What the Fed *JUST* Said | Banking Crisis & Recession

well Jerome Powell just gave us a

beating and it all starts with these

interest rate probabilities where you

also have a convenient reminder of the

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Hustlers all right take a look at this

these are now after the fomc press

conference the implied overnight rates

and the number of hikes slash Cuts it's

simple you're gonna look over here on

the left side at the implied rate which

is creating this blue line right here

and so what do we think the rates going

to do well the rate is likely to go up

one more time in May that is roughly

sitting at a 50 percent probability

right now that's why you have the rate

slightly below that five that's being

priced into the chart but you've got

about a 50 chart or chance to get

another 25 BP in May then the

expectation is that we're actually going

to get a 25 BP cut

followed by more Cuts more Cuts more

Cuts more cuts and more cuts

this stands in the face of j-pal because

this suggests that rates are going to

come down as much as 1 to 1.1 percent so

100 to 110 basis points this chart

suggests four rate Cuts here in

2023. of course what is j-pow telling us

well good old Jay is telling us Hell No

in fact that's not our base case in fact

our base case right now is using

monetary tools

to tighten and firm up the system and

squeeze out inflation in fact they

expect to sit at a wonderful

5.1 percent by the end of the year not

only do they expect to sit at 5.1

percent by the end of the year which is

the same as December and they softened

their Outlook uh because they were going

to raise their Outlook in the last

presser Feb won they told us hey if we

had to rewrite it from December we'd

probably include more rate hikes but the

reason they didn't include more than 5.1

is because they believe Financial

conditions have tightened so much such

that we don't actually need to raise

rates anymore because markets are going

to do it for us at the same time we're

getting pushed closer to a recession via

these GDP projections moving a tenth of

a basis or a tenth of a point closer

over here on real GDP and uh four tenths

of a percent closer for next year to a

recession now Jerome Powell had a lot to

say but a lot of it kept referring to

this document right here this document

which also has another coupon reminder

there about 11 59 PM right there it says

the committee anticipates some

additional policy firming may be

appropriate that used to say the

committee anticipates that

ongoing

increases may be appropriate right so

that's been changed to some additional

policy firming Jerome Powell was asked

to clarify what the hell is policy

firming you know like what it's going to

get firm and then it's going to go soft

is that like like a reference like an

edge nudge wink wig uh and that's

basically what markets are assuming but

Jerome Powell says well by firming we

mean more hikes okay fine so more hikes

but what were some of the big things

that led the market to actually go red

during his discussion and his presser

well the biggest thing is despite the

fact and this is by far the biggest

despite the fact that the market is

pricing in Great Cuts this year as many

as four of them or more four to five

rate Cuts being priced in this year what

did j-pow have to say no rate Cuts per

the base case of the committee now

obviously that could change he made it

very clear they need if inflation ends

up being stubborn then inflation will

end up leading to more rate increases uh

Elon Musk is not very happy about this

Elon Musk makes it very clear that this

rate hike is quite frankly foolish

because it'll just lead to more deposit

outflows this is something he tweeted in

just the last 20 minutes when it comes

to talking about inflation which is the

one thing that would actually keep the

FED continuing to hike he's asked about

disinflation and he said he's asked hey

look you you were you mentioned the word

disinflation like nine to ten times last

time is that still happening Jerome

Powell actually gave us hope here he

said yes disinflation is still happening

first we have Goods disinflation which

been has been happening for six months

home services disinflation that takes

time but the good news is all the

leading data which has been consistent

for about the last six months is

pointing to that in time we're going to

see a massive anchor of Housing Services

disinflation my expectation is you're

actually going to get a beautiful

marriage

of this

you are going to get at the same time

and you want to prepare for this

especially if you're a stock investor

looking at pricing power kind of stocks

whatever you're looking at I would not

be shocked folks mark my word on this

save this put a sticky note on your desk

and hold me accountable for it

I would put an X right here and I would

say that come July x marks the spot baby

we get massive Mega housing disinflation

and we get the start to Services

disinflation X housing and what happens

the FED goes mission accomplished baby

start cutting

and whoever thinks the Market's going to

go down when that happens

is betting on stocks that they don't

actually think could make it through a

soft recession uh but that's all right

that's all right that's the debate right

that's the debate the Bears are like the

recession is going to happen it's going

to kill earnings and the Bulls are like

dude once the once inflation's gone the

FED u-turns man he's going back yeah we

might have to go through a temporary

like oh I hit a little bit of a wall

there but let's get out of it that's why

I personally pick pricing power stars

but Jerome Powell made this very clear

number one Goods disinflation happening

for six months Housing Services still

trending towards this inflation just a

matter of time before it shows up in the

data number three non-housing services

have still not shown disinflation

happening now that's a problem that's

the sticky part right but I think come

July you can actually get all three of

them think about what that would mean

for a moment if you got one Goods

continue to come down that would be

fantastic right that's what you want you

want goods disinflation to continue to

come down as long as Goods disinflation

continues to come down and housing

starts showing up and maybe Services

starts slightly showing less stickiness

then I think it is possible the market

could be right and you could end up

seeing uh some form of rate cuts the

problem is because we're not seeing

number three yet Jay Powell has to keep

the hard face on he's got to keep the

attitude up that no no no no no no no we

ain't going anywhere yet until we

actually see that data now unfortunately

because it's taking so long to happen

more problems are happening including

the banking crisis Jerome Powell's

response to the banking crisis and to

recession when he's asked about the

possibility of a soft Landing he says

it's too early to say that wasn't

fantastic we don't love to hear Jay pal

say I don't know we're looking for the

path to soft Landing that's what he said

I don't want to hear that because I like

the j-pal that's like we see a clear

path to a soft Landing oh boy there's

the soft blade again we're going to it

that's not what we got today we got

yeah soft planning would be nice

wouldn't it

um

yeah it's certainly possible it's it's

an idea but we don't see it uh but yeah

that's kind of what we got today which

uh yeah it's not that great but anyway

then we got a little bit of a discussion

on banking talking about how history has

shown that banking crises left unchecked

or really bad that they can cause more

damage uh that's very bad uh we learned

about uh uh you know him saying that all

depositors deposits are safe now I

thought this was really interesting that

he would say that all depositor savings

are safe now he's asked hey why are you

saying all depositors are safe are you

basically saying FDIC insurance is now

ramped up is it higher than what we

expect

and what do we actually get as a

response he says no all I'm willing to

say is what I said well he said all

depositors savings are safe and then he

says we have tools to protect depositors

depositors should assume their deposits

are safe

he's basically de facto verbally bailing

out everyone's bank that's basically

what he's doing whether he has the power

to do so or not that's basically what

he's saying now he's talking about how

the banking system is safe and resilient

I haven't heard that before I feel like

we heard that about bear Stearns but

anyway Silicon Valley Bank he says look

management failed badly they didn't

hedge that's true they removed all of

their interest rate Hedges uh and one of

the reasons you might remove interest

rate Hedges is because you have to book

the expense for them whereas if you just

hold stuff in hell to maturity

Securities you don't actually have to

book those losses for Hedges you do have

to book Hedges though so it made more

sense to make the bank look more

profitable which is you know kind of

like fraudulent but legal uh so

technically not fraudulent it's just

deceitful uh the bank is basically able

to say well let's just get rid of our

hedge expense and even though we're

losing all this money we just won't

hedge it because don't worry it'll be

fine and it wasn't uh anyway so uh he

talks about how this Bank Run occurred a

lot faster than uh historically normal

uh talks about how they're using an

emergency facility essentially that's

the uh Bank uh uh term funding program

for basically taking Bank toxic assets

recognizing them at full value and

taking on that duration risk uh so that

way Banks can pay depositors by taking

out loans from the FED do keep in mind

that's actually problematic for banks

because if if banks are like yay we're

operating and then all of a sudden it's

like somebody's like I want my 10

million dollars the deposits and the

bank's like

damn it okay now we have to go borrow

that money from the fed and we borrow 10

mil from the FED let's say and go here's

your 10 mil now the bank lost that 10

million deposits and they're looking at

the FED going damn it now I gotta pay

interest on 10 mil that I don't even

have anymore

like it's like two middle fingers in

your face

uh and so now the bank is paying

interest on a deposit they don't have

and they're losing even more money

sucks for the banks this is why I don't

want to touch any banks right now people

like when are you gonna buy the dip on

financials I'm like when there's no

recession

so in five years

oh I wasn't supposed to say that uh

anyway uh all right so consumer spending

may have picked up potentially due to

weather inflation goal is still two

percent next banking failure don't

really see another banking failure

although there are risks going on a lot

of eyes on Pac West right now but that's

me saying that along with the research

I've been doing implied year end Target

rate is uh per markets is 4.28 that's

about that one percent uh rate cut is

being priced in Jerome Powell does not

fear any problems in the commercial real

estate banking sector the NASDAQ is

positive about 0.46 right now Dow Jones

s p uh flat to negative a quarter of a

percent oil actually up about one and a

quarter percent bonds actually sitting

down about 12 basis points on the

10-year sitting at about

3.489 somewhat implying more

recessionary fears as we wait for that

disinflation to roll around a credit

conditions tightening Jerome Powell

suggested that credit conditions

tightening could represent the

equivalent of approximately a 25 basis

point hike in the event that we have a

25 basis point hike it is entirely

possible entirely possible that credit

conditions would actually amplify the 25

BP hike that we have now or for May to

make it feel like a 50 or a 75 or maybe

even more Jerome Powell made it clear

that we don't know analysts don't know

nobody knows how tight credit conditions

are going to crush the economy but he

did make it very clear that tight credit

conditions will weaken the odds of a

soft Landing in other words greater

chance of rug pull

uh and uh and and it's hard to tell how

long these tighter lending standards are

going to affect the market but they are

going to be a critical factor that we

have to pay attention to in markets

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these are all of my thoughts on all of

this let me see what questions we have

here somebody says he says there's a

path we just need to find it yeah no

kidding that's uh that's not very

hopeful

um somebody else writes here uh okay

well yeah the entire banking system's

about 19 trillion yeah don't worry the

FED doesn't need to print all that uh

well the big Banks ain't going anywhere

then we got bigger problems banking

oh some of these comments are funny uh

it's all fine the banking system is

sound jpow will use his firm tools

yeah I I don't know what's worse hearing

that uh all is fine or or them

acknowledging that no things are not

fine you know it's it's uh kind of one

of those uh damned if you do damned if

you don't uh situations we do notice

that BTC is trending down a little bit

here looking at uh 27.6 and uh yeah we

got Tesla down half a percent QQQ up

about six tenths of a percent so we'll

see what happens but that folks is the

summary of the fomc and well we'll see

you later thank you for watching and

goodbye and good luck