Hey guys, it's Sasha The U.S Federal Reserve has just announced that they're planning to do two more rate increases this year after skipping an increase at today's meeting. This is extremely bad because now the FED is progressing from just being a bunch of degenerate incompetence to being actively negligent and operating outside of their official remit Jerem Powell and the rest of his coin. He's only got reappointed in November 2021. So they still have two and a half years to go on without any accountability.

And the Federal Open Market Committee is basically sticking a big fat middle finger to the US public and saying that they can do whatever they want without any need to provide any reasonable reasons, with impunity and complete disregard for the legal mandate that they have in doing their job. I Suppose the good news is that for whatever reason, they these Muppets have somehow decided to not increase rates today. Which doesn't make any sense when you look at the statement of the Fed put out and their projections. Today's pause just does not compute.

It is almost like the projections that they've put together are only there as a scare tactic because if you genuinely think that there is a massive problem that he's addressing, if you genuinely genuinely think that inflation is that sticky, why are you not increasing the rate today? I Am not sure Who is meant to be scared. Is inflation meant to be scared? Is inflation meant to be hiding behind the surface going? Oh no. I'm not gonna go back up again now that they said that, because if the FED really thinks that two more rate hikes are necessary to combat inflation, then why did they not Implement One of those hikes today. Given that the second meeting after today is only happening at the end of September three and a half months away, here is what the note they published today says: the committee seeks to achieve maximum employment and inflation at the rate of two percent over the long run.

In support of these goals, the committee decided to maintain the target get range for the Federal funds rate at five to five and a quarter percent. Holding the target range steady at this meeting allows the committee to assess additional information and its implications for monetary policy. The rest of this paragraph is copy pasted from before. In fact, the rest of pretty much everything is copy pasted except for this one bit below.

That is very important. Actually, it is copy and pasted, but the reason this copying paste is important it says. In addition, the committee will continue reducing its Holdings of Treasury Securities and agency debt and agency mortgage-backed Securities as described in its previously announced plans. So although the FED is pausing the rate increases, they are not pausing quantitative tightening.

and I know why. It's because nobody cares. Nobody will pay attention. Nobody in the media even reads that bit or pays attention to the QT line.

And everyone only cares about the interest rate. And here is a supplementing document that they publish every two meetings. You can see that the FED is now projecting that at the end of the year, the funds rate is going to be at 5.6 on average between in all of their projections, and this is based on the midpoint of the range. So right now that number is at 5.1 percent.

So they are projecting an increase of 0.5 percent, which is two increases of 25 basis Points each between now and the end of the year and you can see that this has actually increased from a projection of 5.1 percent in March and on what basis? Because the problem here is that despite holding the rate this time for whatever reason, the FED has decided to revise their year and projection upwards by half a percentage point. This is the real problem and just so that we are all on the same page back when the Fed was making the last projection, we were in March and about 10 days before that meeting in March, the February inflation data was released, which was the latest available data, and inflation back then sat at six percent. Back then, food inflation was at 10.2 percent, electricity inflation was at 13, and energy commodity prices had only just started dipping. Now, overall inflation has fallen from six percent back then to four percent today.

way ahead, way ahead of any expectations. Just a few days ago, the expectations for inflation that we just got recently yesterday was at 4.6 Food at home is down from 10.2 percent last time to 5.8 percent today Energy Services are down from 13 year on Year To one point six percent. Year on year shipping costs have collapsed. gas of the pump is down from minus two percent last time to minus 20.

Transportation services have also started falling. The only remaining stubborn factor from 14.6 back then to 10.2 percent. In fact, do you know what the only part of inflation that has not gone down significantly since the last report is it's shelter. Every other part of inflation has fallen and is continuing to fall, and all the indicators are pointing that they will continue falling.

From here, we can go and take a look at the Producer Price index, which is a useful indicator of where inflation tends to follow because it's the step before the consumers are spending their money and you can see here in that index it's down to 1.1 percent in May. Clearly a big off path being created for inflation to follow. And here is the problem with shelter. Here is a chart of shelter inflation reads.

You can see that in 2019 it was at around 3.5 and it fell after covert started. It fell down to 1.45 and was still around three percent in September 2021 and only recently only recently towards the end of last year it's gone up to eight percent and zampa produces super useful charge which compares the rent price increases to the data in the CPI report. So you can see that rent prices exploded in 2021 and 2022 going up 12 percent year on year. But the shelter indicated because it's such a delayed metric because of the lag effect, it is only now beginning to catch up with those increases.

You can see that the peak that is now forming is about 12 to 18 months too late to the rental party. But rent is only a small part of shelter. Here is the S P case: Schiller U.S Home Price Index. You can see that it went bananas in 2021 and 2022 hitting 20 year-on-year growth and it has now come all the way down.

Or you can choose to look at the St Louis median sales price data. House prices went up 21 in Q3 2021 and have now collapsed down to zero in Q1 this year. The shelter reading the CPI data has a big lag. You can see from the data that it is now catching up to the crazy price jumps during Covid.

By the way, the FED caused those jumps in the first place by printing money like No Tomorrow and the US government helped them along with the lockdowns and the steamy checks. But let's not talk about that. but you can clearly see from all all of this data. the shelter is now going to have downward pressure.

From here, it is catching up to the data that it missed because of the lag effect. And just like the lag effect was too late on the up, it will also be late on the way down, but it is going down and there is nothing nothing that the FED can do with a rate hike this year that will affect shelter in the short term. If they hike the rate today, shelter will still be sitting at eight percent and it will still be at eight percent roughly give or take when we look at it next month. Because it is a lagging indicator, the price increases that form shelter in the CPI index have already happened.

So unless along with rate increases and with QT, the FED also knows how to use a time machine, a rate increase will do precisely all to shelter, but shelter. I Repeat is the only part of the index that is not collapsing and running hot. even oil prices down to 73 dollars. even though the US largely stopped pumping oil out of the reserves back in December Fed Forecasters have consistently thought that inflation was about to turn down.

and uh, you know, traditional, not, you know, typically forecasted that it would and been wrong. Is inflation? Sticky drum? Is that what you're trying to say? Is it because inflation is coming down? If you don't account for the fact that the lagging shelter indicator is going up while everything else is collapsing and holding the entire index up? I Think if you look at the at core Pce inflation overall, look at it. Over the last six months, you're just not seeing a lot of progress. It's running and it's running at a level you know, over four and a half percent far above our our Target And not really.

You know, moving down, we want to see it moving down decisively. That's all. Yes, Jerome The FED prefers to use the Pce instead of the CPI inflation data because PC artificially lowers things like the amount that people spend on housing just to make the numbers more accurate, because you can see that the total index is at 18.3 trillion dollars. These units are in millions here in the table, but only 2.75 trillion out of that sits in housing.

So this index that the FED prefers works on the assumption that Americans only spend about 15 percent of their total spend on their rent or mortgage. Hmm, very accurate. The CPI equivalent is 35, by the way, which is obviously way more realistic. but even in the CPE data, housing was 2.5 12 months ago and is now up at 2.7 7-5 It is up 9.7 percent in the Pce data that the FED prefers.

It's exactly the same story and the effect here is also delayed. It is also lagging even though shelter has an artificially reduced weight in this index. If you look at the rest of the Pce index without the lagging shelter indicator, it is down to 3.5 percent As of the April data, The main data comes out in two weeks time and here is the Dot Plot of the FED committee's opinion on what should happen to the interest rate. From here, you can see that 9 out of the 18 members said that the rate has to go up 0.5 by the end of the year.

That's the median one of these numbers. these things that the rate should be above six percent by the end of the year, but if you want a real kick in the teeth, only two out of the 18 people in that room only two think that the FED should not keep increasing rates and exactly zero of these think that the rates have to come down by the end of the year. I Have no idea I Have no words to explain what these people do for two days in that room. The thing is, they are completely full of these are politicians bad ones pretending that they work in finance.

They have no idea what they are doing. They don't understand how Trends work or forecasting. Works They will have to reduce rates with their tail between their legs saying that nobody could have possibly seen it coming. Oh my.

God How How did this come out of nowhere at us right now? Not a single one of these folks thinks that the race have to reduce not one and back in December 2021 Inflation was at seven percent. Seven percent. Right now. right now, it's at four percent.

Back in December 2021, it was at seven percent and the rate back then the Fed rate was still at zero percent. And back then, you know what? Not a single one of these Schmucks thought that the interest rate actually should go up higher than 1.1 percent in the whole of the following year. So they sat in that room for two days when inflation was at seven percent and the rate was at zero percent. and in the infinite Wisdom Thought that the rates absolutely do not have to go up at all.

No need. Like, why would you increase rates I Mean what like inflation is seven percent rate is? why would you increase rates? But now now that inflation is way way way way way lower down at four percent and it's still going lower and the rates are way way way higher already at 5.1 percent of the median, way above inflation. Now the same Tweedle Dumbs think that the rate has of course to keep going up the same people in 2022, the FED had to increase rates 300 percent 300 percent more than they said they would in December before the start of that year and the data was already there. Inflation was already there because they got it completely wrong.

They up and now they're saying the rates will absolutely categorically not come down this year. Not in the first half of next year. Not a single one of these ass wipes thinks that rates should come down. And the obvious question is, how is it okay for the FED A bunch of morons who don't seem to understand what it is that they're meant to be doing to clearly operate outside of their remit.

They continue to openly ignore the data right in front of this mug faces while over people who are already struggling to pay bills and put food on the table because of inflation that these idiots caused in the first place, by their inaction and by their action before they're in action. This is absolutely Not okay. And when the FED has to do another U-turn yet another U-turn for the third time that absolutely nobody could have predicted, Are any of these guys going to actually answer for up for the third time in a row? I Think we all know the answer to that question.