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Freezing and Seizing

After yesterday’s Employment Cost Index came stronger than expected in the U.S., the odds for the September meeting rate cut sank to 50%, which is an indication that we might not have rate cuts this year. Jay Powell will tell us today at 2 pm. But that’s not even the most important news this week. During the weekend, Congress approved the REPO act, giving powers to Biden to seize Russian foreign reserves ($300Bn) to give them to Ukraine. The assets were frozen, but were legally Russia’s property. Not they can be confiscated, which might lift China’s eyebrow and push them to stop investing in U.S. treasuries and perhaps even sell, at the right time. China will invade Taiwan, and when they do, they will not have reserves in US treasuries, and surely other countries will follow the same path. Who will buy US government bonds to finance the huge deficit the U.S. is carrying? Both Jay Powell and Janet Yellen are in a difficult spot.

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