The heads of the four major central banks sat on a stage in Portugal today at the ECB Forum.
Markets were focused on Jerome Powell.
Would he signal any softening on his stance on when the easing cycle would resume?
Remember, just last week, in prepared remarks to Congress, he cited the June and July inflation numbers to watch, to see how much of the tariffs are being passed through to consumers. Given the July inflation data won't be reported until August, he was clearly not giving signals that a July cut was on the table.
That said, today, he did say he wouldn't take any month off of the table.
Bigger news from Powell was his support for recent Fed proposals to reform the regulatory constraints on banks — constraints which have been distorting markets and weakening liquidity, especially in the Treasury market.
But whether or not the Fed will cut in July or September wasn't the most important topic at this forum.
It was the solvency of Europe.
Remember, back in March, Europe was forced into a "whatever it takes" fiscal policy to 1) catch up in AI, and 2) build independence in defense capabilities. The latter, was the result of emergency meetings to backstop Ukraine, if Trump were to end U.S. funding.
Add to this, they have since doubled down on the climate agenda.
So, more deficit spending. More debt.
This debt deluge comes only a little more than a decade removed from a sovereign debt crisis in Europe.
And without intervention by the European Central Bank, the debt crisis would have become a cascade of debt defaults and ultimately a collapse of the monetary union (the euro).
With that, as we discussed back in March, for this large scale fiscal spending plan to work, without triggering another European sovereign debt crisis, the ECB will be back in action — more central bank backstops to tame the bond yields of the fiscally vulnerable countries.
The economists presenting at this ECB forum highlighted this reality.
Here's the problem: This ECB backstop works when major global central banks are coordinating, as they have for the better part of the past 15 years. But the era of coordinated global monetary policy may be over.
