Prepare for the Fed WEDNESDAY | WHAT TO EXPECT.

Hey, tomorrow at 11:00 a.m. California time, we will be getting a Federal

Reserve statement on whether or not they are going to reduce rates. And then at

11:30, we will get the Federal Reserve press conference. In this video, I'm

going to give you a presentation of what to expect. So, first things first,

Barclays is expecting no rate cut. It's also worth remembering that uh and I

mean the market broadly is expecting no rate cut either. This is pretty much the

expectation at this point. It's worth knowing as well though that tomorrow's

meeting will not have a summary of economic projections. So, we're not

really going to get any kind of adjustment on that SCP. However, I'd

like to note that Drum Powell often likes to distance himself uh from the

SCP after uh the SCP release meeting. Sometimes he even does during the

meeting, the SCP comes out. uh and so what could happen uh is you could end up

seeing uh a sort of talk down of the last summary of economic projections

that we got in March. Now the last projections materials are right here and

what we saw last time was that at the snapshot in time we thought for 2025 we

would end up getting GDP to sit around 1.7%.

I'm very confident Jerome Powell was going to get asked about the likelihood

of whether or not there'd be any difference in GDP projections or the

unemployment rate especially since we just had the Q1 GDP numbers come in very

very low.3%. We also had the Atlanta Fed real

GDP indicator suggesting even exports, gold exports excluded that we had a

substantially low uh data set for Q1 that would be suggestive of a slowly

moving economy. Presently the Atlanta Fed real GDP number is higher though, so

who knows? Maybe it'll average out. Right now the Atlanta Fed is showing

about 2.2% on a GDP, you know, basis for Q2.

So maybe Jerome Powell might give us a hint that hey, you know, the economy is

going to continue to move in line with our expectations of the last SEP. If he

says that, that's actually going to be a bullish move. So I would watch for that

potential bullishness because you kind of you like these SEP numbers are not

that bad. 4.4% unemployment then 43 43 for the next two years. 42 in the long

run. This is no problem at all. Now, when you start seeing a half percentage

rise in the unemployment rate from where we are, you get back to sort of the

fears about triggering the SOM rule, you did have one individual here project 47,

but I don't think we're actually in a place where JPAL is going to suggest,

hey, any of this seems to be weakening. If anything, I would expect that he

might mention that inflation could be higher in 2025 than previously expected.

But you'll notice they already built that into their summary of economic

projections last time uh during the March meeting and that mind you was

before liberation day. Now since then we have heard Jerome Powell say that

tariffs have come out to be a lot larger than expected. So, we would anticipate

that maybe if uh the board was going to revise their SEP or when they come out

with their new SEP next uh month in June that this number here will be higher.

But so far, it doesn't seem like the Fed is seeing any real signs of damage in

the hard data. And I don't think we're going to get a POW tomorrow that really

indicates any concern. Now, don't get me wrong, we're starting to see

highfrequency data, like in the video we talked about this morning, starting to

roll over, and I encourage you to watch that. But let's keep going with what

we've got from Barclays here. So, Barclay suggests they expect the May

FOMC statement to acknowledge that near-term inflation expectations have

moved up, but that longer term has remained relatively anchored. Uh, and

that's a good thing. This is usually calculated or or you know sort of read

off market expectations through inflation uh break even estimates. And

if you jump into uh what BNY suggests, BNY has their piece right here. Market

pricing agrees with no cut for tomorrow, maybe a 27% chance for June and a 64%

chance for July. But those longerterm inflation expectations are still very

well behaved. And if this remains to be the case by the end of July, that's when

we could potentially see a cut. Why? Because of a rollover in the jobs

market. So in other words, we could pay attention to inflation expectations as

short-term get a bump in the road. Longer term stable. As long as we remain

stable, maybe by July unemployment data ends up rolling over. And that's the big

red flag. But we're just not seeing any of that data yet. In fact, obviously the

April numbers beat really well. We were expecting 13,000 jobs. We got

117,000. Uh, mind you, this was the this survey was taken the week after

Liberation Day. So, it might not fully encompass the damage yet of tariffs uh

and sort of the length that tariffs have been going on. You know, we're we're now

celebrating what six u May 6th. We're celebrating uh essentially, you know, a

full month here post liberation day of tariffs. And so far, we don't have a

single deal yet. There is talk, mind you, about a deal with the United

Kingdom. But what's really interesting about this talk with the United Kingdom

is this idea that we're only going to see some limited maybe lifting of auto

part tariffs or auto tariffs along with some quotas. But there's no talk in the

UK trade deal about removing anything with regard to reciprocal tariffs. So in

other words, even if we get this sort of deal on autotos and auto parts or steel

and aluminum, we're still having issues on pharmaceuticals, reciprocal tariffs,

and the larger tariff sets on, you know, basically all other goods other than

cars and steel, which is interesting because now this is being called

potentially at hopefully the next and first big trade deal that Trump's going

to get to announce. but it's really just going to, you know, if this is what it

ends up being, address part of the issues that we're facing, which isn't

really great. Uh, so, you know, we've got this view here from BNY that by the

time June data is published, the jobs outlook will start to deteriorate

clearly. And I think this actually sets up a potential issue when you get into

mid June because you're going to have a lot of folks that will start clamoring

for the Federal Reserve to cut rates. And it's possible that they will,

but my guess is they're going to want a full quarter of inflation data before

being willing to respond uh to these cuts. They're also going to want to see

will Doge actually create any inflation. I know that second one is going to sound

a little weird. We'll talk about that in just a moment. But think about this. For

you to actually get three full months of inflation data, you're looking at the

May inflation report, the June inflation report, and the July inflation report.

All right, cool. So, when do we get the July inflation report? Well, we can go

to the CPI schedule of releases. And the July inflation report is expected to

come out right here, August 12th. All right,

great. So that means the earliest you would have three months of data for the

Fed is probably going to be September. So you could Google, we'll go to FOMC

schedule. Jump back in here. FOMC schedule. Uh you could see we're not

going to have a Fed meeting in August at all. So, by the time you get three full

months of inflation data for the Federal Reserve, you're actually going to have

to wait until September to realistically price in uh one of your first reactions.

And see, the Federal Reserve is of the mindset that they can cut rates very

rapidly. So, who knows, maybe you even get a 50 basis point cut here. But the

problem is this quarter right here, May, June, July, is where we'll probably

start seeing unemployment rise. Shorter term inflation expectations continue to

rise. and a Fed that does nothing. And when a Fed does nothing or when the Fed

does nothing, people get very nervous. They're like, "Oh, no. This this is

bad." Now, obviously, right now, we expect the Federal Reserve is going to

be in no rush. And that's fine. But once we get closer to actually seeing some of

those early job cuts, people are going to be really nervous, like, why is the

Fed not cutting it? So, we're going to wait for a quarter of data. We've seen

that in their behavior at the beginning of 2024 when they were talking about Q1.

Oh, you know, one month doesn't make a trend. uh you know, one quarter was a

little elevated. We're willing to wait a little longer. That's going to be a risk

factor. So, the Fed being slow here is probably the biggest risk. And I think

I'm going to be looking for clues in terms of how many inflation reports

Jerome Powell really wants to look for to see that tariff impact. I don't think

he'll give us an answer because it's likely just way too soon to tell. But

when you think about it, logically, if you were the Fed chairperson, yeah,

you're probably not going to desire to react until September, which means again

that June, July period, August even with with no Fed meeting at all could be a

little nasty. Now, on top of that, you know, there are articles circulating

right now that Doge isn't actually saving money. Uh that Doge might

actually end up costing us money, that, you know, was supposed to be a $2

trillion goal. Now then it was a 1 trillion and you know then it'll go down

to savings of so far only 150 billion and a lot of that was sort of cutting

DEI expenses and basically cutting programs not necessarily finding waste

fraud and abuse although some will say DEI programs are are wasteful but not

necessarily fraudulent that's fine but what's interesting uh you know obviously

this is just somebody's opinion that Doge could end up costing more money. I

think what they're really doing is they're just saying there's, you know,

government spending has just continued to skyrocket and deficits are rising and

if we walk into a recession, deficits will rise even more. So, we'll have more

debt rather than less. I mean, I always think it's good, at least somebody's

trying to bring efficiency uh to the government, which I'm a big fan of. But

one thing that is interesting that I hadn't considered before was this right

here. The downside to DOA's valley of tears, a demoralized workforce and bad

headlines about non-existent savings that can be presented as a win. So, in

other words, this potential demoralization of government workers uh

in terms of hey, your your job isn't safe. You know, why work hard? You're

expendable. Nobody really knows what that potentially is going to entail

longer term. But if we do see a decline in government productivity, it is also

possible that GDP declines because of that, keeping in mind that government

spending is part of our gross domestic product because it enables money to

circulate through an American economy. Just like when we trade with China, I

thought it was really interesting. TS Lombard had a great piece this morning.

Maybe I can pull it up where they show that when we buy things from China, 50%

of the money that goes to basically Chinese companies in exchange for those

imports uh ends up in America. Again, take a look at this. So, of the money

that's spent on Chinese goods, it's actually

55.9% stays in America, which is the highest of all of the other countries

that we would trade with or trade with. you know, Japan, Canada, Mexico, Euro

era or whatever. Uh, which is fascinating because it really suggests

that hey, that a lot of that money can stay here. See, they give an example.

When you buy a $100 pair of Nike sneakers made in Asia, only 25 of its

costs goes to the Asian factory that manufactures the shoes. The remaining 75

is spent in the following ways. 350 to ship it from Asia to the United States.

2150 goes to Nike to cover its design, marketing profits, and expenses. most of

those being US expenses and the rema, you know, US-based costs like Nike

employees and stuff. And the remaining $50 goes to the US retailer that pays

for the transportation of the sneakers inside the United States, pays the

workers to sell it at the retail locations, uh, insurance, rental space,

blah blah blah blah blah, whatever. So, it's kind of interesting like when when

you think about, oh my gosh, I'm buying this $100 shoe made in China. Really,

only 25 bucks of it is going to to, you know, China. Uh obviously TS Lombard

here says outside of the shoe example in aggregate it's closer to 44%. Uh but on

the shoe example very little actually ends up in China relative to how much

goes to support wages in American service providers here. I think all of

this is is quite fascinating data and uh creates very very cool perspective. So

uh anyway my take on the Fed tomorrow and some other updates. Thanks so much

for watching and we'll see y'all tomorrow. We'll be live for it. Uh make

sure to come join. I look forward to seeing you there. Thanks so much for

watching. As always, remember nonacredited round for House Hack is

open. Go to house hack.com to learn more. Thanks so much for watching. We'll

see you soon in the next. Why not advertise these things that you told us

here? I feel like nobody else knows about this. We'll we'll try a little

advertising and see how it goes. Congratulations, man. You have done so

much. People love you. People look up to you. Kevin Praath there, financial

analyst and YouTuber. Meet Kevin. Always great to get your take.