Christopher Hodge, American chief economist of the Natixis investment bank, shares his reflections concerning the forces that shape the American economy. With a career covering the Federal Reserve Bank of New York, the American Treasury Department and the Hell Funds, it offers a rare public and private perspective on the current landscape focused on policies, the growing risk of economic slowdown and the way in which recent political decisions can worsen the situation.
Global finance: How did the budgetary and monetary policy interact during your stay in the American Treasury Department?
Christopher Hodge: There was a high degree of coordination between the Treasury and the Federal Reserve, but the decisions on the site of the yield curve to issue the debt are only for the purpose of the Treasury. There were charges that the treasure [under Secretary Janet Yellen] Committed to a “stealthy quantitative relaxation” by the front loading emission at the short end to create a rarity in the belly of the curve. But in my opinion, most of the decisions under the secretary Yellen complied with historical standards. During my time at the Treasury and the Fed [2020-23]I have never observed erosion of institutional independence or exceeding mandates.
Girlfriend:: Is recent volatility in the US dollar cyclical or structural?
Hodge: It’s a bit of both, cyclical and potentially structural. The dollar remains historically strong; The weighted index according to trade has recently reached the levels not seen since the agreement of the place [in 1985]So a certain correction was inevitable. After the “Liberation Day”, we saw a large sale in the dollar, the actions and the treasury bills. This reflected growing skepticism about the United States as a trading partner, a military ally in Europe and as a generally reliable global actor.
With foreign reserves currently just over 50% in dollars, a certain erosion is possible. I do not see a clear beneficiary – be it the euro, the yen, the Swiss franc or the gold – but more a general diversification far from the dollar. And when the president tweets things such as threats of sanctions or prices on countries coordinated with the BRICS or the pursuit of “anti-American” policies, this type of unpredictability makes the foreign reserve managers think twice.
Girlfriend:: How did recent rates and economic changes reshaped the priorities of the business treasury around liquidity and the working fund?
Hodge: One thing that really struck me is the increase in volatility, especially at the short end of the curve – and how the markets seem more and more comfortable with. The Fed acted as a safety net, mainly the buyer of the last appeal, but now he clearly tries to reduce his footprint on the American debt markets. We saw what you could call mini stress tests, and the market turned out to be remarkably resilient.
It cuts two ways. On the one hand, this volatility tolerance could make markets more robust in the future; On the other hand, this could lead to the subtarification of greater systemic risks. I do not know where I spot on this question, but what is clear is that the markets have absorbed a lot of volatility, whether they are induced by politics, linked to trade or linked to the Fed slowing its quantitative tightening.
Girlfriend:: Soon, someone will have to choose a new president of the federal reserve. If it depended on you, what qualities would you search?
Hodge: I would look for someone respected by both the markets and within the Fed, with a reputation for non-partisan and intellectual curiosity. The ideal candidate must direct with data, not be linked to the Bellician or endowed labels and demonstrate flexibility as the conditions change. Christopher Waller corresponds to this profile; He was both a fellowship and dominant if necessary and is considered an intellectual opinion leader. I tend to agree with its current point of view according to which, in normal circumstances, the Fed should reduce rates, which align with what standard economic manuals recommend.
Waller is already part of the Federal Open Market Committee and last September, when the Fed reduced the rates of 50 basic points – a decision criticized by the Trump campaign at the time – it did not disseminate, then reflecting its dominant position. And he is dominant now. His file shows that he is resistant to political pressure and lets the data guide him. Among the public candidates, I think it stands out as the best choice.
Girlfriend:: Natixis recently organized an event highlighting the variety of views of the IA impact on jobs and the global economy. What is your perspective on job loss? Do you plan a general destruction or a more balanced effect?
Hodge: I think the appointment on AI is probably overestimated. In twenty years, the jobs that we cannot even design for the moment will exist and move people on the job market. But it is no different from all kinds of revolutionary technological change that we have seen through history. So I am more optimistic than most. The AI will certainly move certain roles, but will also generate new types of work. Although the disturbance is real, it is equaled by the opportunity. What proportion of each is the real question mark, but I tend to embrace technological changes rather than being skeptical.
Girlfriend:: In business financing, do you expect the AI to considerably reduce banking and legal teams?
Hodge: AI can quickly automate tasks such as credit analysis and reasonable diligence, which makes the roles redundant. However, this allows talent to reassign greater value activities, which potentially increases productivity. Although the loss of short -term jobs is inevitable, especially for repetitive tasks, new opportunities should arise that balance the impact. The transition brings challenges, but also significant gains, especially for those that adaptable to new roles.
Girlfriend:: How much do you look at the debt levels of consumers and businesses, and how do they shape your perspectives on the economy?
Hodge: We expect slow growth throughout the rest of 2025: particularly slowing the third quarter growth, around 1% in the fourth quarter, then returning to the growth of trends from 1.6% to 1.8% in 2026. It is lower, but not with collapse.
On the company side, the balance sheets remain solid, in particular for companies that have reached capital markets during the pandemic. Many refined or extended deadlines, so that the dreaded “maturity wall” has not materialized. Even bilateral loans have been largely pushed to smooth the cycle.
On the consumer side, there is a clear bifurcation. The 20% the highest of employees always spend and overall, the balance sheets are relatively strong. But the 40% lower is under pressure. We note an increase in delinquations in the car, mortgage, credit card and student loans. Precautionary savings are running upwards, revenues remain stable, but expenses have softened.
This type of withdrawal is typical at the end of the cycle; Companies are cautious about sales, consumers on employment safety. We expect growth to be at the third trimester, but resistance to the underlying balance sheet should help prevent a descending spiral.
Girlfriend:: Can the United States develop plausible from its debt load of 36 billions of dollars?
Hodge: Absolutely. Countries do it all the time. If you are gaining growth of 3% forever, of course, the debt trajectory is better. But the potential growth of the United States is closer to 2%, and at this rate, the debt will continue to increase. None of the political parties seriously deals with the issue, and the trustworthy social security funds are on the right track to be exhausted by the early 2030s, perhaps earlier. I think that in 2028, this will become a major political problem; Whoever takes his duties will then inherit a tax -delay bomb.
We already see signs of tension. Of the 36 billions of dollars in total American debt, around 29 billions of dollars are held by the public and approximately 32% of these are held by foreign investors. Even a modest decline in foreign demand could increase the term premium and loan costs.
And we didn’t do anything significant to fold the cost curve. The Government Ministry of Efficiency barely affected the problem; Federal wages, for example, represent only 3% of discretionary expenses. Without contacting rights, debt will continue to make a ball.
A graphic that I often share shows how the number of workers per social security beneficiary collapsed, from 25 in the 1950s, to a 2.1 planned by 2030. Add the slowdown in immigration and other demographic trends, and the idea of growing in this is beginning to seem much less plausible.