2009, the state government of Victoria made it illegal for tickets to be resold for more than 10 per cent of their face, while the Irish government introduced the Sale of Ticket Act in 2021 that prohibited the resale of tickets above their original price. The study found that the proportion of respondents who reported being victims of ticket fraud over the previous two years was around four times higher in Victoria and Ireland than the UK. The most common sales channel where consumers experienced ticket fraud in all three countries were social media platforms.
Another example of the potential impact of the price cap in Ireland on fraud relates to the first ever regular-season NFL game that is being played in Dublin on 28 September 2025 between the Pittsburgh Steelers and the Minnesota Vikings. The online bank, Revolut, reported an 80 per cent increase in the number of ticket scams when tickets for this game went on sale.
In response to the consultation exercise, the Competition and Markets Authority backed the implementation of a resale price. It will be interesting to see if the government goes through with the measure in the next few months.
Consultation
Articles
Blogs on this site
Questions
- Why might event organisers set ticket prices below the market clearing rate? Illustrate the impact of setting prices below market clearing rates on consumer, producer and total surplus in the primary market for tickets.
- Using a demand and supply diagram, explain how the uncapped secondary ticket market could reduce deadweight welfare loss. Discuss any assumptions you have made about the allocation of tickets among potential buyers in the primary market (i.e. sorting).
- Is it possible for professional resellers to continue making a profit if tickets are sold at market clearing rates in the primary market? Explain your answer.
- Under what circumstances would a maximum price set below the market clearing rate in a competitive market have a negative impact on consumer surplus? Draw a diagram to illustrate your answer.
- Using examples, explain what is meant by ‘rent seeking’ in economic theory.
Outline some of the recent updates to the law on pricing information that businesses must show customers.
- What policies, other than a resale price cap, could the government introduce to try to address some of the issues with the ticketing market for live events?
Statement from Federal Reserve Chair Jerome H. Powell