Buckle Up for Jerome Powell & the Fed | Last Minute Warning

now we're going to go through a few

things on the FED before the FED meeting

so it's important to watch this ASAP

we're going to talk about Nikki T's

hints we're going to talk about

Goldman's hints we're going to talk

about TS Lombard's hints and we're gonna

draw some dots because that was what we

do oh well reminding you that today is

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a lot of amazingness now we gotta talk

about the Federal Reserve because

obviously that is the big discussion

that we need to have today that is the

most important topic there are a lot of

other things to cover Ukraine oil and

China with the Saudis we got so much to

cover but the most important thing to

talk about right now is what's going to

happen in about five four to five hours

when Jay pal gets all less papers

together you know makes it seem like

he's frazzled I love that by the way

when he comes out and acts frazzled and

like the corners of his papers are

damaged and stuff making it seem like

he's kind of been like nervously

preparing it's all for the show okay

maybe it's not but I think it's all for

the show but anyway what's going to

happen and so I've given you my

projections but in this video we're

going to give you some projections on

what institutions are looking at uh

first it's worth noting that the

bundesbank chief says that rate Setters

must be quote more stubborn in their

inflation fight now I actually thought

this was an interesting piece and let's

look at this together here Germany's

Central Bank boss said Eurozone rate

Setters must be more stubborn in

continuing to raise borrowing costs to

tackle inflation he discounted fears

about the recent Financial turmoil

that's been experienced now that's

interesting because really what we're

saying is hey whoa whoa whoa hey the

banking crisis does not matter instead

you must continue to hike you must

continue to raise rates as much as

possible uh bad accents uh and that is

actually what's being at least to some

degree priced into markets now this

chart is going to be very important

today uh this is the federal reserve's

terminal rate expectations

this terminal rate expectation right now

is sitting at about

4.96 now this is going to be very

important because if the FED comes out

with a summary of economic projections

suggesting they're going to go from

say uh you know where we are now four

four five to four seven five with the 25

BP height uh and then in their summary

of economic projections they have the

goal of hitting 5.1 if they move that

Target up then the fed's basically

signaling to us hey look you all need to

price in many more price hikes I don't

know why you all got your your panties

tied up because of a silly little

banking crisis who cares we lost five

banks we still hiking sorry now

unfortunately that could lead to some

pain in the uh the stock market because

I think the stock market is actually to

some degree trying to think that maybe

the federal pause which is just totally

ludicrous there are multiple different

banks calling for a pause no more

research is calling for a 25 BP cut Elon

Musk is calling for a 50 BP cut you've

got no more uh uh you've got Goldman

Sachs calling for a pause most banks are

calling for a 25 BP hike but just this

idea of of of pausing basically totally

discounts inflation I mean I suppose if

j-pal comes out and says inflation's

over we're gonna pause and cut yeah boys

and girls we're going back to the Moon

but but I don't think we're there I

actually think the central banks CBS are

are really clear that uh look we got to

make sure inflation expectations don't

run away from us uh and so Mr bundas

Bank says if we are to tame this

stubborn inflation we will have to be

more stubborn I didn't know that was

possible for a German raid Setters at

the FED are set to decide on Wednesday

whether to continue raising rates

despite the collapse of U.S uh you know

Banks Silicon Valley uh a bank and

signature anal and of course we had

Credit Suisse and in Switzerland and so

on so analysts largely expect to raise

by a quarter basis point today uh they

talk about how the banking system is

resilient in Europe and much the same as

being talked about in America that this

is not another 2008 uh and instead we

just have to basically focus on getting

inflation down that that is going to be

the most important fight now I agree uh

and Nick T gives us some hints as well

let's close out some of these others

here let's look at what Nick T has to

say so this is what Nick T tells us to

watch for Nick t uh this is uh by by all

accounts known as the FED Whisperer he's

the guy that during the FED blackout

periods basically lets The Fad not be in

a blackout period he's the guy that gets

the text messages from the fed that's

like yo we're leaning this way write the

story so a lot of people actually refer

to articles from Nick t as kind of like

a hint from the Fed so they can increase

their messaging to the public even

though they say they don't message the

public I don't know it's wild

anyway

the FED faces one of the thorniest

policy decisions in years on Wednesday

whether the Lyft interest rates again to

fight High inflation or hold them steady

amidst the most intense banking crisis

since 2008. we got some more research

that we're going to dive in on this

including from Bank of America which

we'll talk about in just a moment uh but

anyway uh this live I will be live

streaming this at 2PM Eastern and 11 A.M

uh California Time the video is already

up so you can go click it remind if you

want on it but anyway Nick T says

the FED has tried over the past year to

Telegraph its raid moves to avoid

surprises but hasn't confronted an

Abrupt and fluid crisis on the eve of a

policy meeting now they do on Tuesday

investors thought a rate hike was likely

with interest rate Futures uh indicating

a roughly five and six chance of a

quarter point increase okay well

remember the FED also likes to do

what the market does uh or what the

market projects and if the market is

projecting a 25 BP it's get it's

probably going to be a 25 BP that's my

base case it would be very very rare to

see something other than a 25 BP here

officials raised their Benchmark fed

funds rate by a quarter point to a range

between 4.75 and or 4.5 to 4.75 in Fab

now we're going to get the next 0.25 the

case for raising rates here's what to

watch for so the bank Silicon Valley

Bank collapsed two weeks ago officials

were set to debate whether the raise

rates by a quarter point or half point

because signs of the economy still

running hot since then the economy has

shown surprising strength in hiring

spending and inflation leading to

concerns about that aggressive rate

Rises over the previous year hadn't done

enough to slow and Corral inflation in

other words making the argument like hey

uh these rate hikes still haven't caught

up of course now people say oh but we

had banking failures is that not a sign

of of interest rates catching up maybe

to some degree because you had some

banks with very very poor risk

management procedures but as those

failed treasury yields actually fell

which increased the value of the bonds

that other Banks had on their balance

sheet which actually makes a continued

banking run less likely anyway some

economists argues argue that stopping

rate increases now risks fueling

unacceptable risks that inflation will

stay higher for longer fed officials

have at times acknowledged the risk of

being forced to simultaneously fight two

problems inflation and financial

stability or instability several

officials have said they'd use emergency

okay this is boring so far so anyway

let's go to where there's a little bit

more interesting here this is Crisis

management okay here what's this quote

that they're using over here I always

like the quotes that they use because

they try to provide both sides they're

probably a little worried they'll be

seen in some cases as knuckling under a

financial pressures in other words like

if they go for or zero then it's kind of

a sign that their weak paper handers now

of course they do give this argument

about maybe holding steady because hey

Financial conditions have tightened

since the bank failures this is true

we've seen the Goldman Sachs Financial

conditions index much higher than where

we were sitting at the beginning of

February

but and the cost of borrowing for these

banks have gone up uh but Goldman Sachs

makes the argument here that increasing

tightening in lending standards could

end up creating more recessionary fears

and therefore do the work for you of of

tightening and so maybe you don't need

higher rate increases now yesterday TS

Lombard had a good piece they actually

said that a Fed uh or or the tightening

and lending standards is probably going

to be similar to somewhere around 0.75

to 1.5 percentage points in hike in rate

hikes Goldman Sachs put that number at

only about 0.25 to 0.5 I actually agree

with TS Lombard more here's that piece

let's look at this piece together so the

2008 PTSD versus the ghosts of the 1970s

so they talk about uh basically things

being broken and this new era of no

longer having permanent zero lower

interest rates which are a great time to

sort of expand risk but what you have

here is uh they talk about

how the US is acutely susceptible to

monetary tightening and that's why we're

seeing these banking failures and we

have to realize that these banking

failures are going to tighten lending

and Bank fears so much that the first

thing that happens is people stop uh

getting yield on their deposits or as

high of a yield on their deposits as

they could potentially at new Banks or

fintechs there's a reason for that you

might be wondering why is it that the

Legacy Banks don't pay me a yield like

the fintechs do well part of the reason

is the Legacy banks have a lot of the

debt that or the assets that are

devaluing quickly as rates are rising

and so rather than pay out more in

interest they are taking more of that

income yield that they could Farm off of

your deposits uh and and buffering their

losses on their bond portfolios but in

doing so they're actually driving their

depositors out of the banking system and

into just buying Treasury themselves to

increase their deposit yields which is a

good point now they hear talk about how

this is not going to be another

2008 which is another argument for the

FED just maintaining their 25 BP hikes

uh but they talk about here and I think

this was really neat they talk about how

cred a credit squeeze that is an actual

tightening in credit standards typically

feels like another 75 to 150 basis

points of hikes and that I think is

actually what we want to pay attention

to at the Federal Reserve today is it

possible that we enter into a new phase

of the Federal Reserve we'll talk about

that but basically look at this they

refer to the bank of England as a recent

example where the bank of England

patched up the UK financial sector and

maintained its monetary squeeze but

never reverted to its previous extreme

levels of hawkishness instead gradualism

ruled okay so now this is really

interesting let's try to put all of this

together so first of all today is March

22nd which is the fomc day but it's also

the expiration of the lifetime access of

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okay so what does this potentially mean

for the fed well

If the Fed hints in any way that we're

going to do 25 BP now but tighter

lending standards could affect the

market the way TS Lombard thinks get

this could affect the market

75 to 150 BP well what does that

effectively mean that means we can have

a lower bound uh in March that's with a

25 BP hike of 4.75

but now if you add in tightening with

tightening because banks are freaking

out you could actually be at a rate of

5.5 to 6.25 percent without actually

being there

think about that if the FED hints this

today they could be signaling hey we

don't have to do as much anymore because

the banking system is going to tighten

and effectively do that work for us

which basically means the FED could be

at a six percent effective rate thanks

to the credit squeeze they're creating

while pausing after the next 25 BP that

we're expecting to get today

that is also very interesting because in

my opinion if rates were effectively 5.5

to 6.25 we would effectively I would

call it an effective guarantee that

we're hitting a recession if if we have

rates this high and if the banking

crisis tightens lending this much then

that's where we're walking so what could

that then mean for the way the FED talks

to us well as TS Lombard says gradualism

which is basically a way of saying uh I

I would call it uh softly acting like a

hawk with hikes and seriousness on

inflation but mostly being dovish it's

kind of like a change in tone and TS

Lombard makes a really good argument

here that hey look this credit crunch

could hit us so badly that who cares

what banks say about what happens today

what actually matters more is about the

fed's potential move towards gradualism

in response to the credit tightening

that's going to happen as basically all

the banks pucker and they're like oh

dear we better tighten lending because

we don't want to go bankrupt like all

those other Banks and that does enough

of the fed's job for them that's

entirely possible it's something to pay

attention to now we'll look at a Bank of

America piece as well here but I think

we should quickly get the Goldman Sachs

Financial conditions index uh let's get

that really quick just to see how we're

doing going into the meeting uh Jay

Powell looks at this chart I'm 99

certain now Financial conditions look

like okay look like we're rotating down

slightly

but uh let's pull this up together here

okay here we go so here are Financial

conditions as of this morning a slight

loosening over here after the drama that

we've had in the last uh you know a

couple weeks here uh however this level

is still substantially higher than where

we were over here when Jay Powell uh

spoke with Dave Rubinstein and and

cheered how it uh Financial conditions

were tightening remember to some degree

you do not want

to see this sort of uh

uh you know Char rotate all the way down

because you do need financial conditions

tight enough to kind of prevent rampant

and runaway inflation I don't know that

this drop really is significant to the

FED though I mean if we were down here I

think we'd get a very hawkish fed I

think here given that Jerome Powell was

pretty neutral over here I wouldn't be

surprised if here you have a pretty calm

fat as well so I'm I'm looking for a 25

BP hike in a relatively calm fed today

that's that's what I'm looking for now

uh we do have Bank of America that has

some insights on this as well

hop in on this piece here so what's next

for growth and inflation and are there

going to be second round effects blah

blah blah so let's just look at some of

their summary answers here so the first

thing they talk about here is if

Regional Bank issues are ring fenced

tightening lending standards and a

Slowdown in credit creation would be

consistent with our Baseline outlook for

a mild recession in the U.S later this

year they've been calling for like a Q3

Q4 uh recession here our bank research

team believes the FED will impose

stricter liquidity and cap requirements

on a larger subset of banks leading to

tighter lending standards more

pronounced Financial stress could lead

to Fed cuts and even a return to the

zero lower bound if stress spreads

but this is not our base case

it's actually what the bond market has

been pricing in for a while that we

would actually end up seeing somewhere

around 500 basis points and rate cuts by

the time the cycle is over that would

put us basically right back at zero now

a lot of people don't think we're ever

going to go back to zero that we're

never going to see those low rates again

that's going to take a very long time to

get inflation down uh I I'm a little

torn on that I probably lean more like

60 40 maybe even 70 30 towards the idea

that oh no we're going back to zero and

not only are we going back to zero but

we're probably gonna start knocking on

the door of negative rates uh in the

future but we'll see mostly because of

the deflationary impacts of uh AI

autonomy and otherwise

with money markets now yielding four

percent are we worried that money will

flow out of equities and into higher

risk free yielding assets well my answer

to that before I read their answer here

is my answer to that is I think that's

already happened I think people have

already thought why would I invest in

stocks when I can get four percent risk

free on treasuries uh and the answer

here is simple you might get four

percent on treasuries and maybe avoid a

10 or 20 right down on on the stocks

that you bought but if then all of a

sudden those stocks go up fifty percent

well boy your opportunity cost was

pretty rich to sit in those treasuries

but anyway

cash has become an alternative but there

have been there's been no equity

capitulation so far yeah because I feel

like allocation to equities is already

relatively low I I saw uh it was

actually a funny uh little meme

yesterday on on Twitter where was this

darn thing uh it was let's see here

somebody writes waiting for oh here it

is spotted in look at this investors

waiting for a drop below the October

lows before buying and it just shows a

bunch of

skeletons uh would look to be impaled on

some kind of wall that doesn't look very

pleasant but uh I don't think they they

are bothered by that anymore anyway uh

okay fine in the past has the how has

the FED reacted to financial crises when

they are in the process of raising hikes

or racing raising rates following the

1987 stock market crash the FED cut

rates and then raised them again as

things stabilized Ethan Harris believes

the FED can address Financial stability

and inflation with their varied policy

tools and concerns uh that uh that they

can't are overdone I don't think I mean

this is a suggestion that Goldman Sachs

is making as well I think it's so wrong

I I think there's

I would I I bet a good chunk of money on

this I think there's almost no chance

the Federal Reserve pauses and it keeps

going If the Fed pauses they're done

they're done a Fed pause means they're

done because they've said a million

times we will not repeat the mistakes of

the 70s the start stop uh uh uh policies

of the 70s

so it's very interesting uh you know you

could go to Goldman you know they're the

ones who are saying this here's their

piece from this morning and uh they

refer to the fed's response to the 1966

credit crunch 84 94 and 98 collapses uh

and they look at these but basically

they say here beyond the immediate

response the FED eased monetary policy

further in two episodes where it

initially eased resumed hiking in an

episode where it initially paused and

continued to hike further in an episode

where it initially hiked despite

Financial cons stability concerns I

believe they're going to do the yellow

section here which is just keep hiking

even in the face of financial stability

concerns overall the historical records

suggest that the fomc tends to avoid

tightening monetary policy in times of

financial stress and prefers to wait

until the extent of the problem becomes

clear unless it is confident that other

policy tools will successfully contain

stability risk well and I bet I

guarantee you a 99 certainty that's

exactly exactly what the FED is looking

at today they are looking at this and

saying look

we have a buy the FED pivot facility

it's the bank term funding program we

have the buy that fed pivot facility

we did our job

then we added to liquidity in US dollar

swap markets throughout the world

and we again did our job we got tools I

I guarantee you he's gonna say this we

got tools on our tool belt bro

wheeze using them

but rate hikes are important to contain

inflation because that remains our

number one fight

uh yeah

so in other words they're gonna make

this argument my thesis that we have

stability

they're gonna send this confidence today

we have stability

now we need uh Financial stability right

so that that's we have Financial

stability so instead we're going to

focus on maximizing jobs and stable

prices

because that's our dual mandate

Financial stability is kind of like

their third mandate uh well actually it

might be their primary mandate and then

you have this dual mandate thereafter

either way because the financial

stability goes actually wonky the other

two issues go away they'll do whatever

they need to do to maintain Financial

stability even if that means lots of job

loss but uh yeah I don't I don't I don't

know I I just don't jive with the

arguments that uh

you know we're gonna start stop here so

I

I'm actually bullish on it I'm bullish

on 25 and I'm bullish on a dovish fat

I'm happy about that I think the the

scariest part where we could get rug

pulled today uh is a you not using the

coupon code link down below because you

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uh q1a

uh or real estate analysis ever oh

there's so much we do it's great all

right so here's the Dot Plot again well

the sap uh the Dot Plot is one of the

other Pages it doesn't so terribly much

matter uh I suppose since I mentioned it

I'll pull up the dots for the people who

care about the dots this is what the

dots look like oh you know what I should

do I should make my projection over here

I like making these bets

somebody is asking me how come Kevin is

not introduced to Espresso

so sometimes when I land at uh airports

uh and I need something really quick or

no usually when we're about to take off

at airports I'll have an espresso

because the plane takes off so fast that

it kind of like jerks uh your coffee

back and then you spill I've done that

like three times so I I'll have espresso

the problem is espresso gives me a

massive stomachache it's just too

concentrated too acidic or whatever so

so I I know espresso I like it

especially you go to like Italy or you

have some you know Cuban coffee which is

really espresso I think anyway okay so

so this is the Dot Plot projection from

December okay I'm gonna I'm gonna draw

my Dot Plot projection for for this year

okay so this is gonna be midpoint target

range for the FED funds rate uh in 2023

so this is the end let me make sure it's

the end we'll go through these really

quickly oh here all my drawings from

last time okay so here it says yeah okay

it's the end uh median logaron uh is it

the end though see that's actually

interesting is it the end or the peak

that they write over here

uh it's the projection for the year

usually that's what they expect the year

to end in I'm pretty sure these are year

end

but for let's see central tendency three

highest lowest long run

uh one participant did not submit based

on our system monetary policy

fourth quarter oh here we go

present changes from the fourth quarter

of the previous year to the fourth

quarter of the Year indicated okay Q4

it's Q4

so let's go back to the dots

so where do we think rates are going to

be in Q4 okay so now this is going to be

interesting when the FED does this it

signals uncertainty uncertainty when the

FED does this that is all the dots are

clumped together it signals certainty

I think what's gonna happen is how many

dots we have one two three four five six

that's uh seven eight nine ten eleven

twelve thirteen fourteen fifteen sixteen

Seventeen eighteen nineteen okay and

then one person didn't submit Okay so

19. so 19 dots this time how how would I

revise this well I would probably go as

far as saying

uh for Q4 I'm gonna go I'm gonna put

five right here

I'll put two right here uh I'll actually

put uh let's see that's seven I'll put

four over here three four actually I put

five over here that's 16. and then I'll

put another four right here that should

be added up but this is this is the kind

of dispersion that that I would think of

I I think we're we're going to lose this

higher end in consistency it's possible

it's possible you end up having like one

lingerer up here but I think you're

going to lose the high end by Q4

remember this is Q4 all right so you're

gonna lose the high end and uh and

you're gonna shift this whole box

basically down

um as much as half of a percent or so so

we'll see that's uh that's my take Kevin

drinks energy drinks no I don't those

are very bad for you I used to uh but

not anymore so anyway

those are my projections on the fit

updated just a few hours before the FED

meeting with all the latest Goody

Two-Shoes