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Good Morning. US dock workers started to strike on Monday. If no deal is reached in the coming weeks, a quarter of US trade could grind to a halt, and inflation could start to rear its ugly head again. How will the Federal Reserve and the market respond to a new supply shock, just as it looked like the previous one was in the rear-view mirror? Rob is out for the rest of the week, so you are in my hands today. You know what they say: when the boss is away, the underling will . . . deliver timely market and economic insights. Email me: aiden.reiter@ft.com.

The neutral rate

Over the course of this interest rate cycle, there has been a lot of discourse about the neutral rate, often called r*, or the long-run interest rate consistent with low inflation and full employment. Though it seems a bit abstract, the neutral rate matters for the markets and investors. It will help determine the rate at which investors and companies can access capital in the long-run, and where money will flow as a result. And if the Fed overshoots r* as it brings down interest rates in the coming months, inflation will stage a comeback.

Unhedged recently observed the Fed has been raising its consensus estimate for r*:

But that graph hides a lot of disagreement. The dot plots in the Fed’s most recent summary of economic projections showed the Fed’s governors are split on this number. Estimates of r* ranged from 2.3 per cent to 3.75 per cent, and few estimates got more than one vote. Compare that to June and March’s more united estimates, and it seems that the central bank is getting less certain about the long-run neutral rate. Add to this that the Laubach-Williams estimate, or the New York Fed’s r* estimate based on GDP and market data, is decreasing over the same time period, and it makes for a complicated picture:

This is not surprising. As we suggested two weeks ago, r* is very difficult to measure, and is often found by the Fed blowing past it, rather than cautiously tiptoeing towards it. This is because, at its core, r* is the relationship between the level of investment and savings across an entire economy: if savings are too high among companies, households, a government, or even foreign governments, r* needs to come down to incentivise investment and growth, and visa versa. It is therefore impacted by almost every element of an economy, from population size, to productivity, down to consumer confidence, and it is incredibly hard to tell which impacts will be the deepest.

It seems most economists agree with the Fed that r* in the US is going to be higher in the long run. To sum up a few of the arguments:

• Recent experience: Despite high rates over the past two years, the US economy has remained hot. This suggests to some that underlying investment and savings patterns have shifted and raised r*.

• New technologies: We are still in an investment blitz for artificial intelligence and green technology. Major private and government investment in these areas over the coming years will require higher rates to stop the economy from overheating.

• Deglobalisation: In a famous 2005 speech, then soon-to-be chair of the Federal Reserve Ben Bernanke observed that the growing US current account deficit was evidence of a “global savings glut”, in which emerging economies with high savings rates were buying US Treasuries and assets — for lack of better investment opportunities in their economies or elsewhere. This flowed through to more available credit and higher savings in the US economy, meaning the neutral rate remained low despite high short-term rates, pumped up asset prices, and low Treasury yields (referred to by Alan Greenspan, Bernanke’s predecessor at the Fed, as “the conundrum”).

  But we are now in a period of deglobalisation and waning global growth. Global slowdowns and increasing tensions between the US and China will stymie flows into US assets, and US savings will not be as robust as a result. As evidence, foreign holdings of US Treasuries have decreased as a percentage of US GDP in the past few years.

  The US economy has also been reliant on cheap goods and services from China and emerging markets. If the US becomes more protectionist going forward — potentially through Donald Trump’s proposed tariffs, a crackdown on Chinese overcapacity, or a war in Taiwan — prices could go up, and the neutral rate would have to be higher.

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The market seems to have bought into this argument, too. Long-term Treasury yields, which are a reflection of long-term inflationary expectations, have trended up since the pandemic:

But all of these arguments have potential faults. To address them one by one:

• Recent experience: This cycle has been weird. Government stimulus and pent-up savings from a once-in-a-century pandemic collided with supply shocks from an unexpected land war in Europe. To extend our “one month is just one month” phrase, “one cycle is just one cycle”.

• New technologies: The long-term outcome to the AI investment craze would theoretically be higher productivity, which could translate to higher savings, if more productive companies are able to harvest higher earnings and then pass those on to their employees and investors. And investment could be lower in the long-run if AI raises the marginal productivity gains from investment, meaning that businesses will need to invest less to earn more.

• Deglobalisation: While the global savings glut might be waning, the US economy and market have still outperformed their developed and emerging counterparts. The market remains liquid, US asset prices continue to rise beyond expectations, and there is still outsized global demand for US Treasuries and equities. In other words, capital is still straining to get to the US.

  We also don’t fully know the direction of travel of the US-China relationship. If Beijing is able to release cheaper green technologies and electric vehicles without clashing with western nations, or if tariffs are implemented that equalise the prices of these technologies, rather than penalising Chinese goods, we could keep the inflationary outlook anchored.

In a blog post last week, Massachusetts Institute of Technology economist Ricardo Caballero made another interesting point. He observed that sovereign indebtedness has increased around the world, and that trend is likely to reverse in the US and other countries as governments face pushback on ballooning deficits, either from voters or the market. If governments have to claw back their spending and stimulus, they may need to lower rates in the longer-term to stoke domestic demand.

Demographics are also a confusing piece of the puzzle. Generally, the economic logic — promoted by economists such as Charles Goodhart — is that as a population gets older, r* will go up for two reasons. First, young labour will be in shorter supply, so wage competition will drive up inflation. And second, a higher proportion of the population will be spending down their nest eggs and pensions, resulting in investment outpacing savings.

But to some economists, that argument is for an “aged” population, or one that has reached a critical mass of elderly people relative to young workers. Leading up to that point, populations are “ageing,” which drives r* lower. As more people gear up for retirement, savings rates go up, especially as people fret over waning pensions. And before the demographics shift too heavily towards older people, many of the elderly may choose not to spend down their savings, and instead pass them down to their children. Japan is a useful example here: it had negative rates for eight years, but just this past year it raised rates, in part because competition for wages led to inflationary pressures.

It’s hard to say where the US is on the “ageing” to “aged” spectrum, making it difficult to draw conclusions about r*. A recent influx of immigration appears to have helped the broader demographic outlook. But, earlier this year, the Congressional Budget Office reduced its fertility estimates, suggesting the US will transition to “aged” sooner rather than later — if it is not already there.

r* may indeed be higher, as the central bank and the market have suggested. But our point here is there is not a consensus among the Fed or economists, and a lot of counterarguments to take into consideration. Bernanke would often refer to the Fed’s efforts as “learning as we go”; After this strange cycle, and with complex political, demographic, and technological shifts on the horizon, the Fed and investors should keep that learning mindset.

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OCTOBER is another month where we’ll see more shops closing down as retailers continue to quit the high street.

Shoppers have faced a swathe of closures on their local high streets in recent years as many of their favourite chains shutter sites.

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The cost-of-living crisis has meant households have less money in their pockets and so are cutting back on their spending.

As a result, high street shops have seen lower footfall and less money landing in the tills since the pandemic.

That, coupled with ongoing restructuring plans and high rents, has forced many chains to close.

Figures from the Centre for Retail Research revealed almost 10,500 UK shops closed for the final time in 2023.

The 12-month period also saw over 119,000 jobs lost across the sector.

According to the centre’s most recent data, 1,846 stores closed and 23,982 retail jobs were lost during the first six months of 2024.

This month will be no different, with Game, Poundland and Tesco among those closing stores.

Of course, it’s not all bad news. In some cases the branches will be replaced with bigger and better shops.

Retailers regularly open and close shops for a number of reasons – not just because they are struggling.

For example, they may have a store nearby that is performing better or it may be because they want to pick a spot that has higher footfall, such as in a retail park.

Poundland

Poundland will close its store in Sutton Coldfield, West Midlands on October 5.

A spokesperson for the budget retailer indicated it had not been able to reach an agreement with the landlord of the plot.

The spokesperson added: “We know how disappointing this will be.”

The Sutton Coldfield closure is not the first announced by Poundland in recent months.

The retailer announced the closure of its Macclesfield site in August after it was unable to secure a new lease agreement.

It also pulled down the shutters on a store in Altrincham, Greater Manchester, in July, having taken the site on from Wilko following its collapse.

Poundland bought 71 ex-Wilko stores when the homeware retailer fell into administration last year.

The discounter re-branded the locations and opened many up before Christmas.

But since then, several have closed down, including in Ellesmere Port in Galashiels and the Sailmakers Shopping Centre in Ipswich.

In total, Poundland has shut down nine former Wilko locations just months after bringing them back to life.

However, despite the closures, Poundland has still massively grown its presence on the high street in recent months.

Tesco

Tesco is closing its High Wycombe, Buckinghamshire superstore between October 2024 and autumn 2025.

The store will remain closed while landlord Buckinghamshire Council reconfigures the site. 

Tesco will open a temporary Express store in the Eden Shopping Centre while the branch is closed.

A Tesco spokesperson said: “Our superstore will reopen in Autumn 2025 with a refreshed look and feel which we’re excited to share with customers.”

Tesco is pursuing a strategy of expansion with plans to open 70 more stores across the UK over the next year.

Game

Game is shutting its store in The Broadway Shopping Centre, Bradford, and has launched a closing down sale.

An exact closure date has not yet been revealed, but a spokesperson for the shopping centre told The Telegraph and Argus: “We can confirm that Game will be closing and we will be announcing new fashion and beauty retailers in the coming weeks.”

Shoppers have expressed concern about the number of stores closing in the town.

One said: “Bradford is going to be a ghost town.”

The latest Game closure comes after the retailer, operated by the Frasers Group, shut a number of other branches across the UK.

Almost a dozen Game branches have closed in England and Wales since last October.

A branch in Nuneaton, Warwickshire, shuttered in November, while a store in Witney, Oxfordshire, closed in January and one in Plymouth, Devon disappeared the following month.

Trespass

Trespass’ store in the Silverburn shopping centre, in Glasgow, will be shutting for the final time over the coming weeks.

The store, which sells ski wear, waterproof jackets, fleeces, festival accessories, walking boots and camping gear, has launched an everything must go sale.

Black and yellow signs read: “Closing down. Everything must go.”

Trespass has not yet confirmed an exact closing date.

Trespass, which has around 170 UK branches, confirmed last summer it would pull down the shutters on half a dozen branches.

Stores shut in Chesterfield and Workington while others in Canterbury and Solihull were also earmarked for closure.

In recent weeks, Trespass has also closed its store in St Johns Precinct, Liverpool, after signs were placed in the window.

Boots

Boots has not confirmed exact dates for October closures, but has been shuttering a large number of sites following a review of its estate.

The health and beauty chain announced last year that it would close 300 branches, and more than 250 have since shut.

The remaining stores marked for closure will have shut for good by the beginning of October.

The move is aimed to reduce the chain’s store portfolio from around 2,200 to just 1,900.

The pharmacy chain employs over 52,000 team members, and it has said that these closures will not lead to any redundancies.

Cineworld

Cineworld has plans to close six UK sites as it enters the first phase of a major restructuring.

Venues in Glasgow, Bedford, Hinckley, Loughborough, Yate, and Swindon are expected to close down over the coming months.

A Cineworld spokesperson said: “We are implementing a restructuring plan that will provide our company with a strong platform to return our business to profitability, attract further investment from the group, and ensure a sustainable long-term future for Cineworld in the UK.”

The fate of the sites will not be confirmed until the legal process for the restructuring plan is completed.

The chain is also said to be renegotiating rent agreements for around 50 of its sites.

Struggling businesses often do this to help lower their operating costs and help retain more of their brick-and-mortar estate.

However, landlords don’t need to accept what’s put forward in these discussions.

This means that up to 50 additional Cineworld complexes could also be at risk of closure if the chain and its landlords cannot reach an agreement.

A further 25 cinemas will be left unaffected by the restructuring plans and will remain open for the foreseeable future.

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FOR families on low incomes or struggling financially, Christmas can be a particular source of stress.

From pressure to get gifts for partners and children to forking out for Christmas dinner, it can be hard to do the festive season on a budget.

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The good news is that there are grants and charities that can help you get through it.

Charity Turn2Us says that while most charitable funds do not provide specific grants to help people meet the costs of Christmas, some may consider applications of this nature, depending on your circumstances and background.

At the same time, others might give you money to help with your day-to-day living costs, which could free up some cash for the festive season.

The amount of money available through grants depends on which ones you are eligible for. Some are created for people who work or have worked in specific professions, whilst others are aimed to help people with specific disabilities or health conditions. Others are tied to a specific location.

Grants don’t have to be paid back, and they won’t affect your benefits. Most charities offer at least £100, but some offer thousands.

For instance, the dance professionals fund has grants available between £600-£3,000 for dancers, dance teachers, and choreographers. The money can be used for cost-of-living expenses, medical fees, and even career retraining costs.

Meanwhile, B&CE’s Charitable Trust has grants available worth up to £500 for people in the construction industry. These can be used for day-to-day livings expenses, paying off debts, and even holidays.

The Salespeople charity helps anyone who has worked as a Business to Business (B2B) salesperson for 5 years within the last 10 years, visiting business customers in their premises to sell goods or services. Grants are worth £1000 or more.

Some grants are even specific to employees of certain companies. For instance, the BHS Trust Fund helps people who have worked for BHS for at least twelve months, whether they’re currently in work, between jobs or even retired.

The charity awards Christmas grants to individuals facing financial difficulties in the lead up to the festive period.  The support ranges from hampers and food shopping vouchers to toys for children. Applications open in November and run through to the first week of December and you can find out more here.

To find out what grants you might be eligible for, you can use Turn2Us’ grant search tool. If you fill in your age, any disabilities or illnesses, your profession (and your partners if you have one) and any religious affiliations, it will show you a list of grants available.

You could also use the platform Lightning Reach, which tells you the grants you might be eligible for, and helps you apply.

It also details how much the grants are worth, the eligibility criteria, and how to apply for each one.

Some grants are paid within weeks, while others take longer, so if you’re specifically concerned about the Christmas period, it makes sense to start applying as soon as possible.

Household Support Fund

You may be able to get help with essential living costs from your local council through a program called the Household Support Fund (HSF).

This program is meant to assist people who are struggling or cannot afford basic needs like energy bills, water bills, and food.

Some councils provide food vouchers to families during school holidays as part of this program.

Eligibility criteria differs from one council to another, so it’s a good idea to visit your local council’s website to find out what help is available and how to apply.

For example, Richmond Council offers grants of up to £600 for families with two or more children, while Haringey Council usually gives out vouchers of around £100 per household.

Other charities providing Christmas help

The Salvation Army

Each Christmas, the Salvation Army supports thousands of people across over 600 communities in the UK.

It says that this year, it will be providing Christmas lunches and companionship to older people living alone, giving food parcels to families who are struggling to afford a proper Christmas lunch, and distributing toys to children whose parents are unable to afford presents.

You can find your location Salvation Army using the map tool.

Crisis

Every year, Crisis at Christmas offers warmth, accommodation, healthcare, food and specialist advice. 

Last Christmas, the charity worked with over 6,600 people facing homelessness through day centres and hotels in London, and Crisis Skylight centres across Britain.

Visit the ‘Get Help’ section of the website, if you think Crisis can help you.

CashforKids

The CashForKids Mission Christmas appeal provides gifts for kids from underprivileged families.

You can’t apply directly, but referral services such as social services, GPs and teachers can do so on your behalf.

Priority is given to applications that are submitted from social services and other bodies of authority within the remit of caring for disadvantaged children.

The organisation or professional making the application is responsible for ensuring that the gifts are distributed to children who meet the eligibility criteria.

Family Fund

Family Fund works with partners in the UK to offer grants that can be used to allow families with a disabled child to go on holiday. This includes holidays over the festive period. 

The charity says applicants should include as much information as possible about the type of break you’d like as a family and the difference it will make to the child or young person you’re applying for. You can make an application here.

Schools, councils and churches

Many local schools, councils and churches run schemes to help disadvantaged families over Christmas, so it’s worth checking with any that are near you to see what’s available. 

In the run up to December, more charities will announce schemes. For instance, Lidl, Book Trust, Action for Children, and Family action have all run initiatives in the past.

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The stories that matter on money and politics in the race for the White House

It is a truism that US vice-presidential debates rarely affect the electoral outcome. After Tim Walz’s lacklustre showing against JD Vance on Tuesday night, Democrats will be praying that still holds.

Political betting site Polymarket gave Walz a 70 per cent chance of winning at the start of the debate. By the end he was trading at just 33 cents. It will be some consolation that the TV viewing numbers are likely to be far lower than the audience of almost 70mn that tuned into Kamala Harris’s encounter with Donald Trump last month.

Either way, the Vance-Walz debate was probably the last of the 2024 presidential campaign. Trump has shown no interest in agreeing to Harris’s call for a second encounter, understandable given how much blood she drew in their first.

In terms of how America votes on November 5, Tuesday’s “veep debate” may not even rank as the second-most impactful event of the day. The first was Iran’s missile attack on Israel and the threat of a wider Middle Eastern war. If sustained, the jump in crude oil on Tuesday will feed into higher US fuel prices and hit consumer sentiment, which would harm Harris. Any impression of Middle East chaos is also likely to play into Trump’s hands.

The second-most important event on Tuesday was arguably Trump pulling out of CBS’s widely watched 60 Minutes show next week and Harris confirming her participation. How she comes across in that interview, and the fact of Trump’s absence, is likely to have more sway than the Vance-Walz debate with the few million American voters who are still undecided.

Nevertheless the vice-presidential encounter offered several pointers on the nature of this election. Three stood out.

The first was Vance’s confidence and fluency. The Ohio senator also told some whopping lies. Of these, Vance’s claim that he had never supported a federal abortion ban and that Trump strengthened the Affordable Care Act, also known as “Obamacare”, were most egregious. Vance has consistently backed a national ban and other restrictions on women’s bodily autonomy. Trump tried to abolish the ACA multiple times.

Vance also conspicuously dodged questions about whether the 2020 election was stolen. His evasions may come back to haunt him. Overall though, Vance evidently took on board widespread advice to come across as more likeable. The debate was a mirror image of last month’s Trump-Harris encounter. Both vice-presidential candidates were civil throughout.

Second, Walz was nervous and often faltering. The Harris-Walz campaign has taken some pride in avoiding mainstream media interviews and press conferences. Walz’s exposure has mostly been in soft settings with friendly journalists. Vance, by contrast, has been touring the Sunday morning shows almost every week. His slick evasions and polished whataboutisms betrayed many hours of practice on live TV.

The Harris-Walz campaign may come to regret their preference for gentler surroundings. America’s relatively small but potentially decisive share of wavering voters repeatedly tell pollsters that they want more information about Harris’s policies. That Trump has supplied much less policy detail is striking. But nobody said politics was fair.

Finally, Tuesday night offered a glimpse into one of America’s possible futures. Given the running mates’ respective age differences with their bosses, Vance’s performance was more significant. At 40, he is barely half Trump’s age. The prospect that a second term Trump would yield to a Vance administration before it ends is significantly higher than that of Harris giving way to Walz, who is several months older than her.

Vance conveyed Trumpism in its palatable form. He stood up for every tenet of Trumpism, including his refusal to accept that Biden won the 2020 election. But his mien was tempered and reasonable.

Many Republicans last year invested great hope in Florida’s Ron DeSantis as the man who could uphold Trumpism without Trump. DeSantis turned out to be a dud in debates and on the hustings. Vance, on the other hand, has a future whatever happens next month. Liberals are right to fear Vance; he is a hardline Christian nationalist. After Tuesday night, however, they would be rash to dismiss him.

edward.luce@ft.com

Today’s agenda: Oil prices surge; Vance-Walz debate; Google’s AI lab assistant; how Andrea Orcel did it; and Martin Wolf on the end of cheap money

Good morning. Israeli Prime Minister Benjamin Netanyahu vowed to retaliate against Iran after the Islamic republic fired scores of ballistic missiles at Israel yesterday as the region slid ever closer towards all-out war. Here’s what we know.

What happened: Israel said it intercepted most of the estimated 180 missiles, but there were a “few hits” in the centre and south of the country. A person briefed on the situation said Tehran’s intended targets included military and intelligence infrastructure near Tel Aviv. Iran said 90 per cent of its missiles had hit targets, with state media claiming successful hits on an air base and civilian airport. Israel’s military said it was not aware of any casualties from the barrage. The attack came soon after two Palestinian shooters killed six people in Tel Aviv’s southern neighbourhood of Jaffa.

Will the US get dragged into a potential war? American naval destroyers helped Israel to shoot down Iran’s missiles in yesterday’s attack, and the US has promised to “work with Israel” to ensure “severe consequences” for Tehran. The US has also been deploying more forces since Israel assassinated Hizbollah leader Hassan Nasrallah and intensified its bombing of Lebanon. It has about 40,000 troops in the region.

The chances of the US not backing Israel are small, writes chief foreign affairs columnist Gideon Rachman, who notes that the strike has delivered an “October surprise” that may benefit Donald Trump in the US election. Politicians will want to appear fully supportive of Israel and avoid appearing soft on Iran.

We have more insight into this latest escalation and its impact:

• Oil prices surge: Brent crude rose as much as 5 per cent to $75.40 a barrel yesterday as the possibility of all-out war stoked supply fears.

• Military briefing: While Israel’s Iron Dome intercepted most of Iran’s missiles, there were crucial differences from Tehran’s earlier attack in April.

• 12 key moments: From exploding pagers and assassinations to missile strikes, Middle East editor Andrew England traces the events pushing the region toward full-scale war.

Scroll further to read about how the hostilities will affect the White House race. And here’s what else I’m keeping tabs on today:

• Starmer in Brussels: European officials have warned the UK prime minister not to expect an easy ride as he tries to “reset” Britain’s ties with the EU.

• Aircraft ‘mega trial’: AIG, Chubb and Lloyd’s of London are among insurers facing a multibillion-dollar claim in London’s High Court from owners of planes stuck in Russia.

• Markets: ConAgra Brands, JD Sports, and Lamb Weston report results. Israel’s markets are closed to mark Rosh Hashana eve.

Five more top stories

1. Vice-presidential candidates JD Vance and Tim Walz sparred over US foreign policy and immigration in a debate yesterday night, laying out sharply contrasting visions of America’s role in the world at a pivotal moment in the campaign’s final stretch. Here’s what they said about the escalating conflict in the Middle East.

2. Exclusive: Google DeepMind and BioNTech are building AI lab assistants to help researchers plan scientific experiments and better predict outcomes as companies race to find specialised applications for energy and data-intensive artificial intelligence models. Google’s AI chief said biology was “seeing a revolution” as a result of AI.

3. China’s outbound investment is surging from already-record levels, government data shows, as analysts suggest that the country’s booming clean energy technology sector is increasingly looking to set up manufacturing operations abroad in the face of US and EU tariffs and driving a “tsunami” of green investment.

4. Exclusive: City minister Tulip Siddiq is pushing for the UK to start issuing “digital gilts” on the blockchain amid concerns that Britain needs to modernise its markets to compete internationally, but the Treasury agency responsible for managing the government’s debt has resisted the move. George Parker and Michael O’Dwyer have more details.

5. Nike has reported a 10 per cent drop in quarterly sales and withdrawn its full-year forecast, sending shares down as much as 7 per cent in after-hours trading yesterday. This come as the world’s largest sportswear maker navigates a tumultuous period ahead of the arrival of its new chief executive.

News in-depth

Andrea Orcel stunned Germany last week by raising UniCredit’s stake in Commerzbank to 21 per cent, mirroring tactics from hostile takeover battles of more than a decade ago. But a loophole in EU disclosure rules has since been closed, making large-scale secret stakebuilding impossible. So how did the Italian lender’s chief manage to sidestep these rules?

We’re also reading . . . 

• Ozempic and the gym: Weight-loss drugs and a new focus on wellness are pushing many exercise machines towards obsolescence, writes Brooke Masters.

• Eli Lilly’s rise: The company is set to become the first $1tn drugmaker by market value, but investors see warning signs it has reached “peak enthusiasm”.

• Raspberry Pi: Conceived to enable technology education, the Cambridge-based company has charmed its way a UK computer revival, writes John Gapper.

• Modi’s big challenge: India faces an economic mismatch: a chronic shortage of jobs matched only by the lack of suitable candidates to fill them.

Chart of the day

Have we seen the end of cheap money? We are witnessing the beginning of an easing cycle in monetary policy, but there are reasons to expect real interest rates to go even higher, writes Martin Wolf.

Take a break from the news

Wondering what to do, buy and eat this month? From jazz and brandy at Brunswick House in London to a restaurant with a “bring your own truffle” scheme, here are 14 brilliant recommendations from HTSI’s writers.

Additional contributions from Gordon Smith and Benjamin Wilhelm