Jerome Powell's FINAL Warning | The Fed's Rate Hike.

all right we got good news bad news from

the FED let's start with the bad news

that led the market to sell off a little

bit towards the close of Jerome Powell's

commentary I kind of wish he just

stopped talking because then all of a

sudden the market started selling off so

the question was why why did the market

start selling off what did the market

hear and what the market heard was

Jerome Powell three times iterate that

even if

we stop hiking rates now

history tells us there is likely to be a

softening in labor that is still very

likely and even if we avoid a recession

we are likely to see a softening in

labor now I'm paraphrasing and

condensing here but that gave the market

some hard palpitations and studying a

little bit on why the answer is clear as

job openings decline quit rates Decline

and we start seeing potentially softness

in labor where we see more unemployment

we now have more consumers potentially

willing and able to spend on consumer

goods consumers make up 72 percent of

the economy so what happens when

consumers spend less money it means

there's less earnings potential for

companies and that hurts stocks so my

expectation is that some of this talk

about hey look we've been blessed so far

that we've been able to create

disinflation while unemployment has

basically stayed flat I mean think about

unemployment is at the same level now as

when we started hiking in March of 2022

same level 3.6 so Jerome Powell's like

look we've been blessed we've been able

to create disinflation without hurting

the jobs Market but history tells us we

will probably hurt the jobs Market that

commentary led to some heart

palpitations in the market I expect

we'll be able to see through them but

there were some hard palpitations here

that's probably the biggest bad news uh

I have to say the rest of it was

straight up bullish so if you're a bear

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obviously Jerome Powell was a very

defensive about suggesting that we've

reached the terminal rate and he

actually went as far as saying we don't

really want to provide forward guidance

on rates that is a complete flip-flop

from what Jerome Powell said the last

time actually for the last year for the

last year Trump I was like we want to be

very transparent with the market and

provide forward guidance we are raising

rates more

that was old Jay pal new j-pow is hey

man look dude we'll take it meeting by

meeting and uh you know we're just not

ready to give any more guidance that is

a flip-flop when you go from we're going

to provide guidance and we're hiking to

yeah we don't really want to provide

guidance it's kind of a little bit of a

tell that you might be getting close to

the end of your hiking cycle especially

since jeromepal also made it clear that

hey maybe we go two meetings without a

hike or we go two meetings with a hike

and then one without he kind of said

both of those are possible so you could

have more time in between rate hikes

this September meeting will be very

interesting though because we will be

getting the pce report this Friday then

we will be getting another ECI report

the employment cost index report then we

will get two more jobs reports August

4th September 1st mark your calendar for

those Friday job reports

then we will get two more CPI reports

August 10th Lauren's birthday September

13th

both of those two more CPI reports

Jerome Powell is really indicating that

all of those in aggregate will lead to

the decision to whether or not we should

pause or hike again at some point he

also mentioned quote given how far we've

come we can afford to be a little more

patient with rate hikes this is huge we

have not heard Jerome Powell talk about

being patient at all over the last year

in fact we generally hear about how

urgent it is to get inflation down so to

hear Jerome Powell talk about patience

was another bullish flip-flop in

addition to that Jerome Powell when it

came to hitting our bingo card told us

we are at a restrictive level of rates

in fact if you look at the chart you can

see it but having him reiterate that

we're at a restrictive level of rates

was important because he says look as

long as we're restrictive we're actually

creating more pressure on the economy

and as in place Asian Falls there's a

real policy rate Rises while we could be

paused in other words we could be paused

and still actually tightening the

economy as inflation Falls that's

because the way this is calculated is

you just take the current Fed rate you

know 5.5 or whatever 5.25 whatever rate

you take and you subtract the level of

inflation uh you know even if you take

core inflation at 4.8 well now you're at

0.7 for a real rate simple he did seem a

little bit fussier than usual especially

since it the first three Nick T Steve

liiesman from CNBC and uh Jenna from The

New York Times They pummeled the crap

out of Powell and they were all kind of

ganging up and like nodding at each

other's questions too really trying to

drill in is this it uh in terms of are

there any more Radix and Powell was

really defensive here he was even asked

at one point hey what about

opportunistic disinflation and he just

wouldn't give any color which in my

opinion is a sign that maybe we agree

feed in the background in the meeting to

go for a pause but let's not signal that

yet let's not signal that the FED is in

a position where if that ever Remains

The Way It Is we'd be willing to pause

he uh did indicate also on the bingo

card uh so restrictive level that was on

the bingo card and uh him not providing

further guidance and being patient uh

the restrictive level aspect very

important that was on the bingo card we

got that this idea of two more two or

more raid hikes that did not come up

thankfully that was on the bingo card

and we did not want that to come up it

did not come up so that it's bullish he

did not reiterate what he said in

Portugal uh with Sarah Eisen where he

said oh yeah two or more rate highs that

is fantastic he did not mention anything

about break evens on anchoring he did

say that if they were to unanchor

obviously they would have to do a lot

more but break even inflation rates were

also on our bingo card and that's

because we have an uptrend right now on

our Breakeven inflation rate for the

five year and so we're watching this the

next thing on our bingo card was core

inflation uh rents versus wages we got

no talk about rents here but we did get

a lot on wages

and he essentially indicated that at

this moment real wages are positive and

we want them to be positive but that

some softening is possible and that's

where we got markets selling down a

little bit about that worry about

softening in the labor market remember

how real wages work real wages you want

wages to be growing at about three

percent with inflation at about two

percent and in that sort of dynamic you

end up with a consistent two percent

inflation it's because wages don't make

up all of the inflation aspect they just

make up some of it this is important uh

we uh multiple times had Jerome Powell

talk about signs of disinflation uh

about how you know things are

normalizing the way that we would expect

them to that he doesn't think we would

have raid Cuts this year that was an

interesting kind of Correction uh that

he said we're not going to have rate

Cuts this year I don't think is the way

he put it I don't think it's reasonable

to expect rate Cuts this year either I

mean inflation would really have to

plummet but it is clear that he's pretty

comfortable with rate Cuts next year at

the same time though you could continue

running off the balance sheet so you

could have quantitative tightening via

running off the balance sheet at the

same time as you're cutting rates and

that all has to do with the fact that

he's trying to Target a real restrictive

level the more inflation Falls the more

you can actually start cutting and he

finally said it he hasn't said this

before but he finally said

because you hear people all the time

they're like oh well inflation is still

at 4.8 core or whatever and he finally

said almost addressing these people it's

not appropriate to hike rates until you

get to two percent in fact you are going

to start cutting long before you get to

two percent rates we think we're going

to get to two percent around 2025 or so

so it's making it clear like rate cuts

are coming but that's still going to

leave us in a restrictive environment

and it could still lead to some labor

market softening that labor market

softening has the market a little bit

tenuous right in fact I want to show you

this chart because it just shows you how

aggressive the market moved we had a

very clear downtrend and usually a

downtrend like a channel down and it

wasn't a perfect Channel down so maybe

that's why but usually a channel down is

is going to give you a bounce we didn't

get that and I left this Gap here on

purpose because I thought maybe the

conference would go longer or whatever

but I left this as is and as you can see

we actually got a straight

collapse we got this collapse because of

Jerome Powell's labor market softening

commentary now we are recovering now but

I want you to see that was a powerful

moment in the conference paying

attention to that labor market softening

is something the stock market is going

to care about so that's important we're

going to be analyzing that a lot more

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anyway so what's interesting about this

is in the future as we get employment

reports those might actually start

becoming more important than inflation

reports so it's assume inflation

continues to Trend down now all of a

sudden we look at the labor reports and

go okay well if labor sells off is there

a risk to stocks because Labor's selling

off while we're still under high rates

and the the answer here according to the

stock market is clearly yes

Jerome Powell commenting that look we've

been able to achieve some disinflation

obviously positive and some of this

defensiveness against wanting to be able

to say hey look we're willing to to hold

here and pause here and really putting

pressure on September suggesting look

that September meeting is live obviously

we've got to now put the highlighter on

the reports coming up again CPI and I'd

say most important here jobs just based

on the stock market's reaction so if you

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