Blue Wave Could Cause a Debt Crisis

After the blue wave in the midterms, it's easy to be bearish on the news, with new data centre restrictions and less investment into the US economy. However, if this slowdown does happen, it increases the risk of some kind of liquidity stress in debt markets, which would inevitably lead to the Fed stepping in to over provide liquidity. Paired with central banks raising rates at the moment, it seems like a slowdown is imminent. However, despite central banks talking tough in their speeches, they are not tightening as much as they would need to in order to get inflation back to 2%, because they know the risks of doing so. The chart shows they are tightening significantly less than in 2022-23, when we were in a similar inflation environment.