The Fed in a Dilemma: When "Justifications" for Cuts Become More Important Than Inflation Itself

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In the markets, the golden rule says: "Watch the actions, ignore the noise."

Jerome Powell may hint at the idea of "pausing rate cuts" temporarily, but the labor market chart screams a completely different reality.

We are facing the (ISM) Manufacturing Employment Index, which is on a sharp downward trajectory (red line).

This decline is the very crack the Fed fears, and it is the gateway that will force it to cut rates, whether we like it or not.

But... here is the "plot twist" that many people miss:
Inflation remains stubborn (hovering around 3% and has not settled at the ideal 2% target), and GDP is strong.

Logically, these numbers do not call for a rate cut.

So, why the insistence on cutting?
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Because the other half of the Fed's equation is under pressure.

The issue is no longer just about commodity prices, but about "debt sustainability" and "financial stability."

The financial system needs easier liquidity to breathe, and government debt needs lower costs to be managed.

Central banks want to cut rates, and they are now looking for the perfect justification to market this decision to the public.

And they won't find a better excuse than "protecting the labor market" to pass policies that actually aim to save the bond market and ensure liquidity.
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We are moving from the stage of "fighting inflation" to the stage of "managing financial risks."

And in this stage, liquidity is king.

How do you read the Fed's next moves?

Is it fear for jobs or fear of debt?

Share your opinion..

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