Hey everyone me kevin here so this morning we got some good news, but before we talk about that good news, i just want to clarify something that left some folks confused. So i've said many many times before that the federal reserve does not care if stock prices go down to the extent that they don't affect inflation or jobs, and this is true if we have plenty of jobs that people can get and inflation is very high. The fed doesn't mind fighting inflation, even if that means taking a little bit from the jobs bucket, because we got plenty of jobs, fighting inflation to bring that inflation down and at the same time, if that means stock prices decline, because valuations are compressing. That's okay! As long as it happens in an orderly manner, what matters to the fed solely is employment and inflation.

Now some folks got confused this morning and then we're going to talk about the good news that came out. Some folks got confused this morning when i said the federal reserve is not trying to shock markets, and so folks are doing the usual. Oh here's kevin flip-flopping again as usual, and this is unfortunately the fifth grader mentality. The fifth grader mentality in investing is wait.

You said the fed doesn't care about stocks, but now you're saying the fed cares about the market, which one is it okay, fifth graders time for a very simple lesson and we're gon na get on to the good news. Very simply put the federal reserve does not care about prices trending down, they care about dealing with inflation and jobs, and if that means they have to hike rates to two percent or three percent this year and potentially next year, then they will do that, even if That means we'll have less cheap money to buy stocks. People will be less incentivized to hold margin or debt, which means they'll have less money available, potentially to put into stocks, which means aggregate stock prices could come down as long as that is the case. The fed doesn't care the fed does not care about stock prices slowly coming down.

Their job is not to prop up stock prices. This is different from shocking the market because if you shock the market because, let's say the federal reserve comes out and says we're raising rates to two percent today and all of a sudden banks are like you know, you see the dow and the s p drop. Ten 10 and it's not so much the implication of just the values coming down, but it's what happens after that? This is the important part. Financial stability gets shaken, banks start freezing credit lines, start freezing lending, stop lending on mortgages or autos, because banks are like.

Okay. Oh, my gosh, so much has changed so quickly. Everything frees and then you stop the economy for days to potentially a few weeks, and when you do that, then you really kill earnings at companies. Then you really kill the stock market so for the fifth graders in the comments who are like yeah kevin sounds like he's dipping again, don't watch this channel.

If you can't handle nuance, if you don't understand, nuance go to the channels that just want to overly simplify things for you. That would rather give you a simplified explanation, and let you know that everything is okay and then jump onto the popular bandwagon and go everything's. Gon na be fun, you should don't kill me if you don't want to hear what's actually happening, don't watch this all right now. Let's talk about some good news, so we had a survey that just came out.

It is the new york a fed survey on consumer inflation expectations. It is the first time that we've actually seen the outlook fall since october of 2020. This is a big deal. The one year, let's say medium term expectation, is that inflation will go down to 5.8 percent in about one year.

The outlook for three years dropped even more sharply and was the largest decline that we've seen in inflation expectations on the three year. We had a point two percent decline in the one-year expectation of 0.3 percent to climb on the three-year and i'm sorry, a 0.5 percent decline on the three-year and a point, two percent decline on the five and so uh. What this is suggesting is is actually important. Now uh before i talk about what the importance of this is, there are a couple things.

A couple sort of baseline things to understand. First, very, very simple: takeaway here is that the overall trend of inflation expectations has been going down since 2014, uh at least what we're seeing in the surveys from the federal reserve. Here this makes sense. I drew the purple lines by the way.

Okay, i just spit over the purple lines here to kind of show, roughly the trend that we're seeing it's worth, noting, though, that consumer expectations can vary very quickly. So if you take a look over here at this blue consumer expectation from the new york fed this skyrocketed on forward inflation expectations, when recent news came out about inflation coming up because of the delta variant right, but i want to show you something else. That's really really important here and i think it's useful because it's critical to the fed, but first i just quickly want to mention that if you have not checked out extra yet by going to met kevin.com extra, i highly encourage you do that. Go to medcabin.com extra and with the extra debit card you can build your credit without actually having a credit card, and i see this in the comments all the time.

People are asking me kevin. What was that company, where i could sign up and basically build? My credit without having a credit card because i don't want to have a credit card. You know it's dangerous to have a credit card. It's a common thought, common question and it's extra so go to met kevin.com extra and shout out to extra for supporting the channel in the videos.

All right. So take a look at this. This is quite useful. So if we go to right here, we see that quote.

We find that over the past two years, consumers shorter horizon expectations have been highly attuned to the current inflation news, so in other words, the one-year inflation expectations are very responsive to the inflation data and news. That's coming out, however, the longer term stuff, like the three-year inflation expectation, is a lot less sensitive to what's happening in the news today. Now the three-year is the one that just went down 0.5. That's the one that that had the largest drop, we've seen really really good.

Now what i love about this is what it means for the federal reserve. The federal reserve is doing one very important thing. They are trying to do something known as control inflation expectations. Now they could do this through their meetings through their talk about policy actions or whatever right and controlling inflation expectations is very important, because when inflation expectations become entrenched to the upside, then what happens? If people think that prices are going to go up, they'll spend more money today, which has the effect of driving prices up, which then reiterates people's belief that aha see prices went up.

I thought they'd go up and sure enough they're going up, and so what then happens again. People spend more money today which again drives inflation higher and higher, and you end up getting this this crazy spiral here - and this is what the federal reserve is trying to control, so the federal reserve, with this latest survey, depending on, of course, what cpi does on The 10th might be inclined to continue to take the soft, slow approach of raising rates. Now the downside of taking this soft and slow approach is if they are too far behind then at some point they might have to u-turn and become a lot more aggressive kind of like they did in december. But if they're right and inflation expectations going down actually signals that inflation is somehow peaking and maybe we're finally getting to that apex, then the fed will be correct.

That means the fed will be proven right and that they will be able to take a slower rate hike approach. If the fed can take a slower rate, hike approach, stocks go up, and that would be very good, no guarantees. That would be very, very good anyway. This gives you a little insight here feel free to check out extra via the link down below and, of course, check out the programs linked it down below, with my private course, member live streams every day the market opens up and use that v-day coupon code thanks.

So much for being here and we'll see in the next one bye.