The Fed JUST RUINED Us | The Great Fed Reset.

well it's too soon to say that the

Federal Reserve has turned dovish as

expected the Federal Reserve had to stay

hawkish but they gave us some hints of

how things could potentially turn dovish

that we weren't expecting which

initially LED stocks to Rally a bit but

that was quickly put to bed especially

as Jerome Powell told us that the path

to a soft Landing has narrowed the

window is shutting specifically because

we expect to stay at higher rates for

longer Jerome Powell made it very clear

that if today we were going to do a

summary of economic projections which we

lasted in September we would once again

which has been consistent for the past

year revise our expectations up keep in

mind the summary of economic projections

has a terminal fed funds rate projection

of 4.6 percent before you turning down

now drone Powell is suggesting that

would go higher how much higher we could

really only determine based on some of

the things that we've heard from Nikki

leaks over at the Wall Street Journal

whom over the last few days suggested

that the Federal Reserve seized the

potential for a terminal fed funds rate

between five and a quarter percent to

five and a half percent and of course as

inflation continues to be more Broad and

persistent we get a more restrictive

path that is necessary we did get some

answers to Big questions that we had

like is the Fed just totally blind to

the fact that if you subtracted shelter

inflation from CPI we would be at zero

percent inflation Jerome Powell actually

gave us an answer unfortunately it

wasn't the answer we wanted it was an

answer that just plays into the great

reset Playbook that the Federal Reserve

is just here to ream us and the answer

was yeah we know you could take out

shelter inflation and basically

recognize that inflation is zero and

that some of the recent leases signed on

the margin so the recent ones are

suggested that rental rates are coming

down but they're coming down from a

level that's actually higher than where

CPI is even recognizing that inflation

is in other words suggesting we actually

have more up to do before we go down

this is actually consistent with what JP

Morgan suggested that shelter inflation

would probably remain at a month over

month rate of somewhere around 0.7 to

0.8 percent for another year which is

really bad because that suggests uh

somewhere between 8.4 to 9.6 percent

inflation from a segment of a CPI report

that eats up like 32 percent of CPI and

somewhere around 20 to 25 PC and so

while drum pal said we're well aware of

that unfortunately he's also well aware

that rents overall are still trending up

and even though on the margin they've

trended down we still have more pain

coming so he's focused on that overall

CPI picture this led markets to be

understandably a little bit sad and

questioning the federal reserve's path

especially when they talk about this

idea of hey I thought y'all were gonna

slow down which should not be considered

a pause Jerome Powell said at least

three times that it is way too premature

to talk about a pause a pause means no

longer racing rates instead Jerome

Powell talked about three steps and

three core questions

how fast should interest rates be raised

and he suggested look we've got to move

into a more restrictive territory and he

fumbled a little bit on one question

when we said as we move into restrictive

territory and then kind of corrected

himself and said ER as we continue to

raise rates suggesting he realizes we're

in a restrictive territory but ended up

saying even though we're in a

restrictive territory we still need to

keep hiking now we might hike at a

slower Pace the CPI data that comes out

over the next two reports between this

fed meeting and the next fed meeting

could lead us to slow our pace of rate

hikes in December to 50 basis points or

in the meeting after this uh December

again depending on reports Jerome Powell

said the Slowdown may come within the

next two meetings and as soon as the

next meeting however that's not to be

confused with the fact that they could

actually just keep hiking rates at just

smaller increments for example if we go

from 3.75 to 4 and a quarter with a 50

basis point hike next but then we go 25

25 25 25 25 25 we could be at five and a

half or six percent even with 25 basis

point hikes and so that's the second

question is how high do we go and all

Jerome Powell gave us here is we still

have a ground to cover in other words we

still have rates to hike so sure the

individual meeting to meeting hikes

might be a little slower starting in

December but what really matters is not

how fast we're hiking them anymore what

actually matters more is where we end up

which could be higher and would be

higher if we had to decide today than

what we previously expected on top of

that and this is still to be determined

is how long do we actually stay at those

higher more restrictive rates now

markets of course were very very

enthusiastic when we got this blue text

added to the policy statement which

suggested that in determining the pace

of the future increases for the Target

rate the committee will look into an

account for the cumulative tightening of

monetary policy and the lags at which

monetary policy works as this statement

first came out I talked about something

that Jerome Powell also ended up talking

about and that's that the first thing

that happens is the Federal Reserve

tightens rates or markets anticipate the

Federal Reserve tightening rates then

you see economic activity slow down

which generally starts with businesses

business fixed investment coming down as

Jerome Powell told us in today's uh

meeting you also start seeing interest

sensitive sectors like housing slowdown

and also again business investment

because businesses that are investing

tend to utilize rates that are based on

things like the Wall Street prime rate

the sulfur rate the liberal rate these

are all rates that move right with the

FED funds rate Jerome Powell made it

clear that consumers usually don't

borrow at this rate so there can be a

lag again when consumers react and then

only after the FedEx Financial

conditions tightening business economic

activity Titans and consumer activity

Titans then we start seeing inflation

come down and so we have no clear

charted path as to how long it's going

to take but he does recognize that there

are lags now while that lag talk was

really enthusiastic or created a lot of

enthusiasm for markets Jerome Powell

kind of ruined it really quickly because

he essentially told us look if we over

tighten we could just turn the money

printer on again this was not What

markets wanted to hear markets didn't

want to hear yay worst case scenario if

we over tighten we'll just turn the

money printer on so markets saw

something that kind of looked dovish but

then got really sad because they

realized Jerome Powell would rather over

tighten and then stimulate than not

tighten enough and lose control of

inflation and have inflation become

entrenched unfortunately that's bad news

for the stock market which means stocks

down and bad news for bonds which means

bonds down and yields up because what

you're saying here is Jerome Powell in

today's meeting tells us hey I don't

think we've over tightened yet but we

would rather over tighten than

undertight so in other words we still

haven't done you know the real damage

and we can keep going and we would

rather keep going than pause too early

this is why I made it very very clear

that we are not expecting a pause

anytime soon maybe we'll expect to slow

down and how quickly we move uh interest

rates up regarding a wage spiral Jerome

Powell says we don't see a wage spiral

right now however once you see it it's

already too late you're in trouble so

that was not exactly what we wanted to

hear however there was something

slightly bullish in that hey Jerome

Powell thinks we can actually end end up

seeing the jobs Market cool just by

having opens come down job openings come

down without actually seeing

unemployment go up personally I think

that's bullcrap personally I think you

need to see unemployment come up and I

think that's more of a political

statement that basically says yeah yeah

we could do this without causing

joblessness yeah right like I said

before the meeting and on Twitter follow

me there at realme Kevin I said it both

before the meeting and on Twitter before

the meeting

Mom and Dad don't skip out on traveling

a steak dinner because Jay Powell raised

rates but they do skip out on travel and

a steak dinner when they lose their jobs

that's when consumers get affected and

that's the kind of lag that we're uh

we're waiting to actually take hold of

markets but we just haven't seen it yet

especially since consumer spending is

still growing and household spending

might even be offsetting government

spending that we previously had

something Jerome Powell talked about the

shift of fiscal spending to household

spending because household balance

sheets are so strong he does suggest

that or re-suggest the importance of the

housing market coming back into balance

this is an area that he believes is very

overheated and has been very overheated

and that there's still more work to be

done in the housing market remember that

Jerome Powell was the one who told us

hey if you're a first-time homebuyer I

might wait for more of a reset in the

housing market before buying and this is

something I've been talking to all the

core members about in the real estate

investing course when we do deal

analysis and we look at comparables

comparable sales and investment

opportunities say you know what just

probably not the best time yet but stay

tuned same is true for househack we're

waiting but anyway balance sheet is

still being reduced not too much insight

into the balance sheet are concerned

about inflation break evens starting to

Trend a little bit higher we uh this is

this is a big concern actually is the

potential for inflation break evens to

uh move even higher than where we've

been used to you can see this chart here

over the last year we've started to see

inflation break evens move up again on

the right side that's not the direction

that we want to go in and when asked

about the inversion of the uh the

three-month real uh bond yield curve we

are close to it but not there yet

however once we see that inversion we

tend to confirm from a recession as you

can see depicted graphically here

so basically Jerome Powell tells us yeah

look there are lags in the economy and

it takes time to bring inflation down

but we're in an unprecedented time and

we'd rather hike more than do too little

so in other words keep shorting sell

your stocks get out of margin because

he's about to get hosed and enjoy as we

continue to tighten rates more at the

Federal Reserve for longer again

remember you could be at 3.75 and I just

want you to think for a moment about how

how this could go because there is no

there's no this whole like pause talk is

nonsense there's there's no pause yet

right well we really want to pay

attention to is the following take a

look on screen now you go from where we

sit now

3.75 and just go to 4.25 with a 50 basis

point hike watch we do another 50 basis

point hike and then you just go 25 25s

right then you could be at five percent

so let's say this could be December

right here let me get the full calendar

and I can give you uh actual dates as

well fed fomc meeting calendar so this

right here would be November 2 2022 then

we've got December is next

and oh that is the wrong calendar come

on Kevin

here we go December 14th December 14th

we could be at 4.25 January 27th right

before my birthday 2023 we could be here

and this would be a 75 50.

50 uh 25 right you can see something

like this this would be March 17 March

17 2023 then you could see April 28 2023

again another 25 right you could see

this continued hiking for for quite a

while and so this idea that oh the fed's

ready to reduce rates not necessary June

16 July 28 2023 right I mean look at how

long this could keep going you could be

at five and a half percent right here

you could be at 5.75 percent right here

and quite frankly by September of next

year 22nd 23 you could be at a six

percent fed funds rate entirely possible

now we don't want to go to those levels

but even with 25s you could get to six

percent before September that's scary

you know if now you you start moving at

uh at 50 basis point hikes it moves even

faster but it shows you like now we're

not so worried about this decline right

here certainly the market shouldn't be

so worried about this this move from

going from 75 to 50. that's not where we

go bullish where we go bullish is in my

opinion when we start seeing something

like this where we go oh we're going to

cut rates by 20 negative 25. but how

much time is between hikes and cuts and

that is all a big old question mark but

something that'll never be a question

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much for being here we'll see in the

next one good luck