The Fed is about to turn Nasty: PREPARE for -20%.

everyone me Kevin here I have come to

the realization that Jerome Powell and

the Federal Reserve are just the barrows

Brothers ready to kick our ass and I

think that's exactly what's going to

happen in November the Federal Reserve

cannot afford to loosen any of their

talk on inflation and in this video I'm

going to show you exactly why and I'm

going to show you what to prepare for

because it's not quite yet what we're

expecting this video by the way brought

to you by ritual but more on them later

and of course we'll have a little bar

along the bottom in terms of timestamps

okay folks listen this morning something

came out known as the employment cost

index it comes out every single quarter

it came out at expectations at one two

or one point two percent which is an

indication of how much employment costs

are rising and personal spending came in

a little bit hotter than expected not so

great probably people spending money

over at Apple honestly but take a look

at this chart what I want you to know

about this chart is extremely simple

chart shows that yeah quarter over

quarter uh since actually q1 we have a

declining Trend here q1 we have a Peak

at 1.4 1.3 now 1.2 that's great we're

seeing a declining Trend in ECI but look

at that ECI chart relative to where it

has been over the past 12 to 14 years it

is almost twice if not three times as

high as its average of 0.4 or 0.5 that

means the FED cannot risk saying oh it

went down or Gucci no no no they need to

continue pain and this is why when

November 2nd comes around I'm not

expecting much belief that Jerome Powell

is ready to talk pivot or Pause by any

means maybe we'll see talk about 50 BP

rather than 75 but that is still hiking

that is still moving in a tightening

Direction and we're not quite sure how

long that'll last most now think we'll

go to five percent and I'll tell you

exactly why we'll go to a terminal rate

of five percent rather than this belief

that we're going to cap out where the

SCP the summary of economic projections

shows a cap out at 4.6 percent the

reason I believe we are actually likely

to go to five percent rather

than peaking at 4.6 percent or anything

even below that is very simple this

chart right here this is a chart of five

year Break Even inflation expectations

and I'll tell you the absolute worst

thing that the Federal Reserve could do

is motivate inflation expectations to

continue to rise like this we did a

really good thing after the Jackson Hole

Symposium that took place at the end of

August look at what happened to

inflation expectations Jerome Powell not

only crushed the stock market but he

made it so freaking clear that this

inflation fight will not end that he

successfully massaged inflation

expectations down to a near all-time low

that honestly we hadn't seen since about

the peak of inflation expectations in

2018 that's right the trough here the

bottom okay is basically the peak we saw

in 2018 which is kind of pathetic

because if we just look at this chart

it's like oh that looks good but when

you put it into that perspective it's

like oh that's not good because in 2018

Trump was hiking rates to the point

where Donald Trump threatened to fire

him but folks look at what has happened

just on this idea that the FED is going

to go soft that the fed's going to

loosen the regressive posture Market

expectations driven by the bond market

of inflation have started Rising again

to levels not seen since really before

the Jackson Hole Symposium that's a

problem and in my opinion gives cannon

fodder to Jerome Powell to say I must be

strong during this next meeting now what

I'd like to do next is go through this

Goldman summary here on some of the

things that have been said in some of

the red flags that we need to pay

attention to at the Federal Reserve

these also give some pretty critically

important expectations let's get into

those right now but first I want to

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here are the things to pay attention to

I highlighted the important comments on

the left they give you a date and then

the speaker name if you want to see you

could see that there as we go through it

important things are that look yes at

some point we're going to pull back from

75 but I think it's a mistake to think

that 75 means the FED is not likely to

be more aggressive than expected

remember the federal reserve's

expectation is we're going to cap out at

4.6 percent and the market seems to

roughly agree with this however most

Wall Street expectations are actually

suggesting suggesting the FED is going

to have to hike to about 5.0 percent

before they pause uh and that is

potentially expected to be around March

of 2022 and we've looked at some prior

data that suggests treasury yields tend

to Peak out about two to three months

before the peak which would really imply

that a peak and treasury yields is

actually still ahead of us and not

behind us even though the 10-year

treasury has softened on some recent

reports on this idea that the fed's

going to slow down to 50 basis points I

think Jerome Powell's speech is really

going to drive these rates right back up

because so far we haven't really had any

data to say that oh yeah things are

getting better in fact they're just

relatively stable and this is why you

see comments about a lack of progress on

curtailing inflation here's Clark

kashgari kashikari tends to be a little

more dovish saying I don't see why I

would Advocate at stopping at 4.5 or

4.75 we need to see actual progress

that's a five percent comment right

there for you now uh Bullard says we got

to get to some minimum level he's a

little bit more hawkish and then you

become data dependent so he's basically

saying we're not there yet just get keep

hiking and then we'll worry about the

data uh Mester says look high inflation

persists an indication that we need to

raise rates further Charles Evans comes

out and says look overshooting is costly

and there's uncertainty about how

restrictive fed policy must become but

I'll tell you probably one of the most

important comments is right here Mr

Bostick saying therein lies a risk of

repeating the Stop and Go approach of

what contributed to economic instability

in the 60s and 70s this is where

basically the FED had this like on and

off approach to raising rates and they

gave so much confusion to markets about

okay so are we pausing are we raising

are we slowing like what are we doing

there was so much confusion and

uncertainty that the FED lost so much

credibility that what ended up happening

was inflation expectations anchored and

they became so bad that we ended up with

the 70s where inflation expectations

were so high that we had to get Paul

volckert the last thing we want are

inflation expectations to arise and this

is exactly what's happening right now is

inflation expectations are rising this

means the FED has to be crystal clear

the FED probably has to rug pull us next

week and they have to be really strong

at least for another couple meetings and

make sure that markets don't doubt

the fed's seriousness of waiting until

inflation actually starts showing

meaningful core evidence that it has

peaked and I hate to say it but when we

look at actual commentary here again

kashgari cornflation has not yet shown

evidence that it has peaked now many say

look rental inflation is just a lie

garden and it is already peaked but then

you've got people like Bullard saying

look I don't think rental inflation is

going to be persistent but then you've

got individuals like Bullard coming out

and saying I actually do think that

rental inflation is going to be

persistent it's widespread and it's

going to be persistent and that's why

we're going to have to be higher for

longer the war in Ukraine continues to

move on the last thing we want as said

by cook is that inflationary psychology

to take hold like we saw in the 70s

shelter inflation likely to remain high

for several months and services prices

continue to rise at a fast clip this one

particularly by Bostic saying I continue

to hear a very strong demand for

in-person services like restaurant meals

I'll tell you this I was reading and

we'll go through this on the course

member stream this morning I was going

through the Chipotle earnings call and

I'll tell you they are still seeing the

power to raise prices the only people in

able to actually continue going to their

store are poor people but otherwise the

people who continue to go to Chipotle

who have a little bit more money they

continue to accept pricing that chipotle

provides and that's a sign that even

with their recent price increase in

August then inflationary numbers are

still going to Trend up

just not good now hopefully there's this

Hope from Williams that inflation will

decline to three percent next year as we

rely heavily on Commodities which are

showing indications of having peaked but

unfortunately I don't think any of the

data that we've recently gotten whether

it was the pce inflation numbers that

came out this morning or the ECI give

any Credence to this idea that oh yeah

Jerome Powell is going to go soft on us

in this November meeting I think it's

much more likely that drum Powell has to

come out and talk these inflation

expectations down then two days after

their meeting we're going to get an

employment report and then shortly after

that we're going to get a new CPI report

So within two weeks after the next fed

meeting then we're actually going to get

jobs data and inflation data and then

after that if we look at the fomc

meeting calendar we're going to have the

December meeting now the December

meeting is kind of neat because see the

December meeting happens on December

13th and 14th and we get a new summary

of economic projections now why is that

so important well because again the

November numbers are going to be based

on data that we currently have which is

not good and inflation expectations are

rising this is going to be a bad meeting

in my opinion the beautiful thing about

the December meeting is going to be a

little different we're going to have

uh data for jobs that comes out on

November 4th we're going to have jobs

data that comes out on the first Friday

in December and you could write those

things on your calendar okay November

4th and the first Friday of December are

going to be the jobs reports coming up

uh and then CPI reports are going to

come out on November 10th notice that's

after the FED meeting by about eight

days and December 13th which is

literally the morning the FED meeting in

December starts so going into November

we really get no good news higher

inflation expectations no good news

going into December we actually get two

jobs reports and two CPI reports so

December is the meeting that's probably

going to make or break markets if these

next two reports show real meaningful

declines

we're going to the freaking moon for

Christmas boys and girls

if we get some dirty dirty numbers of

these next two reports

get your anti-venom potions ready

because we screwed

anyway thank you so much for watching

good luck out there use that Halloween

coupon code and folks we'll see you soon

goodbye