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Recently, the European defense fund announced its decision to procure weapons only from EU sources or countries with defense agreements with the EU. This decision is seen as logical from a European perspective; however, some global capitalism advocates find it disheartening. Feedback on this development can be sent to Robert Armstrong and Aiden Reiter via email.
Regarding the Federal Reserve, the market responded positively to comments made by Jay Powell and the Federal Open Market Committee. Stocks rose further after the press conference, while Treasury yields saw a decline. Although this indicated a dovish meeting for some, the Federal Reserve had actually reduced its forecast for growth, slightly increased unemployment projections, and raised its inflation outlook. There are concerns of stagflation, not vividly keen, stemming from unease about the Trump administration’s tariff policies.
The Fed maintained its interest rate policy projection, but it subtly indicated a shift toward tighter policy. Powell highlighted the increasing uncertainty among committee members, which mainly leaned toward slower growth and higher inflation. Despite these projections, the market remained unperturbed, possibly because it had already anticipated the Fed’s message or welcomed the Fed’s tempered response to inflation risks associated with tariffs.
In other news, the Fed declared a significant slowdown in quantitative tightening (QT), transitioning from allowing $25 billion in securities to $5 billion to roll off its balance sheet each month. Although the end of QT was expected, the timing was earlier than most analyses predicted. While chair Powell maintained that this slowdown was part of the normal QT process, it also coincided with the looming debt ceiling issue, raising concerns about liquidity in the financial system.
The slowdown is seen as favorable news as it adds liquidity to the market, potentially easing Treasury yields. Experts suggest that, should the debt ceiling debate intensify in Congress, this liquidity will become increasingly crucial to avoid financial strain.
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