The Fed Just Issued Another Warning.

hey everyone me Kevin here in this video

I'd like to discuss a warning that

Raphael Bostic of the Federal Reserve

just provided and it's something that

let's just say even Mr bosk was caught

blindsided by take a look at this this

is a little bit of background on Mr bosk

back in January of 2022 in a Wall Street

Pro Central Banking piece The Wall

Street Journal broke down that Mr bosk

added that he expects some moderation in

price pressures noting as we move

further into the year we'll start seeing

some of those inflationary pressures

baate which will allow us to not be so

dramatic in our policy actions right but

that's exactly the opposite of what

happened instead in 2022 because of the

persistence and the extremeness of

inflation we actually saw interest rates

rise at the fastest level that we have

seen since the 1980s and we rose from a

0% level all the way to

4% in the span of just 9 months 400

basis points in the span of 9 months is

one of the fastest rates we've actually

seen uh interest rates the rate of the

rates go up in history it's pretty

remarkable there were only brief periods

in the 1980s where we brief briefly

skyrocketed past that sort of rate of an

increase but that was also followed by

rapid Cuts in the early 80s so Mr bosk

also in uh the 20121 2022 cycle

suggested the following at the beginning

of the pandemic when we we asked

Business Leaders how long do they think

this was last they told me five or 6

months and we'd be good now we're at the

beginning of 2 years in and we're still

not good it's just going to take longer

than I'd like of course I'd love this to

be done now but we've got to have to

show some patience and some perseverance

everything is just taking longer than I

would have expected going in okay so

we've seen a bosstick go into to the

pandemic thinking okay we'll have some

inflation it'll be transitory that was

some of the information that even Joe

Biden echoed on national TV hey we'll

have a bump on inflation will come down

a lot of that is informed by his

economists well everyone was wrong in

fact inflation wasn't just a little bump

it was a massive explosion of inflation

now of course inflation has come down

substantially since then but this

mindset of Bostic suggesting

everything's just going to take longer

to normalize it's slightly problematic

and there's a second reason why it's

slightly problem IC that we need to set

some context for so first I wanted to

give you a little background on Bostic

then I want to give you a little

background on the FED then I want to

reveal to you what Bostic just said and

what the early warning is so stay tuned

for that but first this second bit of

fact building notice that when the

Federal Reserve Cuts rates it is

extremely rare that rates are cut slowly

the only time we can really point to

rates being cut slowly was right here in

95 where we kind of stabilized around

five for about 3 years we started

cutting rates in April of 95 and by

about August of 98 that's when we saw a

little bit more of a reduction in rates

of course that unfortunately culminated

in the dot recession rates actually

started Rising again before we got below

4 1.2% so there wasn't actually a lot of

a return to Norm in fact it's very rare

that we see sort of a large decline in

rates uh without a recession we did have

a period of time in the mid 80s where we

did see that I mean we went from maybe

this normalized level over here around 8

1.2% down to about 5 and 1 half% but

certainly nowhere near recessionary kind

of levels of cuts usually rapid Cuts

come from recession rapid Cuts rapid

Cuts rapid Cuts rapid Cuts rapid Cuts

rapid Cuts as you can see they're almost

always aligned with the gray bars a

recession same thing over here in the

early 90s rapid cuts.com rapid cuts the

financial crisis rapid cuts and of

course covid rapid Cuts so usually

reducing the policy rate is a tool that

can be fine-tuned like it was over here

in the mid 90s or in the mid 80s maybe

even you could say the 77 era but it

either culminates in a large rise in

interest rates or a recession where

interest rates plummet so the history of

the FED tells us that usually even if we

start start seeing rates come down

they're probably not going to plummet

unless we get a recession if anything if

there is no recession they're actually

more likely to go up again look at that

the times we've had no recession here

rates came down they went up again rates

came down after the recession went up

again rates came down went up again

before the recession down went up again

notice you tend to see rates go up

before you see them them go down in the

absence of a recession so that's

important to know as well as Bostic

suggesting that more time is really

needed to get through what the pandemic

has done everything is taking a lot

longer I agree with this by the way I'm

going to give you my anecdote and I want

to give you the news on what bosk just

said

patience is so wildly understated in

today's economy because I feel like

we're all still used to what happened in

the pandemic there was a panic for 30

days massive trillions of dollars of

stimulus money came in and we had a

v-shaped recovery we had the Larry cudow

v-shaped recovery everything was so fast

we went from shut down the world

everything's a disaster shut down

flights shut down vacation shut down

everything to how fast can we reopen how

fast can we reinvest in all these

businesses how fast can we get back to

normal which is good we want things to

go back to normal but this interest rate

path of the Fed

might be something that we desire to go

back to normal very quickly and then we

could argue of course what normal is but

we might have to be much more patient

for quick tangent what is normal well

some people would say that the long-term

normal is actually arrayed around 5% and

what they do is they try to draw an

average here uh and they basically argue

well you know if we draw a bar across

this the average long-term rate should

probably be somewhere in this gray bar

somewhere on 5% but that's using the mid

80s in the average I actually think

that's disappropriate it's inappropriate

I think the longer run trend of

inflation is down thanks to the nature

of capitalism but in the shorter term

it's probably going to take a lot longer

for those longer 10year 20 30-year

Trends to actually show up again so I

don't think we're ready for massive Cuts

you know within this year or maybe even

next year or maybe even the year after

that we might not actually see the rates

that we used to see until the early

2030s which is kind of scared because I

feel like we're just in the early 2020s

now so that's a decade away Jack is 8

he'll be 18 and he can leave the house

before rates might be back to normal

which is really weird to think about but

what did Bostic just tell us I'm going

to read it to you and I'm going to add

some commentary here I want to be clear

that right now I don't have any

short-term trades going so my goal is

just to provide unbiased information and

I I understand that I went into this

cycle thinking inflation was going to

fall a lot faster than it did and I

recognize that was wrong everything is

taking a lot longer to decline I do

think wholly believe that in the very

long term the neutral rate of interest

will be lower long-term interest rates

will be lower than they've ever been

before and it's not actually going to

help everybody it's actually going to be

bad news it's going to widen the wealth

Gap even more those people who are

exposed to investing in real estate or

maybe even real estate startups or those

of you who are 10:31 into uh what we're

doing where you can 1031 essentially

into a real estate security which is

wild that you can do that tax defer

email us at IR house.com if you have

questions on that those are a very

exciting things for people who have

money but they're not useful for people

who don't have money and I think in the

long-term very low interest rates are

going to widen the wealth Gap and high

interest rates right now are going to

make it very difficult to start buying

assets so you're kind of screwed now and

you're screwed then when interest rates

come down everybody else has already

bought up the assets and asset prices

will be too expensive when interest

rates are high you're suffering with too

much debt it's really really challenging

to get on the ride of building your

wealth right now it is devastating

because it's going to worsen the wealth

Gap so we'll talk practically maybe

about what to do in just a moment but

first what did bosk just tell us Federal

Reserve Bank bosk president uh of the

bank president of Atlanta bosic says he

now projects just one interest rate cut

this year adding that a reduction will

likely happen in in the year uh will

likely happen later in the year than he

previously expected so in other words he

thinks we're only going to get one rate

cut and it's going to come late in the

year that could be September that could

be November that could be December Bost

previously said that it would be

appropriate for the FED to lower rates

twice in 2024 with the first of those

rate Cuts likely coming in the summer it

was a close call we will have to see how

the data comes in over the next several

weeks the Atlanta Fed chair said that he

is less confident on the tra C of

inflation than he was in December noting

that some troubling things underneath

the headline figures are occurring he

pointed specifically to the breadth of

some items in the consumer basket that

are rising at an elevated level the key

gauge of underlying inflation topped

expectations for a second month in

February and the fed's preferred

inflation data relas expected to be

released next week is anticipated to

show still elevated pricing levels what

they're referring to is the pce PC is

expected to come in uh next week we'll

be covering that live of course on the

uh stock market open live stream and

right now we're looking at a core pce

deflator month over month

of3 and a headline month over month of

0.4 both of those still higher than the

feds projected given that3 on a

month-over-month core is 3.6% of

inflationary pressure on an annualized

basis and 04 is 4.8% on a headline level

it's not great fed officials held

interest rates steady for a fifth

consecutive okay we know this is a

little bit of a background here he

mentions the economy continues to

deliver surprises and it continues to be

more resilient and more energized than I

had forecasted or projected Bostic said

so as a consequence I sort of

recalibrated when I think it's

appropriate to move given that the

economy is doing well that gives us

space for patience he said and we should

just be

patient well so now we need to reconcile

this and then I want to talk about like

what what do you do so how do you

reconcile well first of all remember the

Federal Reserve historically unless we

argue this time is different history

tells us the Federal Reserve has a bias

to move interest rates up absent a

recession not down you really only get a

rapid down in a recession or maybe this

soft Landing of the mid 90s but it

wasn't much of a down there's a reason

for that and it has to do with the fact

that rapid rate Cuts usually only occur

as sort of an emergency lever when

there's p Panic they pulled the lever of

emergency rate cuts and plummet interest

rates slight reductions in interest rate

little adjustments like we saw in the

mid uh 80s and the mid 90s those really

aren't going to bring rates back to

where they were so practically what does

this mean well while the FED will

re-calibrate and try to tell us

everything is just fine even though

prices are going to stay higher prices

aren't going to come down inflation will

slowly moderate their goal is to keep

the economy going we have to live with

this reality for probably much longer

than we thought it's a reality of much

higher rates for a lot longer and so

there are some benefits and some pains

that come with that one of the pains

that comes with that is it makes it

harder to acquire assets it makes stocks

and real estate more expensive to get

into we always talk in my courses on

building your wealth link down below we

always talk about how it's important to

own assets and businesses but starting a

business getting a real estate loan uh

getting into stocks is harder when

things are more expensive so what is

usually Theo during a higher interest

rate period Well usually the mo is you

work really hard you make more money at

your job you utilize High savings rates

and you do your best to try to get into

assets or you save as much as possible

so that way when the FED actually pulls

the lever again whenever that will be

you have cash to deploy at the time that

might be best now timing the market is

very difficult so it's usually not for

everyone and this is why I'm a big fan

of as you are capable average into real

estate especially single family real

estate the way I talk about get yourself

a wedge deal it's what we do with house

Haack the wedge insulates you even if

the market Falls 20% you're insulated if

you get a 20% wedge on a good deal so

that's why it's so important to insulate

yourself my longer term concern though

is that these higher rates will actually

just make a lot of people wait to buy

assets at all they won't consider the

wedge they'll just wait to buy assets

and then as rates fall asset prices

potentially just go up even more see I'm

not saying in a recession prices will be

lower rates might be lower doesn't

necessarily mean nominal prices might be

lower because sure you might be able to

go buy a house at a 1 or 2% 30-year

mortgage R but if we have mortgage rates

that low our home pric is going to be

even more unaffordable or if homes

become less affordable is that only

because we have lots a lot of

joblessness and then if we have a lot of

joblessness that could include us which

means now we can't qualify for a loan

anyway even though the rates are cheaper

so everybody is kind of stuck between a

rock and a hard place and so we have to

look at this new reality which is rates

are probably going to stay high for the

rest of the decade and if rates stay

high for the rest of the decade you know

over 3 4% I understand again people

think that's the long-term average

anyway I don't think so but we could

debate about that in a different video I

think the long-term trend is actually

lower than where we were before the

pandemic but that's just my opinion uh

but again I think by the time we get

there asset prices will be even more

unattainable so I'm not here saying YOLO

all in I'm saying do whatever we can in

a mass basis too build businesses build

your income work hard

get into good deals good assets whether

those are good deals on businesses

Partnerships uh stocks that are going

down in value when there's an

opportunity to buy them but be careful

stocks obviously should just be one

portion of your portfolio or real estate

and buying wedge deals I think that's

the opportunity but uh unfortunately

betting on rates plummeting anytime

soon I don't I don't think that's in the

near-term future unless there's some

form of crazy Black Swan event and I

don't see it just yet but then again

that's the nature of a Black Swan anyway

hopefully this is somewhat insightful if

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congratulations man you have done so

much people love you people look up to

you Kevin PA there financial analyst and

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