What if Powell doesn't cut Wednesday? The Debt Explosion ($620 Billions in 43 Days) Can you force a tactical pause?

[Igor Pereira]

The market consensus is almost unanimous: the Fed will cut interest on Wednesday. But as risk analysts, we should ask, what if they don't?

The fiscal reality we described earlier – $620 billion new debt in just 43 days during the shutdown – created a latent inflationary scenario that can cause the Fed to step on the brake.

By Igor Pereira, Financial Market Analyst, Junior Member WallStreet NYSE

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1. The Argument for the Pause (The Hawkish Scenario)

Why would Powell consider no cut, or signal a long break after December?

• The debt boom is inflationary: Add $14.4 billion debt a day is in practice a massive injection of fiscal stimulus into the economy. The Treasury is spending like there's no tomorrow. If the Fed cuts interest aggressively on top of this fiscal stimulus, the risk of a "superinflation" in 2026 goes off.

• The Return of Housing Inflation: As we have seen in the previous report, rent inflation has rekindled. Cutting interest now could be seen as a policy error that validates structurally higher inflation.

• The Curve of Interest: Long-term income (10 and 30 years) is already rising due to fear of debt supply. A short-term interest cut could paradoxically make long interest rise more (bear standing), tightening the real financial conditions.

My Analysis (Igor Pereira): If Powell focuses on long-term stability of the dollar and service inflation, he can opt for a "hawkish pause" or a "one-and-done" cut (cut now and for), thwarting the expectations of a long cycle of cuts.

2. The Impact of a Non-Cut (or Pause Cut)

If Fed surprises with a harder posture:

• Gold (XAU/USD): It could suffer a violent initial liquidation ("knee-jerk reaction") as the dollar strengthens and real income rises. However, the long-term thesis (tax insolvency) would remain intact, making this a generational purchase opportunity.

• Actions (S&P 500/Nasdaq): It would be a bloodbath. The asset bubble, sustained by liquidity, would rapidly de-inflate if the Fed's "put" was removed.

• Dollar (USD): It would shoot, crushing emerging currencies and commodities in the short term.

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Conclusion of Igor Pereira: Debt is Destiny

In the end, the mathematics of debt ($38 trillion and rising vertically) will win. The Fed may try to be "hard" on Wednesday, but fiscal insolvency will eventually force monetization (money printing).

If Powell does not cut (or signal pause), it will only be a postponement of the inevitable. The debt machine hasn't stopped, and it will require liquidity.

Strategy: Be prepared for bidirectional volatility on Wednesday. A hawkish disappointment would be the final test for weak hands on gold.

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