What the Fed JUST Said

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everyone meet kevin here in this video

i'm going to break down exactly what the

federal reserve just said

in their june meeting they just released

the notes for this

so let's go ahead and go through the

federal reserve minutes

uh first it's uh useful to note that

right here

the fed starts by talking about what

projections are and expectations are for

the federal reserve

it says here that median forecasts for

2022 and

2023 in terms of inflation

each rose less than 0.1 percent

suggesting expectations for inflationary

pressures

might be beginning to subside this is

something that's worth noting

especially after the federal reserve has

mentioned that

data recently has shown lower employment

growth and higher inflation readings

than have been expected so they're

basically saying hey we were wrong

we saw a lot more inflation than was

expected however going forward

we think we'll be right and there'll be

less inflation

whether you 50 of you are going to

believe them 50 well but anyway

this was interesting take a look at this

measures of ex measures of expectations

for federal reserve policy so these are

primary dealers and market participants

who work with the federal reserve they

are surveyed

by the fed to see what the market thinks

the fed

is going to do and the fed looks at

those expectations like ah

this is what y'all think we're going to

do anyway the market believes

that the federal reserve is going to

begin to taper in the

first quarter of 2022. taper is

reducing bond purchases right now

federal reserve is buying 80 billion

dollars a month of treasuries

and 40 billion dollars a month of

mortgage-backed securities

later in this paper you'll hear or

there's a section where the federal

reserve

members begin to discuss hey should we

taper mortgage-backed securities because

the housing market is a little

potentially hot right now or should we

taper treasuries along with it and you

kind of get this sort of back and forth

discussion

where you have a federal reserve board

members suggesting hey maybe

we should just taper both at the same

time and others say no just start with

mortgage-backed securities

so there's really no cohesive answer in

terms of what's going to get tapered

first

but it's worth noting the expectations

here that the expectations are the first

quarter of 2022

for the taper to begin however there is

a note here that it would be reasonable

to

potentially see the taper to happen

one quarter earlier or one quarter later

this means we would expect a taper to be

announced sometime between quarter 4

2021 and a quarter 2

of 2022 worth noting

okay either the participants also

projected

no increase in the target federal funds

rate so that interest rate or a one

quarter of a percentage point increased

by the end of 2023

so participants with the fed really

aren't seeing a

an increase to interest rates until the

end of

or sometime during 2023 and maybe just

one of them

if if even at all you've also got some

talk here that banks are essentially

trying to encourage their customers to

stop depositing as much money in other

words banks have too much cash and this

is something that we're seeing

in the reverse repo market as well where

why are reverse repo

so high right now why are we seeing

those levels so highest because

the banks right now have too much cash

we do have notes here that many

participants remarked however that the

economy was still far from

achieving the committee's broad-based

and inclusive maximum employment goal

remember maximum employment also

includes minorities so blacks and

hispanics

get counted as well this is very

important because black and hispanic

unemployment

is eight to nine percent whereas white

unemployment is in that mid 5.5 range so

you've got a big difference

here and that is evidenced by them

saying that the market recovery

continues to be uneven across the

demographic and

income groups lower income higher income

and of course

race so then some participants also

judged that supply chain disruptions and

labor shortages

complicated the task of assessing

progress towards the committee's goals

and so that in other words they're

saying hey like because we have all

these temporary disruptions it's

actually kind of hard for us to

determine

is the underlying economy getting better

or not

like do we need to taper or not do we

need to raise rates or not they're

basically saying they're not

really sure yet but that they do expect

inflationary pressures to subside

which is kind of just basically them

going ah told you you know

we kind of think yeah all right all

right there was inflation like we knew

that inflation was coming

all right it came a little higher than

expected we still think it's going to go

away it's going to be temporary this is

kind of what this sounds like so far

and you also sort of have the federal

reserve going ah

maybe we'll taper mortgage-backed

securities maybe we'll taper treasuries

other people don't think we're going to

do so until q4

to q2 2022 and uh we don't know either

yet

so it's kind of right now not not a lot

of answers just more sort of delay

expected several other participants

cautioned that downside risks

to inflation remained because temporary

price

pressures might unwind faster than

currently anticipated

and because the forces that held down

inflation and inflation expectations

during the previous economic expansion

had not gone away this was really

interesting because they're basically

saying look we're dealing with deflation

before the pandemic sure we've got

temporary price pressures now but if

those go away

we still have those same underlying

issues we had before technology from

deflation causing

or deflation caused by technology an

aging population right these are all

things that that push prices down

various participants mentioned that they

expected conditions for beginning to

reduce the pace of asset purchases aka

taper to be met somewhat earlier than

they had anticipated in previous

meetings

which kind of leaves folks wondering

okay does that mean q4 to q1

who knows some participants saw incoming

data as providing a less

clear signal though seeing this is where

they give you those mixed signals where

it's like

ah maybe we go a little bit earlier but

no no we're just still not

certain they're pretty vague here

various participants offered their views

on

the committee's mbs purchases this is

mortgage-backed securities

again commenting on the high real estate

prices maybe they should be

uh tapered first versus just treasury

bonds or them in tandem

in addition participants reiterated

their intention to provide notice

well in advance of an announcement to

reduce the pace of purchases

so maybe in quarter three which is what

we're in now maybe towards the end we'd

hear something about q4

and if we don't hear anything in q4 then

maybe that means we won't see a taper

until 2022

really because they're still looking for

that clarity and they just don't they

don't even have the answer themselves

yet

inflation has risen largely reflecting

transitory factors

overall conditions remained

accommodative they adjusted

were they uh this was interesting they

judged that these

asset purchases the the money printing

they're doing basically

would help foster smooth market

functioning and accommodated financial

conditions thereby supporting the flow

of credit to households and

businesses and that's pretty much it so

bottom line

hey the stock market isn't really

reacting 10-year treasury yields aren't

really reacting the market's just kind

of like

okay so in other words you guys didn't

really tell us anything because you

still haven't figured it out

you're still determining what's going on

in the market you're still trying to

determine

or uh there are clear signals that say

the market's overheating or are the

things that might feel like we're

overheating

just signals of temporary price

pressures and when those go away maybe

the underlying economy isn't actually as

strong as we think it is and that we

will see

slower growth and slower inflation it's

kind of interesting

something to keep an eye on folks very

interesting to me hopefully you found

this insightful if you did consider

subscribing for more content like this

and folks

we'll see in the next video bye

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