We begin this week’s newsletter by examining the different reactions, from investors to other central banks, to the Federal Reserve’s recent rate cut. Next, we turn our focus to the recent escalation of hostilities between Israel and Hezbollah, highlighting the potential for further destabilization of the region. We then shift to a discussion of the changing world order, focusing on emerging threats and trends that undermine the US dominance in geopolitics. Finally, we conclude with an analysis of the stalled progress in global economic development, from the sagging foreign aid in developing countries to the stalling growth in developed ones.

Fed Rate Cuts Draw Different Reactions

How Five Wall Street Investors Will Trade Falling Interest Rates 

David Uberti, Wall Street Journal

What’s Next for Rate Cuts? The Fed Is Watching Jobs and Prices 

 Jeanna Smialek, New York Times

Asian central banks in no rush to follow the Fed in cutting rates 

Lisa Kim, Nikkei

The Federal Reserve’s recent rate cuts, following a period of elevated interest rates aimed at controlling inflation, are already shifting market strategies. Investors are moving away from safe short-term U.S. debt and favoring fixed-income assets like municipal bonds and dividend-paying stocks, anticipating reduced returns from cash holdings. While some, like Rob Arnott, remain cautious about a potential hard economic landing, others, including Richard Bernstein, expect cyclical sectors to benefit from the cuts. International investments, particularly in currencies like the yen, are also being considered, though geopolitical risks remain a concern.

The Fed is keeping its options open, with Governor Christopher Waller hinting at potential quarter-point cuts in November and December, contingent on incoming economic data. Waller emphasized the need for a balanced approach, warning that cutting rates too quickly could reignite inflation, while moving too slowly could push unemployment higher. Meanwhile, Asian central banks are adopting a more cautious approach to rate cuts despite the Fed’s aggressive 50 basis point reduction, with most ASEAN nations expected to follow a measured cutting cycle of 25 basis points per quarter. While countries like Malaysia and India maintain stable inflation and growth, China continues to face deflationary pressures despite leaving key lending rates unchanged.

Israel’s Escalation of Conflict with Hezbollah

Lebanon: Memories of War

Loubna El Amine, The New York Review

Israel and Hezbollah Are Escalating Toward Catastrophe 

Dana Stroul, Foreign Affairs

Opinion Hezbollah device attacks: Is this a prelude to war, or an alternative? 

Max Boot, Washington Post

Israel’s Attacks on Hezbollah Have Intensified but Stop Short of All-Out War 

Patrick Kingsley, New York Times

Lebanon has been rocked by a resurgence of violence, bringing back painful memories of past conflicts. Loubna El Amine reflects on growing up during the Lebanese Civil War, recalling the constant fear, trauma, and uncertainty that shaped her childhood. This sense of history repeating itself was vividly revived with recent pager bombings targeting Hezbollah fighters and civilians. These attacks highlighted Lebanon’s enduring divisions and the complex relationship many Lebanese have with Hezbollah. On one hand, the group provides security and essential services to many, while on the other, its military influence and actions continue to entangle Lebanon in cycles of conflict, leaving the country searching for a peaceful future amid ongoing strife.

The escalation of conflict between Israel and Hezbollah has added another layer of volatility to the region. Both sides have managed their attacks carefully in the past to avoid unnecessary escalation, but recent developments indicate a shift toward a far more dangerous phase of confrontation. Israel’s use of cyber and covert operations, including the bombing of Hezbollah’s communication devices, marks an unprecedented tactic aimed at crippling the militia’s capabilities. This has prompted retaliatory strikes from Hezbollah, maintaining a precarious balance that could tip into full-scale war at any moment. With Israel also embroiled in its campaign against Hamas in Gaza, the situation remains perilously unstable, leaving little room for de-escalation as the threat of wider regional conflict appears more likely.

The Shifting Global Order

A new quartet of chaos threatens America

The Economist

The Battle for the BRICS 

Alexander Gabuev and Oliver Stuenkel, Foreign Affairs

Erdogan intensifies diplomatic chess to boost Turkey’s independence 

Hiroyuki Akita, Nikkei

A new coalition comprised of China, Iran, North Korea, and Russia is emerging, driven by shared opposition to the U.S.-led global order, deepening military, economic, and technological cooperation. These countries are working together on weapons transfers, industrial support, and military expertise, with China playing a pivotal role in aiding Russia’s war effort through the supply of key components, while North Korea and Iran contribute large quantities of missiles. Meanwhile, Turkey, though a NATO member, is taking a more independent, strategic path by balancing its ties between Russia and the West. Despite providing military support to Ukraine, Turkey maintains close relations with Russia, positioning itself as a mediator in global conflicts, highlighting the broader challenge these nations pose to Western security as they test the limits of cooperation and autonomy.

Simultaneously, the BRICS group— originally comprised of Brazil, Russia, India, China, and South Africa—is grappling with internal divisions as it grows in economic and geopolitical influence. While China and Russia push for a more aggressive stance against the West, Brazil and India advocate for reforming rather than dismantling the existing global order. Despite these differing approaches, the BRICS nations are united in their belief that the world is moving towards multipolarity, a shift away from U.S. dominance that attracts developing countries to the bloc. The future of BRICS, however, remains uncertain, as it teeters between becoming a platform for China and Russia’s anti-Western agenda or a vehicle for more inclusive and democratic global governance. Together, the emerging coalition and the evolving BRICS dynamic highlight the growing complexity of global power structures as nations vie for influence in a shifting world order.

Stalled Progress in Global Economic Development

The world’s poorest countries have experienced a brutal decade 

The Economist

How Corruption Fuels Inequality in China 

 Branko Milanovic and Li Yang, Foreign Affairs

Clean Energy Is Security 

Jason Bordoff, Foreign Policy

Governments are bigger than ever. They are also more useless

The Economist

Over the past decade, development progress in the world’s poorest countries has stalled, reversing gains in reducing extreme poverty since 2000. Between 2000 and 2015, global efforts lifted over 1.1 billion people out of extreme poverty, reducing the percentage of people living on less than $1.90 a day from 36% to 10%. However, progress slowed significantly after 2015, with over 700 million people still trapped in extreme poverty today. Global shocks such as the COVID-19 pandemic, rising inflation, and escalating conflicts have exacerbated this slowdown. Economic growth, once averaging 4-6% annually in low-income countries, has dipped below 2% in many regions, further undermining “catch-up” development. Efforts by institutions like the IMF and World Bank to mitigate these impacts have had limited success, as an additional 2.8 billion people remain with little to no chance of improving their living standards.

Worsening conditions in Sub-Saharan Africa and the Middle East suggest deeper systemic issues. In Sub-Saharan Africa, real per capita income has barely improved since 1970, with growth rates stagnating around 1.2% annually in recent years, compared to 3-5% in the 1990s. Domestic savings rates in the region have dropped from an average of 20% of GDP in the early 2000s to below 10% by 2023. Meanwhile, foreign aid—once accounting for up to 12% of some African nations’ GDP—has drastically declined as Western countries prioritize climate change and refugee care, while China has scaled back its development lending. This economic stagnation is mirrored in wealthier nations, where state spending has ballooned from 30% of GDP in the 1960s to over 40% today. However, much of this increase has gone toward entitlement programs rather than long-term investments in infrastructure, healthcare, or education. As a result, public services have declined, and deficits have risen, reflecting a growing inefficiency in government management despite larger budgets. The paradox is that, despite their size, these “Lumbering Leviathans” are increasingly ineffective, with declining state capacity and weakened public trust.