Read the full blog post here: sites.utexas.edu/macro/2025/0...

The authors emphasize that although America is further away from the battlegrounds, history shows that American consumers do react to wars overseas, calling for stabilization by policymakers and central banks, especially by anchoring expectations.

Importantly, these views also concern people's personal situation and not just their general economic outlook.

Though apparently far away, wars still transcend into the expectations of households and consumers, progressively worsening their outlook as wars drag on as shows European survey data.

More details in the blog post: sites.utexas.edu/macro/2025/0...

and even more details in the paper: academic.oup.com/restud/advan...

While US macroeconomic announcements have large effects on foreign stock markets, the reverse is not true. Foreign economic news releases have little to no effects on US markets.

US monetary policy has a stabilizing role after US macroeconomic news releases.

When bad news about the US economy becomes available, markets expect Fed to lower interest rates, which partially offsets the decline in stock markets and thus stabilizes asset markets and economy.

These findings suggest that investors are more confident in holding riskier assets when the US economy is doing well.

Flip side: bad news about the US economy can lead to a global stock market panic

Why is it that global stock prices respond so much to surprises about US macroeconomic data releases?

➡️ global stock prices rise after US macroeconomic news releases
➡️investors’ perceived risk and uncertainty falls
➡️ prices of relatively safe assets also fall

How does news about the US economy affect the rest of the world?

➡️ after US macroeconomic news releases, global stock prices respond immediately and in a synchronized way.
➡️ effects are large: Foreign countries’ stock prices respond with magnitudes similar to US stock market.

Much more details, including a discussion of the policy implications can be found in the blog post:
sites.utexas.edu/macro/2025/0...

Or in the full working paper: utexas.app.box.com/s/ht0ddytxfx...

Thank you for reading!
@utaustinecon.bsky.social

This is consistent with models where wage contracts are short-lived and expectations beyond the contract horizon are irrelevant (as @ivanwerning.bsky.social 's work highlights)

Only short-term expectations (and inflation perceptions) are meaningfully correlated w/ expected wage growth. Long-run inflation expectations have essentially no predictive power.

As inflation began rising in 2022, firms initially underreacted: short-term expectations rose more slowly than actual inflation. This gave way to persistent overshooting—firms expected more inflation than actually materialized, especially in the disinflation phase in 2023–2024.