The Fed Admits to Rugging... UNTIL...

The Federal Reserve released their

minutes yesterday. John Williams had

comments this morning about the path for

interest rate cuts. And we just got

research out from the Dallas Fed that

could tell us where the labor market

break evens are. And are we actually in

a normal position? Are we going to

expect more rate cuts over time? What's

actually going on out there? Let's break

down everything that we know right now.

We're going to start by looking at the

current expectation for world interest

rate probabilities. We expect 1.78 cuts

by the end of the year based on the

market and by my birthday we'll get that

second cut fully priced in January 28th.

And we're not looking for a third cut

until next summer. So really two cuts

here at best and maybe third cut by next

summer. That's current market pricing.

And a lot of this is on the backs of the

Fed being a lot more neutral than

dovish. Even though Jerome Powell told

us that we're currently running below

break even employment, he's broadly been

very

neutral. Like he hasn't been a dove. He

hasn't been a hawk. He's been relatively

neutral. And part of this is because of

people's inflation psychology. See,

remember the story that I give of when I

go to the AT&T store and the guy's like,

"Oh, I just bought a house. You know, I

I guess with inflation above 2%, I don't

understand why the Fed's talking about

cutting rates. People don't know about

the labor market. They don't understand

break evens. They don't care about any

of that crap. All they hear is, "What?

They're lowering rates and inflation's

not yet at target. That's weird. What?"

That's all they hear. And the risk there

is that inflation expectations run away.

And this is exactly what Fed Williams

warns. But he actually gives us a really

clear breakdown of what to anticipate

when it comes to rate cuts in the long

term. And this is something that's

actually really really bullish house

hack cuz you're going to get a long-term

expectation just a moment. I'll I'll

break it down. I'll explain. If you

haven't seen the house hack update video

and the reinvest update, go watch that.

It's on the channel uh meet Kevin under

the live tab. But anyway, let's first

before we hit Williams' long-term

forecast, let's understand what the

Federal Reserve Bank of Dallas just

released. They released this today,

October 9th, recent employment figures.

They basically talk about the break

evens and they talk about how labor

break evens used to be around 250,000

because in 2023 we had data showing us

that our population was exploding. The

growth rates of our population were

massive. You know, well over 1 and a4 to

1 and a.5%. Uh and so very very large

moves here uh in in an expanding

population. Part of it because you know

you've got 400,000 Venezuelans who get

temporary protective status under Joe

Biden. You get hundreds of thousands of

Ukrainians who were given asylum in the

United States. You get uh an open border

basically between the United States and

Mexico. So you've got this explosion of

of population coming in. Mind you, there

is some benefit to population coming in.

I mean, the economist yesterday had a

fantastic piece where they talked about,

hey, immigration generally reduces your

net per capita GDP. Like, it usually

helps. It usually doesn't hurt. We're

not generally taking from Americans.

We're generally growing. So, the

economist thinks longer term there are

some real problems about not having a

better immigration system, like illegal

immigration. Nobody's advocating for

illegal immigration. But the Dallas Fed

guy, this economist, he basically tells

us bottom line that he thinks we're

sitting at about 30,000 as a break even

labor market report. And current

estimates are that, you know, we

probably over the last 4 months have had

a break even or or employment reads

roughly at break even. So, it's no

surprise the unemployment rate isn't

changing because uh jobs are being added

at roughly a level that's equal to the

expectation of the break even rate. Now,

this in addition to an aging population

has this economist suggesting that the

labor force participation rate is likely

to continue to trend down. And as it

continues to trend down, you actually

end up subtracting from the break even

rate even more. And that's how he ends

up getting to this 30,000 break even

rate. Gosh, Donald Trump just posted 18

freaking times on Truth Social. It's

like the most annoying thing ever. Uh

when you get like when you have

notifications off for it and like 27 of

these are just pictures of him.

Something about like like all these

stats people were spamming. I always

think it's funny though. I was like,

man, it's like I feel like I feel

compelled to have notifications on for

it, but man, that's spammy. Like, you

know, a lot of people use the Meet Kevin

app, which is free to get notifications

on my videos, but I tried. Like, I don't

want people to get spammed with

notifications. Like, when we send a

trade alert to people in the course

member live stream, like, you know, I'm

buying this stuff for the next 10 years

or whatever, and I send that

notification out, like, I want people to

like get the notification. I get

spammed. Come on, Trump. It's just like

as I'm filming this, it's like boom,

boom, boom, boom, boom. Oh, man. Uh but

anyway, so the break even rate is 30,000

is what he's arguing and part of that is

because of the cooling participation

rate. Now be careful because if the

participation rate starts rising, the

unemployment rate will skyrocket. If

layoffs start rising, the unemployment

rate will skyrocket. He's not capturing

that in his break evens. Both of those

things could ruin what this guy is

saying. So be careful with this. Mind

you also the level of 27 weeks

unemployed you know workers is a sign of

labor market weakness. Now you zoom out

over 10 years obviously postcoid that

level was a lot higher because you know

people lost their jobs in co or just

stayed out of the labor force. But this

level has been steadily rising which is

generally a leading indicator of

recession. So even though this economist

is telling us, hey, we're good at

30,000,

we still have leading indicators of

recession that tell us, hey, there there

are underlying weaknesses. Not only

long-term unemployed going up, that's

one. Number two, if layoffs normalize,

we're screwed. And if the labor force

participation rate goes up again, we're

screwed. All of those things can really

screw all of this economic analysis on

the break even rate of employment. But

what the break even rate of employment

does and what this research does right

now is it says rates are probably going

to stay higher for longer for the near

term. We're not going to get frantic

cuts until we get a serious

normalization and layoffs or that

participation rate because they're

basically going to justify a slow rate

cutting regime until those numbers

change. This is the Federal Reserve

justifying why we're going to go slow.

And part of it has to do with inflation,

which is where the Williams part comes

up. Now, in the Fed minutes, the Fed was

nervous about cutting because of

inflation that's obviously above 2%.

Expectations are that inflation is going

to trend towards and maybe bob around

3%. Basically, and this has a lot of

people wondering like, why is the Fed

cutting when inflation is 3%. This is

insane. And Williams actually makes a

really good argument. He tells everybody

to make sure to sign up for the Meet

Kevin membership using coupon code

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alerts, the new lectures coming out

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We had some great calls. We actually had

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well. Some great calls uh today. I I

think the alpha report, you have to see

it to believe it. Uh consider joining

it, but uh it's it's pretty amazing.

Knock on wood. can't always be right.

But uh we've we've had a great precedent

here. So uh thank you for all those of

you part of the membership and meet me

Kevin.com. But anyway, what Williams

tells us is really interesting is I want

you to set this up for a moment. So

near-term the Fed's worried about

inflation. They're going to signal

they're worried about inflation and

they're going to justify or rationalize

why the labor market is doing what it's

doing. Right? Like write write these

things down for a moment. and and I

think there's a value to this so you

could see a little bit more clearly

what's going on with the Fed here. Okay,

so what are they doing? They are

rationalizing low break evens. Okay,

that means rates higher for longer for

now, right? In addition to rationalizing

lower break evens, what are they doing?

They're signaling fear over 3% inflation

hitting psychology rates higher for

longer, right?

then

we still have not no

layoff uh normalization or increase in

um what's it called the uh participation

rate which also implies rates higher for

longer. Okay, that said,

okay, we know

we know long-term unemployed uh

unemployment rising is a harbinger of

bad news. Okay, it's a leading

indicator. Now, what ends up happening

when

unemployment gets worse, when layoffs uh

and participation normalize, the Fed

knows they can rapidly cut.

And take a look at literally what we

have here, what Williams says. Williams

says that as the unemployment rate I

can't remember exactly where it was uh

feds credibility we need to uh you know

say with credible with inflation we need

to do it in a way that minimizes the

labor market cooling more it's somewhat

a way of saying like hey you know we've

got to be aggressive on inflation

Williams is saying we got to be

aggressive on inflation but we also

don't want to screw up the labor market

because there are some underlying

issues. Um, so we think there's more

downside risk to the labor market

employment and that's something that

takes some of the upside risk off of

inflation. Okay, why is that critical?

Okay, because

when SH9 hits the fan, as Williams

implies here, what happens?

Deflation.

the inflation problem will evaporate

suddenly when the job deterioration

hits. But for now, in the near term,

like probably probably next, you know, 3

to 6 months, hard to say rates are going

to plummet.

next few years

almost certainly uh a plummet is being

forecast by the long-term unemployed uh

and distortions in the um uh beverage

curve. You already know it, beverage,

beverage curve, whatever you want to

call it, right?

So, this is huge. This is uh this is

really big and it's really important to

understand that because it tells you

near-term pain for bonds, but long-term

the direction is clear. The Fed just

needs the Fed wants to lower rates cuz

they see the weakening in the labor

market. They just can't right now

because of the stubbornness in inflation

and tariffs definitely contributed to

that pain. So anyway, check out the uh

meet Kevin Alpha Report. Would love to

have you over there. It's coupon code

Schumer Siesta. And uh yeah, why not

advertise these things that you told us

here? I feel like nobody else knows

about this.

>> We'll we'll try a little advertising and

see how it goes.

>> Congratulations, man. You have done so

much. People love you. People look up to

you.

>> Kevin Praat there, financial analyst and

YouTuber. Meet Kevin. Always great to

get your take.