Once again, we're watching the FED's theater unfold. Everyone is hanging on to Jerome Powell's every word, focusing on the repeated magic term “recalibration.” But let me paint a deeper picture here, because getting lost in wordplay is a major mistake if you want to understand what’s really at stake behind the scenes.
The latest FED announcements contain more than meets the eye. To see the full picture, you have to look at the U.S. bond market’s wild expansion and how bonds have now become a real problem. Back when borrowing costs were low, the U.S. Treasury could borrow without limit. But now, with interest costs skyrocketing from $300 billion to $1.3 trillion, this is a massive risk testing the resilience of the system. Whatever the FED does, it’s becoming impossible to ease this bind.
I believe that the FED’s plan to cut rates is part of a strategy to support the Treasury’s immense debt load. But the massive bond supply flooding the market now almost feels like an invitation to investors: “Come be part of this quandary.” The talk about the resilience of the U.S. economy is little more than a thin veil over the real economy.
Why, then, are corporate bonds becoming so attractive? Simply put, the bond market's imbalances are pushing big players to seek alternatives. High-quality corporate bonds are now seen as more reliable than Treasuries, reminiscent of a sort of “Reagan-era” dream. Back then, corporate giants like IBM had bonds that were considered safer than Treasury bonds. Today, this situation looks like another FED effort to hide systemic imbalances.
I don’t believe the FED will solve the inflation problem by 2025. The lag in rental costs alone will keep inflation high. So when they talk about reaching a “new normal,” it’s nothing but a misleading image. With real inflation figures and the U.S. drowning in debt, the financial system’s looming cliff edge is becoming increasingly clear.
Trump’s planned tax cuts and pro-growth policies will cause even more volatility in the long-term bond market. Increased spending and budget deficits will push rates higher. That’s why I advise staying short in bonds; long-term exposure will only tighten the FED's bind and pressure the entire economic system further.
Ultimately, this “recalibration” dance is a mere illusion of control from the FED. The FED, the U.S. Treasury, and major players are trying to distract you, but this is just a reflection of the deep imbalances in the financial system. The real danger is still ahead, and it’s only a matter of time before we face it. Stay sharp, because this story is only beginning.
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