The Fed's Great Reset Starts Tomorrow | PREPARE.

let's talk about the federal reserve's

reaction to CPI numbers for now the

second month in a row confirming not

just a downtrend but actually a below

expectation downtrend which is very very

good for equities hopefully it stays

that way uh but it is also a very very

optimistic that eventually the FED is

going to hit their Peak terminal rate

and a U-turn hey everyone me Kevin here

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down below now let's talk about Nikki

leaks who provides us some color on what

the Federal Reserve may be thinking and

let's also understand what the FED term

rate right now is showing so this

morning we saw the term rate abruptly

fall after CPI it's ticked up again a

little bit since this morning but we saw

the FED term rate dropped down as low as

4.97 that's straight down from about

5.15 right now we're sitting at about

5.02 now let me give that to you

visually what that looks like basically

what this is is right before that CPI

came out we thought the market thought

we were gonna have a terminal fed funds

rate of about 5.15 we've been teetering

between this level and about 5.2 for

quite a while now somewhere around two

to three months we've been sitting

around these levels and it's really

pushed a lot of stocks to to blows and

then the NASDAQ while it's all flows

it's been bouncing uh bouncing around

relatively low levels now this has

actually dropped to a current read of

5.02 and that's because the path for the

Federal Reserve uh and their rate hiking

cycle has potentially now slowed because

of this now second report in a row that

prices are moderating in fact what I've

done is I've kind of put together what I

call a little a bit of a schedule of

what I think for hikes from the Federal

Reserve what to expect this is what that

schedule looks like looking at about

where we sit now

3.75 in November looking at about a 50

basis point hike in December that's

tomorrow tomorrow the Federal Reserve

has their final meeting of the year it

is the December 14th meeting that

meeting actually starts today so they'll

have plenty of time to analyze data

about inflation and we really want to

get a lot of information from Jerome

Powell's press conference tomorrow

remember the actual release where we

expect to get the 50 BP hike comes out

at 11 A.M California time that's 2 p.m

eastern time and then at 11 30 just 30

minutes later we'll have the press

conference in that press conference

we're going to want to listen and pay

attention specifically to some very very

clear things the number one thing that I

want to hear is I want to hear about a

wage lag now that we actually are seeing

CPI rollover more consistently because

pre previously we have seen it come down

only to go up again come down only to go

up again that's happened twice this time

we finally have down and down both below

expectations too which is great

so we want to see in the press

conference now that Goods prices are

consistently falling and rental prices

continue to cool which is a huge anchor

on inflation we could we could honestly

see massive deflation in 2023 it could

be remarkable how much deflation we end

up having in 2023 depends stay on this

trend and you start getting that rental

inflation and CPI

it's gonna be nuts but we want to get

some color on hey now that goods are

going down what is the lag that you're

looking for for wages to come down and

produce her prices to come down producer

price index PPI prices right because

remember first if you're selling coffee

mugs the first thing to roll over just

think about it logically is the consumer

says I'm not willing to pay twenty

dollars for your custom RuneScape coffee

mug anymore the max I could pay is 18 or

15 or whatever right that is a

deflationary force because now the shop

owner says oh crap we can't actually pay

the higher wages anymore we have to

lower our prices demand has now dropped

now we're going to demand supplies less

Ceramics inks whatever that then forces

producers to eventually lower prices but

what happens first is customers order

less then owners respond

when owners respond they order less they

pay less they hire less and that

eventually leads those prices to come

down it's kind of like taking a big rope

and on one end you're like inflation

down and it kind of takes a while for

that energy of that down movement to

come down the rope that delay is what we

want some more color on tomorrow

specifically wages lagging ppla in the

last meeting we understood that the FED

is very very keen on rental inflation

coming down which is very good they're

watching this but remember Jerome told

us there are three big parts to

inflation the three big parts are one

Goods two we had uh uh Services uh well

and then sorry shelter and then number

three services which are mostly wages

here let's expand that a little bit so

we can actually see it all there we go

those were the three core items of

inflation we have Goods deflation we

have shelter inflation so what's the

delay hey Powell how long are you

looking for a delay here the longer he

gives us of a delay actually the better

it is because it means they're being

patient and potentially relaxing their

hikes and bringing out that dovish bed

that we had last meeting remember Jerome

Powell while he did previously say hey

look if we over hike we can just uh cut

rates again uh he's flip-flopped on that

now he argues well but that causes a lot

of human hardship and pain so maybe we

don't want to be so aggressive right so

he had a flip-flop here we're going to

want to look for some insights here so

wages like PPI again keen on rental here

uh we already know that so we want to

see some commentary on this obviously in

addition to this and we're not likely to

get it but the third thing that we want

to hear from this press conference is

any kind of insight into a 25 basis

point height so I've actually charted

this potentially here that we could get

a 50 basis point hike which we will very

likely get here in December I don't

think this is going to come in low

tomorrow I don't even want to like

provide any kind of that hopium that oh

maybe we'll get 25 tomorrow when the

Market's over at that that's it's so

unrealistic it could happen it could

happen but I think it's like a two

percent chance it'd be like lottery I

don't think so I would not make that bet

but I do think we're going to start

seeing talk about going to 25 and that

could potentially mean going another 25

in March or it could mean staying at

four and a half and look if we end up

pausing at four and a half

and expectations right now are sitting

at five percent

then the Market's going to have to move

up uh to to uh loosen that expectation

which is great so let's look at the Nick

T article now usually Nick T is somebody

who gets text messages from uh the

Federal Reserve and insights into okay

what's the FED gonna do right so his

insights are actually pretty powerful

this is why we call them Nikki leaks so

he introduces that inflation came in as

a miss this morning but take a look at

this this was an interesting analysis

and this is very fedesque fair the FED

loves doing three six nine month

averages so in my opinion this right

here it just and I usually don't see

Nick doing three month averages but to

me this sounds very much like it came

from the FED listen to this line over

the past three months core prices which

we believe are a better predictor of

future inflation than overall inflation

because they include the more volatile

energy or whatever uh core does not over

the past three months core prices

increase at a 4.3 annualized rate no

that's not annual that's multiplying by

four basically you take the three month

multiply by four it gets you four point

three percent anyway the lowest such

reading in more than a year

that's bullish that's really really

really good uh we know they just started

their meeting we're talking about

getting that 0.5 uh percent uh uh hike

tomorrow so reiterating that 0.5

fed officials began their two-day

meeting and they had strongly signaled

their attention to raise the Benchmark

rate by 0.5 percent

Tuesday's inflation report is likely to

intensify debate over whether to dial

down the size of rate Rises to a more

traditional quarter percentage point at

their subsequent Gathering which ends

February 1st there actually is no

January meeting this year last year we

had a January meeting but that was like

January 22nd or third or something like

that anyway uh feds raised rates for

that at the fastest Pace since the 1980s

one Camp of policy doves thinks High

inflation is likely to continue slowing

wants to minimize the potential for job

losses and basically damage to the

economy and another Camp of policy Hawks

more readily Embrace stiffer measures to

fight inflation because they think it

could settle at levels that is

unacceptably above the two percent

Target

also look at this Nikki leaks here

Tuesday's report is not likely to alter

the fed's rate decision on Wednesday

uh and I mean this is this is obvious

but instead I could hear someone is

quoted and says I could certainly see

the dovish Camp pushing for more

forceful slowing uh or a more forceful

slowing of the pace hikes to 25 basis

points as quickly as possible that's

probably in my opinion Feb so I would

say if data continues on this trend in

yellow is in the bag

50 25s in the bag then up in the air is

going to be uh potentially a 25 again in

March which is right here or or the the

zero uh hike in March which is

interesting obviously we'll have

multiple reports between now and then

we'll have the December inflation report

that comes out in January uh we'll have

the uh February report that comes out

all before the March meeting right

and we might even get oh March 22nd

we'll even get the the March release so

we'll get three more CPI reports that's

actually really interesting look at this

if they set up this tomorrow 50 tomorrow

how many CPI reports do they get before

Feb one one

they only get one more CPI report before

Feb one but before uh but then they get

the the one in Feb and March before the

March meeting they actually get three

more CPI reports

if all three of those come in and this

trend we're seeing now

we're probably going to go to zero

and then we could potentially actually

start aligning with the Market's

expectation for May Cuts nobody's been

believing this okay people look at this

and they're like the Market's getting

this wrong like how could that I'll pull

up a picture of them this has regularly

been a Wall Street discussion okay

people are looking at it's going

the fed's telling us they're going to

keep rates higher for longer why why is

the market pricing in a U-turn like this

doesn't make sense this has been

regularly what's been talked about in

financial media on Wall Street and

sometimes the market is actually pretty

damn smart uh and and pretty like I

don't want to say the stock market stock

market's like a poop show I'm talking

about the bond market like the bond

market tends to be pretty impressive uh

with some of its predictive powers

so take a look at this this is that

chart

this was from about uh Friday so this

has probably shifted to the downside

even more so since then but either way

if we look at this

what we actually see is even though the

fed's been basically talking about going

above five percent roughly they've been

implying that five five and a quarter

percent even hinting maybe we'll need

six percent right

the the market the Futures Market never

got to that five percent level you see

that right there it's it it doesn't get

to that level

uh which is really interesting because

and this is even though the FED terminal

rate bounces around like I said earlier

in this video around five this

particular curves chart does not show

that a couple different ways you can

look at it the curves chart doesn't show

the hitting five percent

so what's interesting though is they

also show this inflection point of rate

decreases right

here

which you'll notice that's right here

May and June

as an inflection point to the downside

uh the latest curve showing your first

reduction probably of about a 25 basis

point reduction ish you know just

because you see this trend down on a

curve doesn't mean that that it could

mean the drop happens here it could mean

the drop happens over here right but

somewhere over here in the summer so Q2

ish the Market's pricing in our first

Cuts in Q2 and if CPI the next three CPI

reports come in we could have a March

pause and we could have a summer u-turn

summer fed U-turn would be pretty

intense so wow absolutely incredible so

very cool anyway check out the programs

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thank you so much for watching and folks

we'll see you in the next one goodbye