Real rate; (Fed Funds rate minus inflation) of around 200 basis points, which is tight policy, putting downward pressure on the economy.Already telegraph indicated the number at 2.3%, which should not be a surprises.
The discussions over the past week ofthe timing of Fed’s resumption of the easing cycle have nudged rate cut expectations forward (a bit).
That, and the Fed's newly announced plan to reform bank leverage rules are good for stocks, good for market risk appetite.
Nasdaq on new record highs. And as of today, the S&P 500 has traded to new record highs.
MeanWhile,This resulting declaration from this week's NATO Summit :
"Allies commit to invest 5% of GDP annually on core defense requirements as well as defense-and security-related spending by 2035."
A move from 2% (a commitment that most constituent countries weren't even meeting) to 5% is a historic structural shift in global military, economic and geopolitical dynamics.
The recent NATO Summit in The Hague resulted in a declaration that sets a new benchmark for defense investment, emphasizing increased spending on core defense requirements and related investments. Allies committed to investing 5% of their GDP in defense, with a breakdown of 3.5% for core requirements and 1.5% for related investments. The declaration also reaffirmed the Alliance's support for Ukraine and highlighted the importance of boosting defense industrial production.
Does this tie into the President Trump Administration "escalate to de-escalate" strategy we talked of in April? Maybe.
After the big April tariff announcements, we talked about some commentary by Scott Bessent, comparing the Trump tariff strategy to Reagan's tactic of "escalating to de-escalate" in dealing with the Soviets.
Core to this Reagan tactic was massive military ramp-up, which provoked the Soviets into a costly arms race.
Reagan then (arguably) coordinated with the Saudis to flood the oil market with supply, crashing oil prices. Initially slashed Soviet oil income, which it needed to finance the military buildup. From an economically fragile position, Gorbachev made a deal.
With that in mind, this big NATO military spending commitment could serve a few purposes:
1) most of the world is economically realigning with the U.S. (via tariffs, using the U.S. consumer as leverage) and now militarily (via leverage of U.S. security),
2) this military surge could get Putin to the table to make a deal, and
3) this could create the global alignment needed to isolate China, to end China's predatory multi-decade economic war.
New record highs in the major indices;The resumption of the Fed easing cycle is nearing.
The extension of pro-growth tax cuts should be just weeks away. The Fed has finally acknowledged the liquidity constraints its bank regulations have put on the U.S. Treasury market -- and they've vowed to relax those constraints, and soon (regulatory relief!).
From NATO meeting we now have an historic structural shift in Western world military spending and alignment.
And the potential technology revolution continues to advance at a rapid pace.
(the big defense spending commitments) may end up playing a big role in the resolution of tariff negotiations.
The question is, could the self-imposed deadline of the 90-day tariff pause introduce another confidence shock?
That said, over the past several months, it has become clear that Trump can turn the dials at will -- to manage economic and financial market stability. And markets now seem to be recognizing that/ pricing it in.
Previous April probability of persons and officials expantiated that Mr.D.Trump's Chairman of the Council of Economic Advisors -- a potential guy named Mr.Stephen Miran. He wrote a report on "Restructuring the Global Trading System" in November of last year. A month later, Mr.DonaldTrump preferably and decisively picked him to be his top economist.
This report is the blueprint for leveraging tariff threats, and the United States' Professional Role in Global security and financial stability, to extract "burden sharing" from our allies and trading partners.
In this instance, the Dollar's role in the world as the reserve currency provides benefits to the world, and benefits to the U.S. but also drives persistent and unsustainable U.S. trade deficits.
"Miran’s message for trading partners was simple: Share the burden. That means accept tariffs, or open your markets, spend more on defense, buy more American goods, invest in U.S. manufacturing, and buy our Treasuries."
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