Why the Fed LIED to Us | The 2022 Market Collapse.

hey everyone kevin here we got to talk

about two things regarding the federal

reserve number one the federal reserve

is clearly now going to hike rates of 50

basis points i'm shocked by this u-turn

but it's happening it doesn't so

terribly much surprised me though

because at the beginning of the year i

was really worried about the consumer

trending down that is the consumer was

going to spend less it was my estimation

that the consumer would turn inward but

instead the complete opposite is

happening procter gamble is still

raising prices because they have more

previously lower income cohorts buying

more expensive upscale premium brand

products whether it's detergent or

gillette or brand toothbrushes or

whatever than ever before

and the same thing is happening at other

companies kimberly clark the banking

companies we are seeing in earnings

unmatched demand but the federal reserve

released a report that we're going to

look at in just a moment that gives us a

little bit more color in

why the federal reserve is going for

this 50 basis point hike however it's

also worth noting that marie daley today

gave us a little bit of insight that the

federal reserve is still not ready to go

for something like a shock and awe style

rate hike that is a jerome powell and

others who are actually voting members

over at the federal reserve like loretta

master and so on uh they have made it

clear now that even though they're okay

with potentially a 50 basis point hike

and maybe even one more that way we can

get from uh you know if we do 250 basis

point hikes we'll be able to get to two

and a half percent in rates by the end

of the year and this is something the

federal reserve wants uh previously in

february we thought they wanted to get

to two percent and uh now that they want

to get to two and a half percent it's

obvious that uh if previously we would

have had 725 basis point hikes well now

we're just going to end up having to

have

uh five 25 basis point hikes and two 50

basis point hikes so those are coming in

it's likely that those are going to be

the next two meetings that we'll see a

25 liftoff 50 50. and then 25 25 25 25.

yeah that's seven and then we'll be at

about two and a half percent so what's

this report that just came out well this

is what we want to take a look at and i

want to give you just some of the

highlights of it we'll keep it short and

sweet but i do want to make it very

clear that right now news that did break

uh via loretta mester and marie daley

via bloomberg now is that we are not to

expect a shock and awe style 75 bp hike

who knows they could end up doing that

in the future nobody was talking about a

50 basis point hike when we were first

talking about uh uh you know like are we

even gonna lift off right then we

started remotely like maybe we're gonna

get 50 but maybe it'll be 25 and now

it's like okay now we're definitely

going to get 50. is it going to be 75

right so far they're saying no but who

knows they could always just u-turn

again just at this point you kind of

just have to build in and expect for

their volatility so what is the report

that i want to show you and give i give

you a summary of well it is called the

beige book the beige report is published

eight times per year and the beige book

and i'll give you a very short sweet

summary on it

is basically the federal reserve banks

remember the federal reserve is an

institution it's a research institution

of about two thousand plus employees and

they do interviews questionnaires uh and

they ask or and speak to their contacts

whether they're uh businesses community

organizers economists market experts or

whatever sources they can get their

hands on to kind of get a firsthand

glimpse at what businesses are feeling

this is kind of like how we read the

earnings reports to listen to what the

ceos are saying because those are kind

of like our ways of understanding the

ceo's optimism for growth in the future

like when jamie dimon at jpmorgan says

hey by the way we think bank balances

are gonna go up this year that's that's

great that's bullish that's a good thing

that's the opposite of what we thought

remember

me and the fed together we thought

consumers would slow spending because of

the war jerome powell called the war a

quote game changer and because of that

game changer we thought oh no this could

make consumers stop spending and if

consumers stop spending then inflation

will go away but that's not what

happened and the beige book is going to

give us some color on that but before i

open the beige book i do want to give a

quick shout out to our sponsor today

here you go thank you to today's sponsor

north one north one is the perfect tool

for small business owners and

entrepreneurs because north one is a

mobile banking app built specifically

for small businesses their app gives you

access to a lot of features that you can

use to manage your money from anywhere

that means you can effectively manage

your business's finances with tools like

mobile check deposit cash withdrawals

the ability to send and receive ach and

wire payments and all these features

mean you'll never have to go into a bank

again no more waiting in line

it also integrates with popular

accounting software to save you hours of

manual bookkeeping and now

north one is giving you the opportunity

to win five thousand dollars and up to

ten smaller prices of five hundred

dollars for your business all you have

to do is sign up which only takes three

minutes so click the link in the

description down below to get that deal

and take your business banking to the

next level signing up with north one

means you will be joining over 320 000

businesses across america who have made

the switch

to north one their app and debit card

mean that you'll never have to walk into

a bank branch ever again so if you want

to win five thousand dollars for your

business or side hustle well let's thank

the sponsor we got today here which is

north one check them out at the link in

the description down below

okay folks so here's the beige book and

i'm just gonna read some of these

highlights to you so take a look at this

economic activity expanded at a moderate

pace in since mid-feb okay so this is

interesting first because it's like okay

well since mid fed is basically when

when war was right so we've expanded

since then but listen to the word

choices they used and i've highlighted

these word choices in orange here see

right here in orange listen to this

consumer spending

accelerated among retail and

non-financial services district contacts

reported continued strong demand for

real estate demand for workers continued

to be strong persistent labor demand

continued to fuel strong wage growth

strong demand generally allows firms to

pass input costs to customers via fuel

surcharges or whatever

firms in most districts expected

inflationary pressures to continue over

the coming months tourism spending and

manufacturing activity all picked up in

new york

and we'll go through some of the

different areas here in just a moment

but what do you notice there

well first of all the reason i believe

they talk about since midfield well

first of all is that's when we have the

last beige book but most importantly mid

fab is this report being done between

basically from when the war started and

now is really a way of us looking into

the federal reserve's brains and what

are they thinking well they're thinking

we can't allow inflation to get away it

is getting away what's driving inflation

it's more demand okay well we just had a

war which on one hand war could actually

lead to more inflationary costs like

we're seeing with commodities whether

that's wheat or gas which increases

input costs for producers producer

prices go up and eventually consumer

prices go up right that's obviously

inflationary but war can also create

massive disinflationary fears because if

everybody just stops buying and they

they hunker down and they stop traveling

because they're fearful

then inflation actually could go down

more than you see those uh prices like

food and energy skyrocket now i know

that sounds crazy

and in the this honestly in this

instance it is crazy because it's not

what's happening consumers are like oh

crap there's a war in ukraine let's buy

ukrainian merch let's buy ukrainian

flags i did too okay let's go travel

more and live it up more because yolo

you only live once like okay war sucks

we want it to end our hearts go out for

the people in ukraine and the russians

who are involved who don't even realize

all the things that are going on uh it's

it's war is so terrible and so tragic

and we always have to take a moment to

realize how fortunate we are uh not to

be experiencing these sorts of

atrocities but the point is

for whatever reason the u.s consumer is

still freaking booming and so now you've

got the fed going

wait a minute we thought war was a game

changer because consumers would spend

less they're actually spending more oh

crap let's u-turn

and this is what i call the fence u-turn

chart one two three

all right here's the u-turn so first

we talked about this a little bit

earlier uh that we're on this sort of

inflationist transitory aspect right but

then oh wait no inflation's continuing

to go on oh but don't worry war is a

game changer oh wait no consumers are

still spending let's go with 25 bp oh

crap wait consumers are still spending

even more let's go with 50 and then

maybe level off and do 25s again for the

rest of the year and see where we go

right so this is what the fed is seeing

let's take a little bit more of a look

at the facebook here the warren listen

to this like the fact that this is in

the summary of cleveland all of this

pink right here is in the summary of

cleveland should tell you that what i've

just explained is literally why the fed

is like oh crap now a lot of people and

i i hate this

but i i also get it a lot of people they

leave me comments and go kevin the fed's

a liar they've lied to us

they knew what was happening uh i

honestly don't think that they're liars

i just think they were wrong

those are very different things because

a lie implies that somebody's trying to

deceive uh which maybe that's what you

think fine i don't believe that's what

they're trying to do i honestly think

they thought oh my gosh the man's gonna

plummet because of this war i i placed

money on those bets okay

i was wrong so is the fed

read this here you go look at this

the war in ukraine had little meaningful

impact on current demand for goods and

services but added other complexities to

supply chains in other words we got all

of the bad with none of the good

[Laughter]

like war gave us no demand destruction

it just gave us if anything more travel

demand and more supply chain constraints

and now higher gas prices and so on

atlanta retail sales high consumer

spending on services in st louis rose oh

which reminds me we'll go back to st

louis there in a moment but i did think

this was interesting some contacts

reported early signs that the strong

pace of wage growth had begun to slow

this is good this is that argument that

maybe we're starting to finally peak in

terms of inflation right not saying i

don't want people to be paid more i'm

all for people making more money but you

know we do need prices to stop going up

at some point right here you go look at

kansas city again because it shows you

how important this ukraine thing was in

the decision making of the fed the

invasion of ukraine disrupted supply

chains and caused input prices to rise

but district businesses reported no

effects on demand

in other words we got all of the bad

with none of the good

retail sales activity in san francisco

continue to expand especially travel

and and then we get into the individual

districts which in terms of individual

districts uh oh yeah uh boston i made a

note that uh companies are still

planning to have further price increases

i made a little note on the side there

that's exactly what procter and gamble

said more price increases coming

new york consumer spending picked up

somewhat in the new york region

i'm only giving you the in the actual

region some of the big ones here this

was interesting

some softening is expected in consumer

spending over the next few months amid

expectations of smaller tax refunds due

to the advance of the child tax credit

that's because ordinarily get a 2 000

tax credit but now it was broken up uh

for for each child but now it was broken

up into 3000 or 3 600 but half of it was

advanced to people in monthly payments

at the end of last year uh so now that's

from september through december now

you're getting that second half but that

second half you know half of 3000 is

1500 which is actually 500 less than you

would have gotten under the other tax

credit regime right so that's kind of

what they mean here

pricing power was consistent with other

reports over here in chicago consumer

prices moved up due to robust demand

consumer spending moved up modestly over

the reporting period led by greater

tourism and leisure

go over to san francisco same thing i

believe with travel robust demand for

travel and dining professional events

and conventions slowly return to being

held in person but are not yet at

pre-pandemic levels demand for air

travel recovered further and in some

cases outpaced pre-pandemic levels so

folks if you're wondering why the feds

seem so wishy-washy it's because they're

making like textbook decisions they're

like okay we have a coveted pandemic we

injected the economy with a lot of money

we're going to have temporary inflation

one base effects and two reopening okay

great then we get hit with delta and

omicron everything lasts longer we spend

more money we have more supply chain

disruptions great the inflation just

lasts way longer dang it they were wrong

okay it wasn't transitory because other

events happened that made it not

transitory right uh we printed way more

money than we should have uh the money

printer has a huge part of the blame

here obviously but you know it certainly

avoided the depths of a recession but

now we're dealing we're a depression but

now we're dealing with um with with the

other end of that right so uh yeah and

then of course

you know uh

the war they were wrong about that again

we got the bad with none of the good and

so i think that's why we saw the fed

u-turn here this beige book really gives

us a lot of color in terms of of of this

you know understanding where the fed's

head is hopefully that helps you and if

it does hey consider subscribing and

folks we'll see in the next one goodbye