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 looking at the (ISM) Manufacturing Employment Index, which is on a steep downward path (red line).

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

But... here’s the "plot twist" that many overlook:
Inflation is still stubborn (hovering around 3% and hasn’t settled at the ideal 2%), 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.

It's no longer just about commodity prices, but about "debt sustainability" and "financial stability."

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

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

And they won’t find a better justification than "protecting the labor market" to pass policies that are actually aimed at saving the bond market and ensuring liquidity.
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We are moving from the "fighting inflation" phase to the "managing financial risks" phase.

And in this phase, 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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