This Friday, Niall Ferguson breaks down the resumption of hostilities with Iran, the state of the Ukraine war, and his key takeaways from the recent NATO summit; Michael McFaul reports on European attitudes toward the United States while offering his own view of the 2026 NATO Summit; and John Cochrane and Amit Seru share their advice for Kevin Warsh, grounded in an analysis of what the Fed’s financial regulators got wrong in the wake of the 2008 financial crisis.
War with Iran
Senior Fellow Niall Ferguson joined Rafaela Siewert of The Free Press to discuss the current state of affairs in the Strait of Hormuz and across the Middle East now that open hostilities between Iran and the United States have resumed. Ferguson recaps the role of the strait in the conflict and the impact of the war on US politics, with economic anxieties top of mind for many voters. Siewert and Ferguson then consider the recent NATO Summit in Türkiye and the significance of a licensing deal that will allow Ukraine to manufacture Patriot missiles domestically. The historian emphasizes that the massive volume of Russian casualties in recent months, plus enhanced Ukrainian strike capabilities deep inside Russia, are changing the dynamics of the conflict. “The Ukrainians are hitting targets in Moscow, in St. Petersburg, in targets far beyond the Urals, that it would have been inconceivable they could have reached a couple of years ago,” he says. Watch or listen here.
US Foreign Policy
Fresh off an 11-day trip across Estonia, Finland, and Sweden, Senior Fellow Michael McFaul shares insights into European leaders’ current perceptions of the United States as well as thoughts on the NATO Summit in Türkiye. While emphasizing that many Europeans have frustrations with the United States—extending beyond Trump to include qualms about his possible successors on the progressive left or populist right—McFaul says that “the summit ended without a major blow-up.” The NATO alliance endures, and the gathering also yielded “some good news regarding NATO and American support for Ukraine,” including a new €70 billion military equipment and training package. “One feel-good summit does not erase all the previous tensions in the NATO alliance,” McFaul concludes. “But these days, no-drama summits with Trump must be counted as a positive outcome.” Read more here.
Answering Challenges to Advanced Economies
At his Grumpy Economist Substack, Senior Fellow John H. Cochrane shares the full text of an op-ed he had previously published at The Washington Post, with Senior Fellow Amit Seru, on the future of the Federal Reserve under Chair Kevin Warsh. Seru and Cochrane argue that post-2008 financial reforms simply offered more of the flawed approach that allowed the financial crisis to develop in the first place. Rather than on “asset riskiness,” the economists say, the Fed’s focus “should instead have been on run-prone liabilities.” New regulations also changed bank incentives around making loans, leading to the rise in private credit and new financial technology companies. Cochrane and Seru encourage Warsh to “allow new and innovative competitors to emerge that provide financial services without run-prone funding.” And they also call on the Fed to remember that investors “losing money on a risky investment is not a crisis.” Read more here.
Senior Fellow Darrell Duffie joined Ira Jersey on a “Macro Matters” edition of the FICC Focus podcast to discuss how much the Federal Reserve can realistically shrink its balance sheet under Chair Kevin Warsh. Duffie argues that the real constraint is not on the asset side but on the liability side of the Fed’s balance sheet, especially reserve balances, paper currency, and the Treasury General Account. The two examine how payment-system needs, liquidity regulations, and banks’ operational demand for reserves limit how far the Fed can go, and why changes to those frameworks would be necessary for any meaningful reduction in balance-sheet size. Duffie and Jersey also discuss whether the Fed should rely more than it currently does on traditional temporary open-market operations, and the case for shifting the asset mix more toward Treasury bills and away from mortgage-backed securities. The episode closes with a discussion of stablecoins, including why Duffie believes they are unlikely to transform the domestic payments system anytime soon. Listen here.
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