yeah so about the fed's rug pull tomorrow...

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buckle up for Drome Powell's R cut talk

tomorrow well here's what you got to pay

attention to first you got to recognize

the dates that are coming up because May

seems a lot further away than March but

the reality is it's not because the

March meeting is being held March 20th

and the May meeting is being held April

30th to May 1st which actually means

you've only got about a 5 we delay

between those two dates which in my

opinion with how little spread there is

between those two meetings is really not

going to make much of a difference if

they end up cutting in March or May in

fact between now and the March meeting

we will have two more jobs reports and

two more inflation reports but by the

May meeting because that may meeting is

May 1st basically is when it end ends we

won't actually get CPI or jobs data

within that month by that fed meeting so

we'll only actually be getting one

additional report for both jobs and

inflation now the FED might want that

they might want to go for that but

here's the reality of what I think

happens tomorrow what I think happens

tomorrow is you get a Drome Powell who

won't make up his mind yet as to whether

they're going to cut in March or in May

the reason for that is he might be

willing to cut in March but I don't

think they want Financial conditions to

loosen any more than they already have

and remember the bias of the bond market

I'll explain First Financial conditions

Financial conditions as measured by the

Goldman Sachs Financial conditions index

are as low as they were in June of

2022 which means we're at the lowest

levels of this entire tightening cycle

of almost one and a half years now that

this has been going on were the lowest

levels and the Federal Reserve usually

ends up seeing after they start yapping

at the fomc bonds rally so bond yields

falling which loosen Financial

conditions in fact take a look at this

chart here you can see that the 3-day

rate Trend after the fomc speaks is -67

basis points on yields in other words

bonds tend to Rally after fed meetings

Jerome's going to know this so if I'm

Jerome I'm going into tomorrow with a

short-term hawkish attitude but longer

term doish attitude in other words hey

this is looking really good but we're

not prepared to make any decisions we're

going to keep rates stable now if we

need to we're going to raise rates again

yeah things are looking good but you

know what we're not convinced I I would

almost bet money he's going to say

something like this phrase we're not

convinced yet that we need to cut rates

anytime soon or within the next meeting

or two something like that where he kind

of almost potentially implies that they

might end up waiting until June to do

their first cut now I don't think that's

likely the market doesn't think that's

likely either in fact the market right

now for a May rate cut is pricing in a

May rate cut percent chance of

85.7% so things would really have to you

know we'd really start have to seeing we

would have to start seeing inflation

really come up again to not get the May

rate cut but the odds of getting a rate

cut in March are as low as about

39.6% that's because keep getting strong

data Atlanta fed now real GDP at 3% the

IMF increasing GDP forecast jolt sta

coming in hot this morning the next two

jobs reports May tell us the jobs Market

is starting to weaken but if it's not

drum Pal's not going to want to cut in

March so I think he'll want to keep the

optionality open for March based on the

next data sets but he's not really going

to tell us tomorrow what those data sets

are going to say because he probably

doesn't have them yet although there's a

chance he does he sometimes says that he

can get labor reports maybe the night or

two nights before they actually come out

well interesting the next Labor report

comes out February 2 which is Apple

provision release day I'll make a video

okay two days before that ah fed meeting

is it possible he'll get a little sneak

preview of the jobs numbers yes and so

this is why there are two things to

understand number one if drw pow does

end up going we need to wait and see get

these next two reports then he probably

doesn't know yet or he does know and the

labor market still strong and he'll keep

open the optionality for the March cut

but I think he only pulls that trigger

if he needs to we're probably going may

now we'll also have the bank term

funding program shutter on March 11th

there are 11 days between March 11th and

March 20th if things start showing signs

of stress in those N9 days we'll get a

cut in March but I don't think jum

Powell is going to forecast that

tomorrow

unless he gets spooked what would spook

him an early preview of the jobs report

if we get a pure doish Drome Powell

tomorrow we probably have a Miss on the

jobs D on Friday and with a Miss on the

jobs dat on Friday we will almost

solidify our rate cut for March so this

is all going to come down to again

messaging from Jerome Powell he probably

has a heads up of what he's going to get

for jobs that on on Friday I don't think

we're expecting like a massive plummet

for Friday that is you and I are

expecting that Wall Street certainly is

projecting up Wall Street for this

Friday is projecting non-farm payrolls

to come in at 185,000 down from the 216

but honestly the long run average we've

been seeing here has been around 180,000

so totally benign report expected we'd

have to get basically rugged in my

opinion on the job data to actually get

a purely doish Drome tomorrow I think

he's really going to kick the scan down

the road to get these next two to three

reports and there's really no reason for

him to speculate on yep we're going for

a March rate cut tomorrow so I'm not

that's why I say I think we get

near-term hawkish longer term bullish we

might also even get some hints that I

think people haven't woken up to yet on

hey remember we don't only have to cut

by 25 BP like we could start in the

summer and cut by 50 which means you

know we could actually end up cutting

more in the year because inflation has

been lower than expected remember this

is the chart of inflation right here

annualized rate of inflation over the

last 3 months it's like

1.6% for a core that's core PC it's like

1.6% it's crazy you do it over 6 months

you're at

1.9% and you do it from the change of a

year we're at about 2.9% right so

inflation is

plummeted but I don't think there's a

reason since we're not cutting tomorrow

to Signal all right it's rally mode

everybody go crazy so let's think about

that straight no declaring a

victory no shortterm yes we're

definitely going to cut in March I do

think we are going to get some

discussion about we might see larger

rate cuts and remember by us not doing

anything we're actually continuing to

tighten but that would be okay for March

because the jobs data is still good if

the leaked Friday report is indeed good

like jpw tomorrow is basically leaking

us the jobs report for January in my

opinion I I think I think he'll know

going into it and it'll actually be very

important for him to know so we could

properly signal that yeah look if things

randomly Decay yes March otherwise May

fine then we start getting our loosening

now there are some folks who ask me

about uh

stagflation I don't see it everywhere we

look with the exception of Aerospace lot

of inflation there a lot of inflation

still in

Aerospace uh and then of course

insurance which is very lagging rents

are already coming down insurance will

come down just like rents are coming

down now insurance will come down as

well those take a very long time to

actually have cost increases move

through the system annual contract

renewals all that fine outside of those

three

items not really seeing new inflationary

spikes we're seeing more businesses talk

price Cuts not uh not spikes in fact

that's exactly what we saw in the fed's

beige book and we also have folks like

Esther George again she's retired from

the FED she retired last year suggesting

things could go down very rapidly and

quickly that is true Jerome Powell will

consider that but again if he has the

leaked report he'll know well not yet

and if that starts happening we could

always cut rapidly and quickly so

again bond yields will probably fall

tomorrow as the market recognizes okay

we've hit Peak so I think we're going to

the market will recognize we're at Peak

rates we're not going to get rapid cuts

which actually is a good thing because

signals the jobs report won't be

disastrous Friday and that the economy

is still you know keeping the wheels on

so to speak uh and we'll be setting up

for a may cut with the slight

possibility that if things go poopy dupy

we get the March but again the spread

between March and may is not that big

it's only 5 weeks so instead Jerome's

got to act to keep Financial conditions

as tight as possible and they're already

low right we just don't want them to

plummet in terms of Jerome like to

Financial conditions are already

substantially looser than where they

were in say October right we had our

October 31st Peak over here Financial

conditions way

looser we just probably don't want the

financial conditions to drop a bunch

after tomorrow so that's why I say

slight Hawking bias so am I expecting

things to go to the Moon after tomorrow

no will things go vastly red tomorrow

probably not because most of the economy

or most of markets have already

basically said the May rate cut is way

more likely I still think there's a

chance because of the ending of the bank

term funding program that you get

March but I don't know with this jolt

data I wasn't expecting that uh over 9

million job openings I thought they were

going to miss by a good 3 400k I was

wrong I was looking at about 8.3 million

job openings uh and uh now we're we're

we just got data coming in at uh 9:

pretty remarkable anyway thank you so

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goes congratulations man you have done

so much people love you people look up

to you Kevin pafra there financial

analyst and YouTuber meet Kevin always

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