For this Friday heading into the holiday weekend, Neil brings you something slightly different than our usual — a look at a new work of historical fiction that doubles as one of the best explanatory works on global economics you'll find.

  • Plus, a look at the slimming odds the Fed will cut rates this summer.

Programming note: We're off for Memorial Day. See you on Tuesday.

Today's newsletter, edited by Kate Marino and copy edited by Katie Lewis, is 679 words, a 2½-minute read.

1 big thing: Fighting Nazis with economics

Credit: Random House

In the late 1930s, as Hitler prepared the German economy for war, a secret team assembled in the U.S. Treasury Department to use economic tools to fight the Nazis. Their story is told in a terrific work of historical fiction out this week.

Why it matters: "The Wealth of Shadows" by Graham Moore has the addictive readability of a good spy novel — yet is simultaneously one of the best economics books I've read in a long time. It makes financial history uncommonly vivid and accessible.

  • Its lessons are crucial to understanding economic statesmanship and the geopolitics of money — and have disturbing echoes in the present-day Treasury's efforts to fight the Russian war machine with financial tools.
  • Not many books feature blurbs from both Liaquat Ahamed, author of a Pulitzer-winning history of Depression-era central bankers, and James Patterson, author of bestselling thrillers. But here we are.

The big picture: Moore's protagonist is Ansel Luxford, a Minnesota tax accountant — a real, if minor, historical figure — who is brought into the Treasury scheme to undermine German financial might.

  • He worked underneath Secretary Henry Morgenthau and the enigmatic financial diplomat Harry Dexter White, initially in the utmost secrecy given the U.S. government's policy of official neutrality as conflict widened in Europe.
  • The narrative moves quickly between financial conferences, moments of spycraft, and debates with John Maynard Keynes over who will pay for the British war effort and how.
  • There are amusing digressions, like a chapter in which Mabel Newcomer, a real-life Vassar professor who was part of the team, buys a car by applying the logic of "asymmetric information," also known as the "Lemon Problem," that would later win George Akerlof a Nobel prize.

State of play: If you read the book, keep a finger on a detailed appendix that lays out what, in each chapter, is historical fact and what has been streamlined, embellished or invented for novelistic purposes.

  • In a typical act of novelization, for example, Moore turns a series of letters between Keynes and White into a hostile, in-person exchange.

Fun fact: In the appendix, Moore thanks three people for helping him get the economics right in the book — names that will be familiar to many readers of this newsletter: Ahamed, Ernie Tedeschi and Austan Goolsbee.

What they're saying: "To understand how money flows through a society was to understand how blood brings life to the body of a man," Moore writes early in the book.

  • And that is as good a summary as any of why the subjects we write about here every day matter so very much.

2. See ya in September

Federal Reserve chair Jerome Powell speaks during a news conference earlier this month. Photo: Chen Mengtong/China News Service/VCG via Getty Images

Financial markets are whittling down odds on a summertime interest rate cut.

  • Strong economic data this week and hawkish Fed minutes have led traders to bet that there will almost certainly be no interest rate cuts until at least September.

Catch up quick: As we noted yesterday, S&P Global said May was the strongest month for business activity in more than two years — with manufacturers reporting a spike in input prices.

  • "What's interesting is that the main inflationary impetus is now coming from manufacturing rather than services," Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a note.
  • That means "rates of inflation for costs and selling prices are now somewhat elevated by pre-pandemic standards in both sectors to suggest that the final mile down to the Fed's 2% target still seems elusive."

That data came after minutes from the Fed's last policy meeting showed many officials were unclear whether rates were restrictive enough, a notably more hawkish tone than chair Jerome Powell adopted in his news conference following the meeting.

The bottom line: Just a week ago, the CME FedWatch tool showed 70% odds that the Fed will hold rates at current levels at its July policy meeting. It now puts that closer to a certainty, with odds of 87%.

  • Meanwhile, what the Fed will do in September is now looking more like a coin flip. CME shows 49% odds that rates hold steady and 45% odds of a rate cut.