• Apple released some not-great-but-not-awful figures while at the same time unveiling an XXL share buyback program. The announcement buoyed the indexes, but it's almost history compared to the rest.
  • The US central bank left rates unchanged (as expected), abandoned the threat of a more punitive monetary policy (slightly less expected), and scaled back its quantitative tapering (QT) program (unexpected). QT is the mechanism by which the Fed lightens its balance sheet after years of buying up boatloads of bonds to support the economy. The amount of the program has now been roughly halved, which means that the central bank is slowing down the lightening of its balance sheet, which de facto allows it to leave more liquidity in the system.
  • Several US statistics were down on the week. The Chicago manufacturing PMI was down, consumer confidence deteriorated, and the ISM services index returned to contraction. But above all, it was the downgrading of the monthly employment report that left its mark, with a rise in the unemployment rate, fewer job creations than expected, and a lackluster rise in hourly wages. In the small print of the report, we could also read that SMEs were hiring significantly less, and that cyclical sectors had far fewer job openings. In short, the situation seems to be deteriorating on the labor market front, which is one of the Fed's most closely watched indicators.
I'll set aside the Apple event to focus on everything else: the Fed's stance suggests a certain degree of concern, backed by the statistics published over the week. Until Wednesday, the market's main fear was that signs of rising inflation in the United States would delay monetary easing indefinitely. This was even the main justification for the index correction in April. But last week's events seemed to flip the narrative on its head. They have also clearly altered perceptions of the Fed, enough for the central bank to accelerate quantitative tapering. In response, the market anticipates two more rate cuts this year, the first in September (compared with previously expecting one rate cut, possibly in December).

Above all, the Federal Reserve's behavior suggests that the Fed put concept may be resurfacing. Fearing a deteriorating economic situation, Powell and his team are taking a softer stance to maintain market confidence. It's like saying, "Don't worry, we'll cut rates if things go wrong." This posture essentially provides a safety net under risky assets, a practice prevalent throughout much of the previous decade. Market insiders have drawn this conclusion from Powell's surprisingly dovish speech, the decision on quantitative tapering (the Fed is now taking a more active role in the public debt market, thereby freeing up money markets), and the deterioration of several US economic indicators.

In summary, the Fed is once again prioritizing slowing down the economy over combating inflation, so it has adjusted its tools and communications. Equity markets have responded positively to what could be a paradigm shift. However, this scenario still needs validation because we shouldn't overlook the real rebound in inflation in the United States.