Watch BEFORE the Fed Meeting Wednesday [FOMC]

all right now we gotta talk about the

Federal Reserve what is going to happen

on the 22nd what is Jerome Powell going

to do what are markets pricing in and

what do we think well it's a coin toss

right now and markets are going to

flip-flop a lot on Monday and Tuesday

but I think what's most important is

that we actually take a look at the SCP

now we haven't looked at the sap in a

little bit it's been a hot minute but

what we're going to do right now is

we're going to pull up the sap that we

got last in December now keep in mind

the SCP from December is not the most

recent analysis from the Federal Reserve

but we're going to get a new version of

this on the 22nd of March and we're

going to go through it with a fine-tooth

comb because I believe that is going to

be much more applicable than what the

FED actually does with their rate move I

think we're probably going to get a 25

BP hike I think a pause would signal too

much stress in the banking system I

think a 25 BP is a sign of confidence

that no are strong we're going to

continue to fight inflation and we can

continue to do so even though we're

panicking in the back end and printing

money like crazy we're going to continue

fighting inflation and therefore we're

going to raise rates 25 BP this is

despite the fact that Elon Musk says

that the FED is operating with way too

much latency in their data and rates

need to drop immediately Elon Musk

tweeted yesterday but let's look at the

SCP foreign

excuse me all right uh okay so SCP is

right here this is the last summary of

economic projections now what I want you

to remember is this was released on

December 14th when the Federal Reserve

conducted their last fomc press

conference they told us that they expect

that this SCP would have actually been

higher if they had to go back to their

February 1 if they had to write it

February 1. so come February 1 the FED

would have written this SCP more

aggressively than what it was here

however now we actually expect it to be

written down now how could it be written

down well we'll take a look at that

first we have to remember that inflation

is sticky that is something very

important so let's go ahead and start

with this chart before we look at the

sap so let's pull it up like this okay

what I want you to pay attention to are

the trends here

so first I'm going to go ahead and draw

uh let's go ahead and do a big old big

red okay yeah perfect okay so the first

thing I want you to pay attention to is

this this trend right here so you see

this trend that I drew right here okay

that was a problem and that Trend

continued to about June of 2022. see

that Trend right here that is critically

important

the reason that trend is critically

important is because of that trend is a

Paul volcker style Trend that Trend

right there tells you you're screwed you

get out

do not be anywhere but cash and maybe

even gold because we're going to hell

that trend is the death of markets that

trend is what a wage price spiral looks

like that trend is the end of the

financial markets as we know it

fortunately that trend has stopped and

we expect that Trend we're going to look

at the new trend in just a moment here

and then we'll look at the sap but I

want to be very clear about that we are

not in that kind of trend line anymore

what do we know in a Consolidated

30-second pitch no not for life

insurance or 12 restocks or for the

courses linked down below with the

expiring coupon code linked down below

but in a 30 second Pitch what do we know

about the market where it is now we know

the supply of labor is higher we know

there is no wage price spiral we know

that yes wages have caught up to levels

where they should be which includes some

lingering price hikes but companies are

taking it in the margin we know

companies ability to just raise prices

is gone that's over we are not seeing

the conditions of a wage price spiral

period

that means less chance of a Paul volcker

from a wage point of view but where is

that showing up from a CPI point of view

ah consistent as well the conditions for

a wage price file are not in labor and

they are not in CPI look over here

so this is obviously a much more

difficult uh Trend here to draw we could

draw a trend right here we could also

try to wedge this a little bit like this

it's it's you know it's a little

volatile over here because we have this

very large drop

but the point is

this trend that we had of higher highs

is over it's substantially over we know

this is still too high right because the

trend right here brings us to around

four to six percent inflation it's

sticky it's a problem but it is no

runaway inflation it is no Paul volcker

inflation expectations are falling

Financial conditions are tight and high

this is not a Paul volcker scenario so

the Federal Reserve has substantial

leeway to loosen their summary of

economic projections so let's talk about

the summary of economic projections

what's up hex Flex dude I love that name

uh I had I like I'm a sucker for the

Rhymes you know I who was it with um

um Sarah dichi made a joke the other day

she said her husband uh he's uh he's

from South Korea and uh I guess his his

screen name used to be uh uh because his

last name's Hill uh so he I guess his

screen name used to be uh what was it I

can't remember now what it was John

uh um Kim Jong Hill I think he may or

something like that but anyway I'm a

sucker for screen names I think that's

hilarious uh I can't remember exactly

what it was but stuff like that that's

cool so what's up hex Flex I don't know

why I'm going on that tangent maybe

because the coffee hasn't hit yet and I

really don't want to talk about this

boring chart right here actually I do

want to talk about it it just looks very

dry so I'm trying to inject humor but

I'm failing massively but it's okay it's

uh it's six in the morning on a Sunday

and I just went to the t-swizzle concert

last night and I feel dead inside anyway

okay did park next to her plane though

that was pretty cool okay that that was

like pinch me I can die so anyway what

do we have here change okay so first of

all I think where we're gonna get and

this is gonna I'm gonna tell you my

opinion over here because that's that's

all we're going to go through is really

my opinion here so let's do some erasing

okay we're gonna erase this crap I had

drawn last time and what are we gonna

have over here change in Real GDP so

here's what's important in the December

meeting they showed that their

projection for a change in Real GDP fell

substantially the concern going forward

I'm going to tell you this is going to

be the most concerning for the stock

market so if you're an investor if you

are a a Trader I promise you the most

important and and I okay the mo

let me just get it out the most

important segment of this summary of

economic projections is right here folks

it's this box you could really look at

nothing else that's the box that matters

because everything else is going to be

based on that box right there everything

is going to be predicated on this top

box the fed's expectation for recession

that's it and so here's what happens if

the Federal Reserve suggests that we

could go negative here which I do not

think they will ever do that the market

will crash instantly the market will

crash if that number goes negative I do

not think they are going to do that

though because this is a tool this is

not what they actually really likely

think is going to happen it's a

messaging tool it's to try to manipulate

the market to do what they want it to do

okay it's a Communications tool it's a

joke that's all it is but but that's

okay it's a Communications tool that

that just that's really never accurate

but the messaging of it will affect

Traders at least in the short term so

where could the messaging be dangerous

they're not going to go negative here

what they're going to do in my opinion

is they're going to lower this right

here that hi Lauren

that 2024 number I think they're going

to revise that down and potentially

although I don't think they go under 0.5

ever uh if they went any under 0.5 over

here that's another recessionary

indicator but I don't think they're

going to do that I think that .16 number

potentially could go down so I'm going

to write my bet okay I think that number

could go down to 1.0 uh

uh silly little chart thing here there

we go uh if that 1.0 number over here

goes down

to or sorry that 1.6 number goes down to

about 1.0

I think the market goes red I think the

market will be very nervous and that's

because the markets don't care so much

about inflation anymore right now they

care about a recession and that is a

recessionary indicator and so that that

is a recessionary indicator that markets

are going to be a little pissy about uh

in addition to that uh the 2025 number

I'm not so worried about I do think the

longer run they'll Trend towards that uh

1.8 and that's so far away nobody really

cares but the question is are we going

to see that five quarter recession that

the uh Goldman Sachs and TS Lombard were

talking about yesterday yesterday we

covered in our reports that there's a

potential for a five quarter long

recession that five quarter long

recession could begin as soon as uh that

would be the third quarter of 2023 and

Lasting basically through 2024. if the

Federal Reserve agrees that we could be

seeing a five quarter long recession

they are going to revise down that GDP

figure on their SCP personally I believe

that is the most important segment uh of

that of this chart and it's one that you

really want to pay attention to now uh

the next thing we're going to do is

let's look at the rest of the chart here

let me see okay here we go and remember

this meeting is on the 22nd so you

really want to pay attention to what's

going on on the 22nd okay dokie then so

the next thing this unemployment rate

now this will be interesting

so I want to see if the Federal Reserve

actually thinks they can get this number

up I don't think they're going to change

the unemployment rate much for for 2023

but I would not be surprised if they

adjust this 2024 number and this ends up

being a five five so I would go 5.5

right here those are going to be my like

if I was at The Fad this is what I would

do I would be real right here I'd go 5.5

for the unemployment rate I would expect

a big take up over here I'd go GDP down

to one percent now you're sending real

concerns about a recession then what

you're going to do in my opinion is for

this for this rate trajectory let's

erase all this crap over here those are

the last notes that we made

uh and remember I don't delete videos

you can always go back and look at the

stuff I said in the past I actually

think that's a really cool thing because

then we can kind of compare to the Past

stuff but so that's why I'm erasing that

now is because it's all in old videos

anyway

so um fed funds right what do we have

over here we've got a projection of 5.1

okay I don't think we're going to hit

that anymore we're not going to get to

that so this is probably going to drop

to my previous belief that we were going

to hit about 4.8 uh that would probably

be like a 4.75 which would probably be

consistent with one more 25 BP hike and

that's it I don't think we're going to

cut this time I don't think we're going

to pause this time give us one more 25

that'll signal a 25 or a 4.8 now what a

really this could really balance the the

market potentially going red on

Wednesday what could balance it is this

number right here 4 1 is the Fed

potentially by the end of the year next

year by the end of 2024 are they

potentially going to uh signal large

cuts by the end of the year beginning of

next year 4 8 over here is probably I

don't think they're going to want to

Signal cuts at the end of this year even

though the market is pricing it in

they'll want to show no no we'll be

strong even though they probably will

cut by the end of the year I think this

number goes down probably quickly to 3 5

and this number over here probably to 2

5 pretty quickly and those are the 24

and 5 numbers for the fomc rate

projections uh so I think you're going

to get a slash next year in the

projections over here uh and and I don't

really think this inflation projection

matters much over here you could

actually possibly see the FED come in

over here and you could actually see

them raise this

to let's say 3.8 to signal that they're

okay with more stickiness so in other

words I wouldn't be surprised to see the

inflation numbers actually come up the

GDP numbers to come down and the rate

numbers to come down that'll be enough

of a signal that the fomc is okay with

slightly stickier inflation

and a higher for longer trajectory as a

result though trending closer to

recession and more unemployment now one

of the analogies that I that I was

reading about this morning I I wake up

too early I'm sorry I really do feel

very tired

but one of the projections uh this

morning

um

thank you for your somebody donated

twenty dollars talking about somebody

bought a house for ten dollars what do

you in like Detroit you know if you want

to want to see me go house hunting in

Detroit I did that years ago with graham

Stefan you could actually type it in

YouTube meet Kevin Detroit you'll see it

was a great video uh

but anyway

um one of the things I was reading about

this morning was this idea that

people like to think of the Federal

Reserve raising uh rates as sort of

tapping on the brakes but that's

actually a false analogy the Federal

Reserve isn't tapping on the brakes what

they're really doing when they raise

rates is they're pulling a rubber band

but everybody basically keeps spending

like normal and everybody keeps acting

like normal until something breaks and

that breaking is not hitting the brakes

it is the rubber band snapping

and that's what we're seeing with the

banking crisis and so the problem is we

don't really know what the long and

variable lags are of Federal Reserve

monetary policy

because they kind of hate you all at

once and that's one of the problems that

we're going to face and we're going to

hear a lot about I think with the fomc

during the feds press conference I think

we're going to get a lot of hey like we

have to be careful and I think it would

be very good for j-pal and I don't think

I don't know that he watches me he

probably doesn't it would be really

flattering but if I could talk to

durable I don't actually think he does

but if I could talk to Jerome Powell and

I think he knows this

my these I think these projections are

reasonable and remember every individual

at the FED makes their own projections

and then they sort of average them right

that's why when you look at this you can

actually look at the central tendency on

the right and you could look at the

range over here on the far right and you

can kind of see where where all of their

heads are uh you know how lower people

how high are people anyway

if I could talk to j-pal uh I would

probably make projections like that but

I would probably suggest

doing as much as possible to talk about

in a transparent manner how

mindful they want to be about the lags

of monetary policy and how the fact of

the matter is they just don't know what

the lags are is it an 18-month flag is

it a six month lag is it a two-month

flag and how do we feel that lag is the

lag instantaneous like a rubber band

breaking or is it a Breaking of the

economy like it in the way that you kind

of put your foot you take your foot off

the gas in a car and then you slowly tap

on the brake right and if it's possible

that lags are more of a uh of a

oh God they're all happening at the same

time then then I think it's important

for the Federal Reserve to be

transparent about that potential right

and so I think if Jerome Powell takes

some more time during this this pressure

time or even if a reporter is listening

please somebody who's in that Press Room

asks about is it possible like this if I

could ask a question I mean I'd have a

whole host of questions in but if I was

on the spot right now and being asked

hey what would you ask Jay pal in that

presser say j-pal can can you win a just

as transparently as possible go through

what is a long and variable lag mean in

the effect of

for an average American how do we feel

those lags is it by us crashing and

hitting a wall or do we feel the effects

of monetary policy slowly and then he'll

probably go into well I mean interest

rates go up slowly right lending

conditions tighten financially tighten

slowly uh credit card rates go up home

rates go up you know that's how we feel

that as an average person right and no

no that's not what we need to hear we

know that

we need to know

is the banking crisis we're facing the

culmination of a policy lag and how bad

is that actually going to get

how many banks are actually going to

collapse now of course there's a limit

to how much detail he can go into here

because he doesn't want to create a

crisis so I think we really have to

think about being jaded in the way that

you ask a question because if you ask a

question that you know he's not going to

answer anyway then you've kind of asked

a worthless question

but any kind of hints that we can get

in j-pow talking to us about okay yeah

maybe these lags can all come at once

and we have to be very careful those

hints or what I think are going to be

eaten up by the market and it's going to

take a lot of thinking about those hints

in terms of how we we digest those but I

think we're going to get a lot of those

hints this time that's what I think this

press conference is going to be about

it's going to be about hints dropping

hints that

we're probably going into recession this

banking crisis sucks a lot of banks are

going to go bankrupt and don't worry we

will turn the money printer on again to

bail everyone out and so what hints are

we going to get for the potential fed

U-turn and that I think is the beauty

what hints do we get of the potential

thread U-turn that is what I am most

curious about the hints for the FED

u-turn

and quite frankly more insight into that

fed money printer will be very

interesting because that will confirm is

what we're seeing right now this switch

to QE for the week with 300 billion of

liquidity injected is this just a

transitory QE and are we still going to

stay on the path of QT quantitative

tightening or are we going to pause

remember the FED is tightening to the

tune of 90 billion dollars a month right

now what if they come out and say 25 BP

uh hints that we're basically breaking

the rubber band in the presser higher

unemployment and trending closer to

recession uh and you know what because

of that we're going to slow QT what if

they say that hey we're going to pause

qt or we're going to go from 90 billion

a month to 45. well that's going to be a

sign that

things really are breaking right I don't

think they want to send that signal with

actual policy change so I don't think

they'll change policy but I think

verbally they're going to give us those

hits so I think they'll stay at 90 Bill

QT

see they can still be a 90 Bill qt per

month

but then actually be running the money

printer faster through the FED liquidity

facility so I don't think they have to

change policy so I'm gonna I'm gonna

make my projection we're going to get 25

we're going to keep 90 Bill QT but

they're going to run that money printer

as much as they need to to help this

banking crisis so nothing's actually

going to change

accept the messaging that's why we went

through the sep the sep is going to

matter and how severe is this rubber

band breaking j-pal and I think it's

pretty severe and I think they realize

it and I think we probably are on a path

back to QE and as long as inflation goes

away which it is trending away I do not

believe and look I I respect Peter

Schiff I I really enjoyed my interview

with him I think he is a brilliant

person I I do not think that the 2008

money printing uh from well 2009 on

money printing is what's catching up now

and that the covet inflation is still

ahead of us it was a fantastic argument

you should watch the interview uh I

respectfully disagree with Peter and

that's okay everybody can have a

different opinion that doesn't mean a

dislike the guy I hate thing I love

Peter I think he's a brilliant person

and he's a wonder he's got a fantastic

family I love them his wife is so cool

uh his his son is brilliant uh his his

mom is super cool she is so she is like

an OG Hustler man so cool I want to make

like I want to interview Peter schiff's

mom like confronting Peter schiff's mom

she's got such a cool story she is like

an OG Hustler she made it as a woman

were generally only men made it and it

was it's remarkable she was like the

analogy I would make is that the power

woman in in uh in like a Manhattan admin

madman setting super cool but anyway uh

tangents tangents Kevin damn it but

anyway

um

peace where was I basically uh I don't

think we're going back to to uh I I do

think that this inflation on screen here

is going away

and I think the FED knows that they can

take their time and the reason I know

they can take their time is because

they've done it before and I'm not just

gonna pull the my my old fate flexible

average inflation targeting uh argument

out of the Hat again even though I think

they're going to do that I'm going to

pull a new one okay you ready for this

I've talked about this before but it's

been a while since we've talked about it

opportunistic disinflation study that

make that your mission today study

opportunistic disinflation by the way

this is the kind of stuff why I think

it's it's cool if you join me in the

course member live streams as well

because I do think I have some crazy

perspectives that that are unique and

different you don't have to agree with

me and everything I think that's why the

haters come back and they watch me too

is because it's good to know even people

you don't like or people you want to

just punch in the face it's good to know

what they think right

look into opportunistic disinflation

what is opportunistic disinflation well

basically once inflation expectations

were under control in the early 1980s

via Paul volcker the Federal Reserve

took 20 years to get back to two percent

inflation and they did so because they

could

every opportunity they had every market

crash or whatever inflation went lower

and lower and lower and as long as we do

not have a wage price spiral which we

don't and as long as we do not have

runaway inflation which we don't and as

long as inflation expectations are

anchored which we have and as long as

Financial conditions are tight which we

have

the Federal Reserve all the conditions

are here the Federal Reserve can buckle

up under something known as

opportunistic disinflation in other

words you buckle up and you just take

your time and you let inflation subside

over time even if it takes another

decade okay in the meantime you run the

money printer and back to the Moon we go

baby and look I'm not a moon boy okay

maybe I am a but um but but that's what

I think