The Rearview Mirror Fallacy
Jan Hatzius is selling a dream of frictionless growth. Speaking at the Goldman Sachs Global Macro Conference APAC yesterday, the firm’s chief economist declared that the primary headwinds of the last two years have dissipated. He pointed to tariff drags being firmly in the rearview mirror. This is a bold claim for a market still reeling from the supply chain volatility of 2024. Hatzius suggests that the global economy has finally digested the cost-push inflation triggered by the trade wars of the early 2020s. Markets reacted with cautious optimism. The S&P 500 hovered near record highs as traders parsed his words for a signal of the next Fed move.
The technical reality is more complex. When Hatzius speaks of tariffs in the rearview, he is referencing the stabilization of trade elasticities. For years, the global manufacturing sector struggled to price in shifting duties between the US and its major trading partners. By January 2026, these costs have been fully integrated into corporate balance sheets. The shock factor is gone. Companies have rerouted supply chains through Vietnam, Mexico, and India. This structural shift is what Goldman defines as the end of the drag. It is not that the tariffs disappeared. It is that the world learned how to bypass them.
Easing Conditions and the Liquidity Trap
Financial conditions are loosening at a rapid clip. Per the latest Bloomberg market data, the Goldman Sachs Financial Conditions Index (FCI) has hit its lowest level in twenty-four months. This index is a weighted average of riskless interest rates, exchange rates, equity prices, and credit spreads. When it drops, the economy accelerates. Hatzius argues that this easing provides a massive tailwind for global GDP in the first half of 2026. He is essentially signaling that the era of restrictive monetary policy has ended without a hard landing.
But easing conditions are a double-edged sword. Lower borrowing costs encourage leverage. We are seeing a resurgence in corporate debt issuance that mirrors the pre-pandemic era. If the Fed does not maintain a delicate balance, this easing could reignite the very inflation Hatzius claims is defeated. The current narrative ignores the potential for a rebound in commodity prices. If the APAC region accelerates too quickly, the demand for energy and raw materials will spike. This would force a reassessment of the current goldilocks scenario.
Visualizing the Financial Thaw
The following chart illustrates the steady decline in the Financial Conditions Index leading into the current quarter. A lower value indicates easier access to capital and lower systemic stress.
The APAC Pivot
The choice of venue for this announcement was no accident. Goldman is pivoting hard toward the Asia-Pacific region. As noted by Reuters analysts, capital flows into Southeast Asian infrastructure and tech sectors have surged by 14 percent year-over-year. Hatzius is positioning Goldman as the primary bridge for Western capital seeking yield in a post-tariff world. He highlighted the resilience of regional markets like India and Indonesia. These nations have successfully navigated the volatility of the US dollar and are now reaping the rewards of domestic policy reforms.
This optimism carries a heavy dose of institutional cynicism. By declaring the tariff drag over, Goldman is encouraging its clients to move further out on the risk curve. The firm is betting that the geopolitical tensions between the US and China have reached a plateau. They argue that the decoupling is complete and the new status quo is stable. This ignores the risk of sudden policy shifts in Washington or Beijing. The global economy is not frictionless. It has simply found a new, more expensive way to operate.
The Hidden Cost of Stability
Stability comes at a price. The “rearview” tariffs have left a permanent mark on the consumer price index. While the rate of change has slowed, the absolute price levels remain elevated. This is the structural inflation that central banks are struggling to acknowledge. Hatzius focuses on the growth outlook because growth generates fees for investment banks. He is less concerned with the erosion of purchasing power in the middle class. The easing financial conditions he celebrates primarily benefit those with existing assets. The wealth effect is real, but it is concentrated.
We must look at the credit spreads. Narrowing spreads indicate that investors are no longer demanding a high premium for risk. This suggests a dangerous level of complacency. If the global economy encounters a sudden shock, the lack of a risk premium could lead to a violent correction. Goldman’s outlook assumes a linear recovery. Markets are rarely linear. The transition from a high-inflation regime to an easing regime is historically fraught with volatility. Hatzius is betting that this time is different because the supply side has finally adjusted.
The next major data point to monitor is the February 15th Treasury International Capital (TIC) report. This will reveal if foreign central banks are buying into the Goldman narrative or if they are continuing to diversify away from US-denominated assets. If the APAC region continues to soak up liquidity, the US dollar may face downward pressure regardless of what the Fed does. Watch the 10-year Treasury yield. If it breaks below 3.5 percent, the frictionless recovery narrative will be the dominant market force for the remainder of the year.
