What the Fed *JUST* Said || Recession & HIKES!

hey everyone we kevin here let's do a

breakdown of exactly what jerome powell

just said what we got from the summary

of economic projections what we have in

terms of when inflation is expected to

go down how it's going to go down

because jay powell gives us kind of an

interesting path for how he expects

inflation to go down which is really

important because then we can align with

that expectation to where if we see

month-over-month deviation in that we

know to either go bearish or bullish

okay folks let's get right into it we'll

also get answers on the wage price

spiral and a whole lot of other

information this was a very good fed

meeting started off a little dirty

though because we got the sep the scp

came in much worse than expected gdp

came in at an estimate of 2.8 percent

for 2022. the bloomberg estimate was

three point five percent i was guessing

between three and three five seeing a

two in the front was not good markets

did not like that in fact if you see

what markets reacted with when they saw

that gdp decline we started getting

fears of stagflation we saw markets

quickly move down here breaking below uh

some of our support levels here only to

recover later in the meeting and that's

because of jerome powell's responses to

some of the things that we saw here the

inflation number on the projections here

was not something that we thought would

be very important to pay attention to

anyway and instead something that we

really wanted to watch for was this

right here the fed's

the fed funds rate expectation was 1.9

for the end of the year including today

there are seven meetings left for the

rest of the year that includes the

meeting that just concluded so that

means we only have six more to go if

every of these seven meetings results in

a .25 basis or 0.25 or 25 basis point

hike then we would end up with at an end

of the year lower bound interest rate of

1.75 with an upper bound at 2

and that could align with this 1.9

percent though what was a little

shocking was the range of estimates

were substantially larger

potentially suggesting that we could end

up seeing higher rates like a 50 basis

point hike towards the end of the year

if we see a if we don't see inflation

come down you've got pretty much what

we're assuming is uh bollard over here

who was the only dissenting member

during this meeting to raise rates a

quarter of a point which obviously we

raised rates a quarter of a point that's

the headline news big deal uh bullard

was going for a 50 basis point hike he

was the only one so by a vote of eight

to one we did get a 25

basis point hike

uh again bloomberg was expecting here

something around uh an estimate of about

1.55

sorry this is bloomberg right here

bloomberg was expecting

1.55 to be the end of the year rate i

was expecting 1.6 as the end of the year

rate we ended up getting 1.9 so this is

where we initially got some of that

heartache when we first saw the scp come

out we're like oh crap

less like higher rates and worse gdp not

good so the market's reaction initially

was very negative fortunately jpow

whether through clever wordsmithing or

what ended up talking his way straight

out of the pain because he gave us a lot

of clarity so let's go through exactly

what he said first uh regarding rates

okay we're up 25 basis points we expect

to pretty much raise rates at least the

the seven meetings this year uh

including this one so each of the next

six meetings we're expecting to raise

rates quote steadily and even at one

point jerome powell mentioned yeah seven

rate hikes this year now i don't know if

he meant to say that or if he was

hypothetically saying that but he did

those words did come out of his mouth

and i think that's because honestly

that's just the baseline expectation

right now that at every single meeting

this year the six more to come we will

have a 25 basis point height also a lot

of progress was made on balance sheet

reduction the full plan is expected to

be announced in a coming meeting but

they're actually going to give us a lot

of guidance in the minutes that come out

in about three weeks for this meeting in

terms of what to expect he said it would

be very familiar to us usually we see

about a 90 billion per month balance

sheet runoff and that means it would

take us somewhere around 15 to 16 months

to actually really start constraining

the economy because there's so much

money floating around in banks and on

the on reverse repo balance sheets that

that really it's going to be a while

before the balance sheet actually

impacts the economy in my opinion

there's going to be a big lag here of

probably a year to a year and a half the

rates are going to matter more for

constraining the economy and bringing

that inflation down

but it could be as soon as the may

meeting that they start reducing the

balance sheet not this time regarding

gdp and this was really important

because remember that scp was ugly why

did it come in at 2.8 percent jerome

powell says it came in at 2.8 because of

spillovers from the war higher oil and

higher commodity prices and that this is

why they assessed a 2.8 gdp however he

says let's remember this is still very

strong he put us back into like historic

perspective he did a really great job

here he says look 2.8 percent is great

we expect it to be like 2.1 and 2 for

the years going forward in fact you

could see exactly that i'll show you

that really quick in the summary of

economic projection so you can see that

uh there you go top line number right

here we expect uh 2.2 percent in 2023

and 2 percent of 2024 and he goes back

and says look if we got a 2.8 percent

print and we weren't you know and we

didn't have the pandemic 2.8 would be a

great thing

so it shouldn't be seen as a negative

that we came in at 2.8 even though that

was my initial reaction and so was the

market's initial reaction first then he

was asked uh so this was interesting he

says uh this this would have been one of

the strongest years again had it not

been for the pandemic

then he talks about employment and the

wage price spiral he talks about how a

way uh labor force participation going

up should actually help reduce wage

pressures and eliminate the risk of a

wage price spiral there are currently

1.7 job openings for every unemployed

person

and he does agree that wages going up is

a great thing he sees wages going up but

he says this is an important line here

listen to this one quote

increases are consistent with two

percent inflation over time we do not

see evidence of a wage price spiral huge

okay that's that's really big that

doesn't mean he's right uh you know

numbers could change next month we could

go oh crap right but remember the last

bls labor report came in it was zero

percent month-over-month inflation uh

for wages which not so great for workers

but in terms of the wage price file

great

uh he was very frustrated about people

suggesting that the federal reserve is

behind that they're falling behind and

and he very aggressively replied and

said look some of our estimates actually

put our estimates for interest rate

increases above the neutral rate the

neutral rate is two percent to about two

and a half percent and uh what we're

seeing on some of these projections is

that we could actually end up seeing the

uh our interest rates our federal

reserve interest rates here they see the

projection how it says 2.8 percent there

for 2023

and 2024 that is above the neutral rate

and so j-pal is like this is us running

ahead this is us not behind so obviously

a lot of people listening to this are

going to say dude he's way behind

because because he is but he got really

frustrated about people saying that he's

like we're not behind we're on it

so a little bit of a j-pal anger there

uh which quick note in case you're

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strategizing for that okay moving on

with uh j-pal here so what about

supply disruptions obviously lasting

longer than expected but how is

inflation going to be measured now and

this was so beautiful because you've

heard me on this channel talk about how

there's old inflation and that's the

original kovid shock the original supply

chain disruptions and then there's the

new inflation and those two have now

merged to create this monster of

inflation and so the question is jerome

powell when did you expect

inflation to go down originally and how

do you think inflation's going to go

down now this was really interesting so

what i did is i drew a picture to

basically show you

uh graphically what he said so this is

that picture right here okay so here's

how this works the green line let's just

say with these little green dates here

was his original expectation he thought

that we would see a peak

uh in march of 2022 that we would hit

peak inflation and then the course is

really interesting he said that he

thought inflation would come down

level out for a while and then towards

the end of the year in q4 going towards

december fall more rapidly

however because of the new style of

inflation he now appears to be pricing

in about a three to four month delay to

the peak so this actually makes the peak

more likely to be around q3

2022 uh that would be somewhere around

uh let's see we got april may june there

will be about july right maybe somewhere

between july and september for the uh

for the end

uh so now if we look at uh the same

course he ends up saying that he doesn't

believe we're going to see that

we'll see that leveling off maybe

between q3 and q4 but then that more

rapid deceleration and inflation not

until the first quarter of 2023 he says

so in other words he's delayed

everything by about three to four months

what does this mean for you well it

means you really have to a watch the

month-over-month data really really

important because the year over year is

going to have you know some high

comparisons to last year in may june

july

but the month-over-month data is what

you want to watch but also you really

want to watch this time frame right here

june july

august september that's what you want to

pay attention to why do you want to pay

attention to that time frame because we

know the next cpi report that comes out

from march april may we know all those

reports are going to be high because of

war that's already priced in the feds

are already looking past that in other

words

the fed thinks that right now we're

doing this we're still going

on the roller coaster right over here

right uh and so when we when we get to

that peak

uh

or at least q3 of 2022 if we don't

actually hit a peak in q3

that's probably when the fed's going to

have to be a little bit more aggressive

and go for that 50 basis point hike

that's a really really big takeaway from

this fed meeting so you really want to

sear that that image or like print it

out or whatever into your mind because

it's a really big deal for what he just

said

so uh of course he mentioned his goal is

to promote a long expansion which is

only possible with price stability he uh

does say it's going to take longer than

expected to get inflation back down but

they're going to be very nimble when it

comes to the data okay this is not so

exciting here is more exciting

recession he says in my view the

probability of a recession is not

particularly elevated right now he

brushed off questions about the 10-2 did

not care about the potential for an

inverted yield curve at all does not see

an increased potential in a recession

says the labor market is strong payroll

job growth is continuing household and

business balance sheets are very strong

uh we know we found out this morning

that the average consumer balance sheet

is larger by the tune of about 16 600

dollars so we still have excess money

in basically our savings accounts or

whatever and jerome powell combines all

this data and says look we we think the

economy is set for uh easily absorbing

these potentially seven rate hikes over

the you know the next uh uh you know now

set including today seven meetings to

come and uh no big issues here regarding

sanctions he's in favor of the sanctions

but really tried to dodge any kind of uh

political liability there uh and so it

didn't have much for us to say there but

i think if if we sum this up honestly

what did we get here folks no rug pull

this is what we were expecting we were

not expecting to get rug pulled we

pretty much got what we expected we did

get a worse estimate for gdp and a

little bit higher of a of an estimate

for the fed funds rate but we've been

we've been expecting seven straight 25

basis point hikes so okay a little

softer gdp we got what we expected on

inflation talk we now know a time frame

for inflation we know what data they're

going to look at i mean i i

you can't communicate any more clearly

than drum powell did today there's no

rug pull it shows us that he's not

trying to you know

surprise us or shock and awe us bullard

is but bullard's in the minority he was

the one voting all by himself of the

other eight people like bollard your

nuts you know it's like bullard's trying

to do the uh

bill ackman you know shock and awe and

everybody else is like you're nuts okay

we're gonna wait for that data july to

september we're gonna be patient with it

we think the economy is capable here

personally with uh the spy and the qqq

barely off their zero percent fibonacci

lines i'm bullish on this i like this

meeting a lot i was a little nervous

initially when i saw that sep but coming

out of it i'm happy about this thank you

so much for watching if you want to see

exactly what i'm buying check out those

programs linked down below thanks so

much for watching folks and we will see

you in the next one thanks so much bye