The US Fed's decision to cut the policy rate by 50 basis points is seen as a bold move to head off any incipient tendency towards recession in the US economy.
I find it bold for a quite different reason. The Fed seems indifferent- or blind- to geopolitical risks. After the pager/walkie-talkie bombing in Lebanon, it appears the Middle East is closer to a full-blown regional war. With NATO inching towards letting Ukraine use longer-range missiles against targets in Russian territory, we seem poised for an escalation in that part of the world too.
So, two major escalations looming with potential repercussions or global inflation and growth.
And yet.... neither the Fed nor the financial markets are taking note!! It is true that we have heard dire warnings about the Ukraine front since February 2022 and the Middle East since October 2023. These warnings haven't come true. It appears all parties to the conflict know how to pull back from the brink.
That is excellent news but.... can we be sure? The Fed seems more sure than many others.
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