Recalibrating. That seems to be the key word within the Fed statememt from Powell. But it’s confusing. It’s difficult to reconcile with the “strong economy” narrative. You don’t recalibrate something that is strong. You recalibrate something that’s is not working properly. Then you make adjustments. The fact that the Fed delivered 50 bps and will deliver 50 more before year end, makes you wonder what else is out there that forced an adjustment. In the chart below you can see the weekly number of corporate bankruptcies in the US. If we look at the quarterly numbers, 2,462 bankruptcies occurred during 2Q, the maximum since 2011. Bankruptcies lead to higher unemployment, and perhaps that’s the reason why Powell advocated for an aggressive cut, recalibrating the Fed’s position towards the economy. In layman’s terms, they’re catching up to reality.
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