Last week, we talked about the deficit, including how it is at unsustainable levels and how it is expected to get worse (much worse) over the next several years. What we left open was when and how the deficit actually turns into trouble.

We are nearing the end of the regular semiannual testimony by the chair of the Fed, Jerome Powell, in front of Congress. Yesterday, he spoke to the Senate and today he is speaking to the House. As the most influential economic official in the world, what Powell says carries real weight.

The other day I got an excellent question from a reader (below), which really cuts to the core of what I am trying to do here. I was going to respond to her directly, but then I decided it was such a good question that it deserved a post of its own.

Last week’s data was primarily about prices, although we closed with a look at consumer confidence. The week ahead will be a busy one for economic news, with wide-ranging reports. We’ll also get testimony before Congress from Fed Chair Jerome Powell, which should shed some light on how the Fed is likely to react to rising inflation.

One of the important concerns we face today is the deficit. Although it has been overshadowed recently by the headlines on trade, it is actually a potentially bigger problem and is definitely a more certain one. As such, we need to take a look at exactly what the problem is, what it could mean to our investments, and perhaps most important, whether the problem is solvable—or not.

Market risks come in three flavors: recession risk, economic shock risk, and risks within the market itself. So, what do these risks look like for July? Let’s take a closer look at the numbers.

As we start the second half of 2018, we find ourselves in a much different place than we were at the end of the first quarter. Back then, we were worried about a slowdown, and markets had pulled back. Now, despite very real policy concerns, the economy looks considerably healthier than it did then. Indeed, the markets have proven to be remarkably resilient in the face of growing policy risks.

In considering what the third quarter will look like, it is worth taking a more detailed look back at Q2 2018 and how it reversed a fairly weak first quarter.

Despite rising concerns as the Fed raised rates and trade tensions ballooned in June, the data remained significantly positive in all four major economic risk factors we track here. Job growth pulled back slightly on a monthly basis, but it continued to accelerate on an annual basis. Consumer confidence remained strong, and business confidence increased—taking the trend back to positive territory. Finally, while the Fed raised interest rates, as expected, it also endorsed the strength of the economic expansion in its statement and press conference, which was helpful. Overall, the strong economic data indicates that growth continues and that the soft spot earlier this year was just that.

Last week was a very busy one, with reports coming in that covered the whole economy. This week’s releases will focus on prices, as well as provide a look into consumer confidence.

“There are decades where nothing happens; and there are weeks where decades happen.”

I don’t normally quote Lenin on this blog—or anywhere, for that matter—but this line is just too appropriate today. With everything going on, I thought I would offer some brief comments on subjects that, I admit, deserve—and will get—greater attention. But for now, here are my quick takes.