Unhedged – “A satanic list of inflationary factors”
Date: December 4, 2025
Host: Katie Martin (Financial Times)
Co-host: Rob Armstrong (Financial Times)
Guest: Adam Posen (President, Peterson Institute for International Economics; former Bank of England rate setter)
Episode Overview
In this episode, the Unhedged team tackles 2025’s seismic financial events, zeroing in on the major shocks that followed the start of Donald Trump’s second presidential term. The panel explores whether April’s global market nerves were a mere blip or signal for deeper systemic trouble — focusing especially on the dollar’s shifting role, persistent inflationary risks (“the satanic list”), and the potential consequences of a less credible Federal Reserve. Adam Posen offers seasoned, often sobering, insights into these themes, with lively interplay among the hosts and a dose of on-brand banter.
Key Discussion Points & Insights
1. 2025: The Year that Shook Global Finance
- Trump’s second term triggered a break from multilateral alliances, prompting speculation about the dollar’s future as the world’s reserve currency.
- Katie Martin (00:56):
"He blew apart the global alliances we've all grown up with and made very serious people question whether the dollar could remain the glue that holds the whole system together."
2. The Dollar's Status: Unanchoring and “Decentering”
- Adam Posen (04:17):
"I think [the bond of trust] has snapped. It just hasn't fallen apart yet... The tethers snap, and they start slowly easing away, but until something comes that really pushes them apart, you don't see it."
- The dollar is exhibiting traits typical of weaker currencies:
- Adam Posen (04:44):
"The dollar occasionally now is behaving like an EM with interest rates going up when the rate goes down on bad news."
- Adam Posen (04:44):
- Central banks and big investors, especially China, are diversifying away from the dollar (e.g., moving reserves to gold).
3. Crisis-driven Change ("Punctuated Equilibrium")
- Rob Armstrong (05:56):
"Regimes... in markets, and I suspect this might be true of economies too, they change with a crisis."
- Adam Posen (06:11):
"I agree... You don't get steady, slow evolution for the most part. You get these changes in environment, changes in era or what you would call regime, and that's when the change happens."
4. Tariffs & Economic Impact: The Delayed Damage
- Despite heavy tariffs and anti-migration policies, markets have not (yet) panicked.
- Adam Posen (07:02):
"No one was sure that Trump would maintain it or that he would not negotiate it away... Particularly in the manufacturing sphere, you had to make very difficult decisions about your supply chains."
- Adam Posen (09:26):
"It's happening right now, frankly" — regarding tariffs' inflationary impact materializing with a lag.
5. The “Satanic Laundry List” of Inflationary Factors
- Posen predicts US inflation in Q3 2026 will exceed consensus forecasts, due to:
- Unanchored inflation expectations
- Fiscal stimulus (tariff revenue being spent)
- Dollar depreciation
- Tariffs
- Anti-migration policy leading to stagflation
- Adam Posen (09:26):
"I believe inflation is gonna be significantly higher than the current forecasts by a year from now, probably by a third."
- Rob Armstrong (10:51):
"I very much agree with your whole kind of satanic laundry list of inflationary factors there."
6. Inflation Expectations: Where’s the Signal?
- No clear evidence in standard survey data, but Posen is skeptical these capture turning points.
- Adam Posen (12:20):
"There's very little reason to believe that steady survey measures of inflation expectations are good predictors of shifts in inflation."
- Evidence from cross-country comparisons shows places with fresh inflation memories see expectations spike more readily.
7. Fed Leadership Uncertainty & Market Implications
- With Jay Powell stepping down, Kevin Hassett likely to be the next Fed chair, but Posen downplays differences among the shortlist for policy.
- Adam Posen (13:46):
"To a first approximation on inflation and interest rate policy, it doesn't matter that much...[But] if we get obvious inflation...whoever is the Fed chair...will raise rates."
- Concerns are more acute for financial stability and crisis management due to potentially politicized decision-making by a Trump-appointed Fed board.
8. Financial Stability Risks: Deregulation and Crypto
- Potential for regulatory bodies to collude with the administration’s agenda and sideline technocratic rules.
- Adam Posen (17:11):
"You have a Fed supervisory apparatus...that's going to coordinate much more with the treasury and...pursue the administration's agenda..."
- Adam Posen (18:43):
"You end up with a crypto sector that is currently basically unregulated, unsupervised...they're going to create an impression it's too important to fail."
- Direct and indirect ties between administration members and crypto investments exacerbate these risks.
9. The System’s Resilience: Hedging Against US Instability
- Institutional weakening and global hedging:
- Unprecedented levels of dollar hedging signal deep risk aversion (21:29–22:50).
- Adam Posen (21:29):
"The best we can get data, very serious money. People are buying hedges on dollars in a way we haven't seen since the late 70s, early 80s..."
- Broader shift: more countries considering trading in other currencies, self-sourcing, and even military independence.
10. Is “Lame Duck” Trump Era Less or More Dangerous?
- Rob Armstrong (23:00):
"Does that make them less dangerous or more dangerous in the context of financial stability...?"
- Adam Posen (23:55):
"There seemed to be a lot of voters who voted for Trump...because of inflation...but were not ideologically committed to the entire Trump agenda. And I think that's stabilizing for the system."
- AI as a potential counterweight:
- If productivity gains materialize, it could “offset a huge number of sins” (25:07–26:31).
- Adam Posen (25:07):
"AI may turn out to be the devil, aches Machina...If there really is a pony there...a sustained rise in productivity growth...that can offset a huge number of sins."
Notable Quotes & Memorable Moments
Dollar’s Changed Identity:
- Adam Posen (04:44):
“You know, the dollar occasionally now is behaving like an EM with interest rates going up when the rate goes down on bad news.”
On Surveyed Inflation Expectations:
- Adam Posen (12:20):
“There's very little reason to believe that steady survey measures of inflation expectations are good predictors of shifts in inflation.”
Unhedged’s Famous Banter:
-
Katie Martin (02:06):
“Adam is the one who knows what he's talking about. And Rob, Rob is doing that loud American thing from down the other end of the line.”
-
Rob Armstrong (27:33):
“I always thought a util was like a salty snack of some kind.”
On Productivity & AI:
- Adam Posen (25:07):
“If there really is a pony there…and I think there is…then that can offset a huge number of sins.”
Important Segment Timestamps
- Market Panic & The Dollar: 00:56 – 05:56
- Crisis-Driven Change: 05:56 – 06:37
- Tariffs & Economic Lag: 06:37 – 09:20
- Inflation Risks & “Satanic List”: 09:20 – 10:51
- Survey Data Skepticism: 10:51 – 12:52
- Fed Chair & Financial Stability: 13:21 – 17:05
- Deregulation & Crypto Risks: 17:05 – 20:42
- Systemic Hedging & Resilience: 21:29 – 22:50
- Lame Duck Trump & AI Hope: 23:00 – 26:38
Long/Short Segment (28:44 – End)
The regular ‘Long/Short’ round:
- Adam Posen:
- Long: New England Patriots
- Short: Crypto
- Rob Armstrong:
- Long: Patriots; Bugles (the snack)
- Katie Martin:
- Long: Financial repression (“everyone’s going to be banging on about financial repression next year”)
Tone & Closing
The episode strikes a precarious balance between alarm (on systemic risks and institutional decay) and dry, self-aware humor. Posen’s expertise grounds the discussion, though both hosts pepper the conversation with lighthearted asides and quick witticisms, especially when dealing with heavy matters like inflation and financial crises.
A hopeful note:
Adam Posen (27:55):
"Don't forget I said AI is going to save them all."
Summary Takeaway
If 2025’s upheaval left the global order shaky and inflation lurking beneath the floorboards, it’s not comforting to know “the system’s resilience is much worse than it used to be” (Posen, 22:50). Still, hope may lie in surprising sources — like a technological step-change, or, failing that, a very good corn snack.