Fed ACTUALLY Flips on Recession!

hey so the fed's minutes just came out

from the November meeting and there's a

big shift in one particular thing that

was just said by the fed and we got to

break this down along with some of the

other items that we'll break this all

down in a quick summary here I'm only

going to mention it once in this video

so we're going to keep it to right here

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talk about the fed the biggest shift

from the fed and I'm surprised how few

are picking up on this in the mainstream

media but it was the first thing that I

noticed and tweeted about and I'm like

this is a big deal this is a big shift

is right here this paragraph is

critically important with inflation

remaining stubbornly High the staff

continue to view the risks to inflation

projections as skewed to the upside

that's not new that's old okay they've

always said that the risk is inflation

goes to the upside fine that's the old

part for real activity sluggish growth

in private domestic spending

deteriorating Global Outlook and Tighter

Financial conditions were all seen as

Salient downside risks to the projection

for real activity remember the more real

activity goes down the less the FED has

to hike

and there is the possibility that

persistent falling inflation could

require a greater than assumed amount of

tightening okay so this is a backwards

way of saying it is possible we have to

raise rates more to get inflation down

because of that risk we are now saying

and folks this is the first time the FED

has said this they're now projecting

that real activity risks on their

Baseline are equal to the potential

chance that we enter into a recession

sometime over the next year we've also

had the inversion of the three month

tenure usually a really good indicator

that a recession is about nine months

away now I did translate that in English

here basically the FED just told you we

think it's just as likely for us to have

a recession which means negative GDP and

slower growth and we think that is just

as likely as our Baseline forecast which

is no recession positive GDP but below

Trend growth remember if trend is three

percent GDP and we're growing at two

percent that's below Trend if we're

growing at negative one percent so

shrinking then we're in recession with

two quarters in a row right unless of

course you're the White House then you

don't believe you're in a recession when

you have two quarters of negative GDP

but we don't want to get political we

want to focus on the commentary here

from the Federal Reserve looking at some

of the other notes by the way I

encourage you to look at this page very

important page six of the fomc notes you

get a federal reserve.gov

so here we notice the Federal Reserve is

recognizing that one of the most

important indicators in labor market

conditions is showing that employment

costs are beginning to fall the ECI is

known as the employment cost index it

tracks hourly compensation and benefit

costs and it fell or I should say wasn't

it grew at a slower Pace it uh was

noticeably lower than the average pace

seen over the first half of the Year

this is very good and helps offset some

of that risk of a wage price spiral now

the wage price spiral comment was added

in the last minutes of for the September

meeting and these notes have not changed

that wage price spiral argument is still

here they haven't made it worse they

haven't added to it they haven't changed

anything they also two or three times

mentioned this phrase that they added

here in the fomc statement that came out

on November 2nd and now was the

statement that in determining the pace

of future increases in the target for

the federal funds rate the committee

will consider the cumulative tightening

of monetary policy the lags like

unemployment and and businesses slowing

down and that how long it takes for that

to filter through the economy and

economic and financial developments this

is really important and they mentioned a

few times in this report that especially

with this paragraph here and you could

pause the screen here if you want to

read this but it's very important to

realize the FED does not have a

historical record to tell us how long

the lags are and and the FED is being

very cognizant of this not only are they

being very cognizant of lags but they're

also saying hey look we realize that

prices for things like some Commodities

are coming down we also realize that

rents on new properties on new leases

are coming down but we recognize that

those show up with a lag so Commodities

coming down rents coming down those take

a while to show up in our favorite

measure of inflation which is pce that's

their version of the Consumer Price

Index this is actually the personal

consumption expenditures uh report

so the FED is being very aware that we

have risks and I think one of the things

to know is Jerome Powell realizes he has

the power to change his mind a Powell

has the power power to flip and so what

does that mean well it's very simple we

can slow now this is my opinion to 50

basis points if things get worse we can

always hike more say inflation gets out

of hand they could just rug pull us and

go that's it we're raising rates two

percent they know they have that

flexibility but they also know uh but we

can also freeze hikes or reduce rates if

we want when we want and a lot of this

is going to be dependent on the December

CPI report and so if there's anything

you do now in addition well I'm not

going to mention it again I was going to

mention I was going to mention it but I

didn't I'm being a good boy what you do

want to write down and and take

advantage of right now is December 13th

CPI report

the CPI report comes out 5 30 a.m on

December 13th and then at 11 A.M on

December 15th all these times by the way

Pacific Standard Time on December uh uh

15th at 11 A.M we will have the fomc

rate meeting uh this is where the market

right now is wildly uh or I should say

widely expecting interest rates to go up

by 50 basis points that means we would

see an increase from the present range

of 3.75 to 4 up 50 basis points

50 BPS all the way to uh just so you

could see this visually 4.25

there we go

uh to five yeah to 4.5

I can't write well today there we go

that's terrible anyway uh right now the

expectation is that we are going to see

this 50 basis point hike with a 75 geez

man Kevin 75.8 percent likelihood we've

also seen the federal reserve's terminal

rate from this morning go from 5.24 as a

market implied terminal rate down to

about 5.15 what else did the FED tell us

well they told us that they saw that

inflation expectations were relatively

still anchored we did see an increase in

near-term inflation expectations but

that was likely due to CPI coming in

higher do also keep in mind there are

quite a few bullish things in this or

should I say dovish things in this like

hey let's not go too hard let's realize

that ECI is coming down the employment

cost indicator let's realize that things

operate with a lag like commodity prices

come coming down the economy is starting

to slow we could always hike more in the

future if we need to but a lot of dovish

things in this but what's remarkable is

even though we've got a lot of dovish

things here what do we have this report

actually came or was was established

this meeting happened before the last

CPI report which is really really

incredible because the last CPI report

we had uh substantially below

expectation uh release of the CPI report

and PPI thereafter about a week later

came in also below expectations so very

very good I still Pat myself on the back

for nailing that CPI it's I'm set in a

high bar on the few for the future

though that's that's gonna be tough to

nail that again I was way outside the

average Economist estimates and still

nailed both of the numbers damn

oh I should have played the lottery for

that billion dollar lottery that week uh

for substantial majority of participants

a judge that slowing the pace of

increases would soon be appropriate and

uh oh yeah uh some of them are saying

look we probably need to slow down

because we don't know what could happen

we don't know how we could affect

financial stability remember that uh the

United Kingdom had a financial stability

disaster in their guilt Market which

actually ended up leading the federal

Reser the Central Bank of England uh and

um Mr Bailey the governor of the bank of

England you turning and basically having

to print money they printed it ended up

only printing 20 billion dollars to bail

out the bond market uh but uh they said

they would bail out the bond market by

an infinite amount and that was enough

to stabilize the market again which was

very very interesting yeah you are

seeing the 10-year treasury yield Bob

around the lower end of about 3.7 I'm

also curious is how inflation

expectations have moved remember the

five-year break-even inflation rate is

some somewhat of a daily tool that we

can use to analyze what inflation

expectations are and uh that rate has

ticked down a little bit this morning

I'll go ahead uh after these these

minutes came out I'll go ahead and throw

that on screen in a moment here

uh well I'd like to uh there we go

all right inflation break evens on

screen now and uh oops I think I used

the wrong one because that was this

morning's my bad

I did

I did there it is there's the

appropriate one well it actually shows

you the difference now that I showed you

both I have both of them on my desktop

this is a zoomed in of the right you can

see that this morning we were kind of

ticking up a little bit and now we're

actually ticking down a little bit this

is a big deal I know this sounds like

stupid it's like come on man it's just

it's like one chart this is important

okay now uh I guess since I told myself

and you that I would not say anything

else uh I'm just gonna

thank you for being here consider

subscribing I hope you found this useful

oh I should talk about the market really

quick sucks for anybody who clicked out

already I think this is bullish I think

between now and CPI week we're probably

going to see a lot of Institutions start

moving money into the market a lot of

them are in a holding pattern they're

sitting but I do think CPI week and fed

week is going to create a lot of anxiety

and so I wouldn't be surprised for you

to see a sell down closer to the CPI uh

period of time anyway there you have it

enjoy Thanksgiving tomorrow thank you so

much for being here I do appreciate you

as a subscriber we'll see the next one

goodbye