So we think of the equilibrium uh level of the balance sheet, as driven by demand for hey. Everyone me kevin here so jerome powell is sort of live crashing the market right now, and it's mostly because he's talking about the need to go to potentially more than a 25 basis point hike and if that uh time comes, we will do so. I believe what he's trying to do is anchor inflation expectations, but let's take a listen to j-pal himself interest rates that that actually will be our administered rates, that that set policy, and so what that means effectively is an ample quality quantity of of reserves plus a Buffer plus the other liabilities now, as i've mentioned, pardon me we're a long way from that today, uh, we were fairly close to that level uh before the pandemic set in before we uh, you know, bought quite a lot of assets, and i expected a coming meeting That will begin the process of shrinking the balance sheet, and i said broadly that process should take around three years. We wouldn't get numerically back to the same level, we'll get roughly to the same level of gdp.

I think, and of course the details will be forthcoming. As we as we get closer and closer to actually agreeing on that on those precise details, so tangentially thinking that about the demand for dollars, um and looking at what's happened to money supply, obviously necessarily increased, rather significantly in the immediate aftermath of the pandemic. But now that that increase has abated and it's increasing at a slower pace um, how do you? How do you view this within the policy framework and and what do you do? Should velocity of money begin to rise, so we we generally think of of inflation. These days, and for the last few decades, as as mostly about the balance between supply and demand, there was a time in u.s history, of course, as this audience will know.

Well, when money quantities were thought to be very important in determining output, determining inflation and things like that, and it makes intuitive sense that that would be the case. But you know close to 40 years ago uh the velocity of money, which is the ratio of output to the quantity of money, um stopped having any trend. It was really. There was no steady relationship there, which is the velocity, was no longer constant.

So we got away from that and we we look now to supply and demand. I mean what's what seems to be causing the current inflation is things that happened, as i mentioned in my speech, that both the demand was strong, but also that it moved from services to a much more constrained, uh goods, sector, um and then, at the same time, The supply curve, if you will for goods, became essentially vertical in some goods. So, for example, when um people wanted to buy a lot of cars they're, you know they're at home. They don't want to ride public transportation.

They've got money on the balance sheet: they're, not spending on tr on trip; they want to buy cars. Ordinarily, the car manufacturers would say this is great, let's make more cars, but you couldn't do that. Actually car manufacturing declined because of the lack of semiconductors. So that's really: what's what is behind the story here? I don't see, there's no role for monetary quantities.

In fact, i would say over time you know there probably is a relationship there, but i i don't think it's an important part of the of the story at this time. Thank you. So, let's, let's talk a little bit about um. Something you've underscored that you underscored at the press conference on wednesday, and you underscored in the speech today, which is the strength of the labor market.

And i think a lot of us that are looking at the summary of economic projections and looking at the range of outcomes doing our own forecasts. Um are concerned that we might see a higher unemployment rate before it falls to the three and a half percent forecast. Um, so one do you, do you see a direct path to three and a half percent, and and and talk to us about how you see the evolution of labor markets in the face of getting to neutral? Well um? I guess where i would start is saying that um having a strong labor market, as i mentioned in my remarks, is, is is an important thing and it's been a big focus frankly of of my time in this job. In fact that some of you may remember, i i told i testified, i told a congressional committee a few years ago when unemployment was 3.6, that i didn't see any heat in the labor market, because wages weren't moving up and so it you know.

This is something that i personally, and my colleagues really want to get back to. The current labor market is is, though, as i mentioned, there's an imbalance between supply and demand. It is by so many in so many respects much tighter, much hotter than the labor market. We had before the crisis, so we have to take that into account in setting policy um there's excess demand, so in principle, in principle, uh, less accommodative monetary policy could reduce excess demand for labor and stabilize the unemployment rate, while labor force participation, moves up, supply moves Up and those the kinds of things that could reduce pressure in the labor market and and and help to make sure that wages are on a on a percent inflation.

But that's our goal, as i mentioned, monetary policy is famously a blunt instrument. So but we do place a high priority on a strong labor market, but ultimately, if you want a strong labor market, you have to have price stability, so uh, we, you know we're very focused on on restoring price stability and also fostering a strong, labor uh. Okay, let that catch up there for a second uh one of the things that's worth noting here that j-pal keeps reiterating, and and as you watch this, i think it's really important to pay attention to is what he's doing is he's really trying to tell the market? Hey we got ta get inflation, i'm back, okay! That was annoying. Sorry, let's keep going to powell here.

When inflation arrived the uh, it did not appear that this was the classic form of inflation where demand grows and grows, and and outstrips economic potential and the economy. Overheats and and inflation moves up actually the unemployment rate - i think, was six percent last march, something like that uh and and the labor force participation rate was a full percentage point below where it is now in two percent, where it was before the pandemic. So there appeared to be slack in the labor market, but there is a role for demand and it's it is, as you mentioned, it is that demand moved into into goods and away from uh services. It's also just also that that demand was really strong.

You know there was a very strong fiscal reaction. There was a very strong monetary policy reaction. Demand was really strong. Nobody should deny that, but you, you could not drop that amount of demand into any of our models and produce this kind of inflation without supply side constraints, and so so that that and that inflation was really a product of strong demand, particularly in goods.

Meeting the constraints, so now you uh, i guess what we're seeing now for you from ukraine is really commodity related and and supply chain related, and that is more like a classic supply shock. I suppose, and as i mentioned in my remarks, you know you would you would tend to want to look through that. I think we're we're going to be careful about that, because inflation expectations are, you know existing coexisting, apparently with high inflation now, but we want to be very careful about about moving expeditiously to get to get policy to where it needs to be. So i i i wouldn't say that we're comfortable at all with the typical sort of we'll just look through that approach.

So in that game, then what what would prevent you from doing a 50 basis? Point move in may: oh big questions. What would prevent us yeah? Nothing executive summary. Oh no, as i've said, that's not a decision that we've made uh, but it's not a decision that we've made. What i've said is that if we think it's appropriate to raise 50 basis points any meeting or meetings, we will do so, and i i don't have a i don't have a test here, but for what? For? What will trigger that? But it just is this: we have an expectation, you know.

The expectation going into this year was that we would see basically see inflation peaking in the first quarter and maybe leveling out and then see a lot of progress in the second half. That story has already fallen apart to the extent it continues to fall apart. My colleagues and i may well reach the conclusion that we'll need to move more quickly and, if so, we'll do so so um. There are a number of questions about real rates.

Neutral rates yield curve, shape um, so i guess uh one of them is: should the fed be looking at the should the should we be looking at nominal, fed funds or the real fed's funds rate, and and what do you expect, the real fed funds rate to Be given our current dynamics, so, of course it is, it is real real rates that matter uh in the end, and you know we're very focused on that um. In fact, if you look at uh, if you look at where rates are even real rates for for for many sap submissions, they are actually above the the estimates of the neutral rate. But not i admit that the ones for the whole committee are not there yet, but again, i would see it as a. I would see it as a work in progress, ultimately um.

I guess i would would add, though, that um many things other than monetary policy. Some things other than monetary policy can work to reduce inflation, and i would point to a slowing in growth from the reopening of the economy, where we had very fast growth. I would point to the waning fiscal policy uh. I would point still to the possibility of supply side.

We are beginning to see some, for example, in the in in the vehicle sector. There's some evidence of of progress on supply chains, so all of those things can help and so uh it doesn't it so it. It's not necessary for monetary policy to do 100 of the work, but, as i mentioned in my remarks, we are not conducting policy now in the expectation that we will see significant near-term uh progress, we're going to be looking for actual progress at this point and that's An important distinction um, so there are a number of questions um about stagflation, which we all know is high unemployment and high inflation. That is, i think, not the situation we have now, even though people have bandied that word about, and i guess my question centers more around you know, we had come to um believe that the bigger boogeyman was deflation or disinflation, and that of course, was informed by Nearly 40 years of inflation falling and interest rates, nominal rates falling and um.

When we may be a little bit too quick to declare victory over inflation and and do you, do you still think that prevailing wisdom, certainly in the halls of the fed, is that disinflation deflation is the bigger boogeyman or or is inflation the boogeyman that has come Back and and is the bigger boogeyman, so all right so uh. Clearly for the last uh quarter century we've had um a perfect storm of disinflationary forces, really uh demographics, globalization technology all came together to create disinflationary forces. Now it's been argued that that uh there's that there's a number of books that that argue that that process is over and that we're going to go into a higher inflationary, um situation. I hadn't i haven't found.

I hadn't found that uh argument persuasive before the pandemic, and so the question is we've now had since that old regime what's happened is we had a pandemic? We had very historically strong uh policy support from fiscal policy and monetary policy, and now we have a war that is generating um untold, really uncertain, uh economic constraints and the question is, as we come out the other side of that. It's a really good question. The question is: what will be, what will be the nature of that economy? Are we going to go back to slower growth, low productivity, aging population, globalization to some extent still intact, uh, or are we going to go to back to a more segmented global economy where, where the effects of globalization on anyone's ability to raise the price of anything Um are diminished and i i guess it's really hard to say, but i don't think no one. No one is sitting around at the fed or anywhere else that i know of just waiting for the old regime to come back.

I think people fully appreciate the situation that we're in it's a series of shocks and events that have happened, and we have a job to do and we're very focused on doing that job. So speaking of shocks and events, um in my new role as global head of strategy and esg um, i'm i'm thinking a lot about the impact of this uh transition from net zero and what it's likely to do. Uh to the price environment right, and so here i'm thinking of there are likely to be. I would expect a number of shocks on our way to to net zero um in terms of lumpy policy implementation, uneven global policy, implementation of things like what happened uh in china with energy prices or what happened in europe with natural gas, concurrently um.

We are also like likely to see a lot of or a growing number of, asymmetric uh, idiosyncratic shocks in terms of climate events um they put upward pressure on on prices sporadically and i'm just wondering what is what is the way that monetary policy might respond to Uh a growing persistence of shocks, and what is you know? How is the fed thinking about the possibility of this occurring? So i think in the short term, these are in the short term, very short term. We're not really thinking of those as things that play into policy today. We, of course, are spending time thinking about how both physical risk and transition risk will play into um into the economy, into the financial system, into financial institutions, uh, business models and the safety and sound of something and all those sorts of things so um. But i i guess i could say, though, that there's clearly there should be a connection to relative price changes right, so policy could favor different industries, different sectors, different regions over other ones, and by the way, those are not questions at all for the fed.

It might be those are questions for elected representatives, but that could happen, but those are really more relative price changes. Inflation is ultimately a monetary phenomenon, and it's not it isn't clear to me at this point that that there should be or would be inflationary effects, as opposed to relative price changes, for example between carbon intensive activities and non-carbon types of activities. Thank you. So i have a number of questions here that you're unlikely to answer ability.

Do you put on the likelihood of the us economy experiencing a result, a recession as a result of the current economic challenges faced by the united states, and you went into a number of them? Obviously the war um in ukraine, so i don't see the um. I don't see a reason to think that the likelihood of a recession, let's say in the next year, is elevated and the main reason i i don't see. That is just that. The economy is very, very strong and i would point i would point to growth, which still, by most forecasters reckoning at or above potential growth.

It would also point to the labor market. If you look at the job creation, we've had it's been remarkable and it has kept going. You mentioned boogieing. I would say that it did that right through the right to the omicron wave.

So it's a strong economy, and i i do think that um and i think it's an economy that can handle uh less accommodative monetary policy have a couple of questions here that um throw cold water on jolts um. I happen to know from from our our prep call that you are. You are looking at more than just jolts. So if you, if you the the job openings, yeah um, so things uh, you know i mean look at the st louis fed.

A labor market conditions index really suggests an unemployment rate closer to three percent um. So if you could, i know you've talked about it extensively, but since there's still questions um just go into a little more detail on the tightness in the labor market that you're seeing and some of the indicators you're looking at sure so um. If you look at um, you can you, can anyone can pick a fight with any of these, but basically, though, quits and job openings, quits particular in particular, you know uh and i think, as well in some in some research the ratio of job openings to job Vacancies and wages, of course they they tell a story that is really different from from the unemployment, the unemployment rate story at 3.8 percent. Is it it's the outlier in a way, because we had 3.5 percent uh unemployment for a long time with very low inflation? So i i think the signals that are coming from that broader set of indicators all say that this isn't.

This is a labor market. That uh is out of balance that that really has an excess of demand over supply. That chart that i showed shows that employment plus vacancies is like five million jobs higher than the labor force at this time. So that's why you're seeing um you know widespread reports of job shortages.

Surveys are are in record territory of uh of that nature and, of course, wages are at 40-year highs, so um all of those things. It seems to me point to just a labor market that it's it's a it's a great labor market, it's great for for workers, but we need we need the labor market to be sustainably tight, meaning it has to be tight in in a way. That's consistent with two percent inflation over time and there's good reason to think that that this that this labor market would be in a more sustainable level if it were, if some of those indicators if demand, could be brought back in line with supply so um, i Think many people in this room are familiar with the interesting work done by jordan singh out of the san francisco fed early on in the pandemic, uh, which looked at pandemics throughout history, and i would say, at a high level, there's sort of two stylized findings. One is that wages tended to go up in part because we lost labor in pandemics and, second of all, capex tended to fall after pandemics and and here in this and obviously those previous pandemics, we did not have monitored modern uh monetary policy, modern fiscal policy.

We didn't have the institutions that we that we currently have in their form, that we have them. So we've seen a little bit of a different, dynamic um in terms of capex a somewhat similar dynamic in terms of labor um. And i guess my question is: how is the fed factoring in the trajectory the likely trajectory of capital expenditure and the likely trajectory of productivity? We had a bit of a productivity surge um, and - and do you think, it's possible that we defy history um in the aftermath of this pandemic with regard to capex and productivity, i wouldn't say it's not possible. It's certainly possible um.

It's i think, productivity in a world where little of what we work on is is easily forecastable little. If anything productivity is is just not forecastable with confidence, so it just happens when it wants to happen, and of course we all wish for more productivity and it's great to see higher productivity, but forecasters and we're no different tend to assume that whatever level of productivity, Your hat will you're at will will migrate back to the longer term trend uh over time and longer term trend is what you know, one and a half percent, or something like that. So that's that's what most forecasts are made of um it's. You can certainly make a case uh if you want to that.

You know with the labor shortage, there'll be a lot of investment and the business will have to get done and and there will be investment in automation, to replace human labor or to complement human labor. And all of that is a is a great story, and it may i actually. I i do think that that will happen in in the service industries, because you know that, ultimately, the the service industries, the public facing service industries, will go back to their full output. But probably with fewer people, so you may well have productivity there, which would be great, and that would make these um.

You know these high wage increases that we're seeing you know more sustainable. So there are a couple of questions regarding uh target, long-term inflation target and um. One questioner asks: would it make sense to shift the long-term target to three percent to assist with the soft landing and allow for high on higher nominal rates and a more normalized policy? In the long run, no that's not something we're looking at. It's not, i think, um, okay um.

So there are there's a question here about financial conditions and credit spreads, which obviously we've already seen. As you mentioned in your remarks, the tightening of financial conditions um and, and how specifically, is the fed thinking about financial conditions going forward, especially considering some of the anomalies we're likely to experience as a result of the ukraine war. We look at a broad range of financial conditions, not not any one thing, you know it's it's rates, it's uh, it's pe multiples, it's credit, spreads, it's it's prices and uh risk spreads of all kinds. We so we look at a broad range of financial conditions and you know they're they're, countless uh financial conditions indexes.

We we look at all of them and try to make an assessment of whether of how tight financial conditions are, how loose conditions are, and you know, we've seen really since um late last year, we've seen the market pricing in a number of rate increases we've seen Financial conditions, tightening we've seen in particularly in fixed income, you've seen longer sovereign rates, move up the united states very substantially and across the yield curve. So you know, and that's our policy obviously works through financial conditions. We want to get back to a place. That's that's! Uh away from the the highly accommodative conditions that we put in place at the acute phase of the pandemic, and we want to do that expeditiously.

So we have a question here about basically i'll call it the. How much pain is the fed willing to take question? So if the economy enters recession, but inflation remains stubbornly high, are you willing to maintain tight policy and exacerbate it for or prolong a downturn to achieve price stability? First of all, let me say that we don't think about the pain that the fed is taking. We think about the public and again i'll just say: uh, we um we're very committed to uh restoring really price stability uh, and that is the the thing that makes us able to pursue a strong labor market in in the face of a strong downturn. You know the world we've been in for 25 years was one where you could really go hard to support the economy when, when it weakened, because you knew that inflation expectations were anchored and you knew that inflation would stay under control for the first time in a Very long time we have high inflation and we know that we need to to restore that.

We really do, and so i don't see it in the medium term. I don't see a conflict between the two mandates. I think the best thing we can do to get back to where we want, which is a long period of sustained strong labor market conditions, is to restore price stability. Thank you, um.

So, let's see what i was hoping. That might be my last question because i think that underscores that this is the buck stops here. Speech um, um uh. Some of these are great questions, but i know that there are either questions that were already asked, or questions you're unlikely to be able to do a summary too.

So i'm going to go back because there are a number of questions about it. I'm i'm gon na amalgamate a few together, so so people are very focused on the possibility of 50 basis points at the main meeting, but people are also very focused on the shape of the yield curve and and what it might be signaling. I have a feeling, i know what your answer is going to be, but i'm going to ask this anyway. Um is the fed concerned at all about uh the yield curve actually inverting, and if it were to invert, would it impact the pace or magnitude of rate increases um.

So we monitor, as i mentioned, a broad range of financial conditions and the the shape of the yield curve is just one thing we do. We do look at that and we look at different measures and, frankly, um there's, there's good research by by staff in the federal reserve system. That really says to look at the short. You know the the first 18 months of the yield curve right and that that's really that has 100 percent of the explanatory power of the yield curve, and it makes sense because you know you you it there's, there's a reason why.

That would be why that would be the case, because if it's inverted, that means the fed's going to cut, which means the economy is weak, twos to tens. It's hard to know why that would start to have some economic theory of why that would be uh. Why that would make sense, of course look at it. I mean i, i won't tell you, i don't look at it, but but i do i think, um.

Actually, i i tend to look at the shorter part of the yield curve. Though, and again it's just one of the many things that we look at all right well, we are at time. Thank you very, very much. This was fabulous.

Thank you. Thank you. So we'll do a recap here: okay, let's just jump right into the recap, there's so there's so much to talk about here, uh in case you're wondering this morning uh i did post a video about an hour ago and uh youtube for some reason: uh didn't uh. Didn't allow it to play or whatever, after a few minutes, i don't know some stupid bug happened, so i'm just gon na basically incorporate all of this new information that we have and then just give you the bottom lines of that video that i made this morning.

So if you're wondering why a video is private or whatever it's just gon na be part of this video now, okay, so uh give me one. Second here get my bearings and we'll get started: okay, geez wow hold on one sec. There's a lot to talk about here. All right, hey everyone kevin! Here! We've got to talk about why jay pow just crashed the market, we're going to talk about the bond dump, we'll talk about commodities real estate, some of my favorite takers.

And, of course, we got to talk about what the heck j-pal just said, which j-pal is going to be the start of our conversation here. Just a note, this video is brought to you by two things: met kevin.com extra and that expiring coupon code for the amazing programs on building your wealth link down below that expiration's coming up in four days, and the price goes up again. Okay, so speaking about prices going up, we just had prices go down in the stock market. Why? What happened here? Well, we had our usual typical retail buying at the open the last two weeks we have seen a lot of retail buying right at market open, followed by volatility.

Throughout the day, usually, we've been ending up higher. Over the last week, we've been consistently ending up higher. The problem that we just had is at 9 30 in the morning. Look at this drop right here: 9.

30 on the dot 9 30 right. Here we get a plummet. Why? Because jpow's speech gets released on the federal reserve website, all of its details, get parsed by computers spit out on the newswires, and the newswires did not like what we saw in that speech, which i'm going to explain, and there are some shifts that have happened. Uh since then uh then jay pal uh.

We had a little bit of a recovery after the speech was published, but after jay pal started talking uh, he gave his speech and then he answered some q, a the market rotated down a little bit more. So what is it that jerome powell said well here are the following? This is exactly what jerome powell said he said quote: if we need to go more than a 25 basis, point hike, we will do so. If we need to go above neutral, we will do so, and essentially i'm going to keep going through this, but i want to give you something that's going to make a lot more sense of this as we go through it. What j pal is trying to do is he's trying to limit inflation expectations.

Yesterday i posted a video and said there are five very important things for you to track in this market. Two out of the five things i talked about yesterday were different types of inflation expectations: consumer inflation expectations, which we'll get more data on at the end of this week, there'll be a new update on what consumer inflation expectations are and number two, the market's inflation expectations, Which you could track the five-year break, even chart which has been peaking lately, and this is a sign of inflation expectations becoming unanchored multiple times during jerome powell's talk. He talked about the need to keep inflation expectations anchored, it's not so much of a matter that inflation is high. We know that inflation is high, obviously that that, like that's the obvious problem, but the shift in their path or sort of the course that they take will entirely, in my opinion, be based on inflation expectations.

That is as long as the market and consumers expect that inflation will come down. My belief is that they'll stay on the course of 11 to 17 25 basis. Point hikes: that's going to take us all the way, basically from zero to potentially as high as 4.25 on the fed funds rate, and i think real estate is going to see the biggest short-term impact. Uh well short to medium-term impact over the next really six months.

To two years, because of this increase in rates, the stock market has already discounted a lot of the fact that rates are going to go up, that we will see rates at two and a half to three percent at the fed uh within the next year to Year and a half and then potentially higher thereafter by 2024, who knows if inflation stays stubborn? We could be at that four and a quarter percent with 17 rate hikes, which is exactly what we saw at the beginning of two of the 2000s, which jay powell referenced j-pal references, the beginning of the century, as kind of how they expect to raise rates. And that's what we did in 2004 was 17 25 basis point hikes in a row. The reason the market had some heart palpitations today is because jay powell said: if we need to go more than 25 basis points, basically go 50. We will do so, and he was bluntly asked: what's stopping you from going for a 50 basis, point hike now and he said nothing now.

We don't actually believe that we're they're going to go for a 50 basis, point hike unless some of the expectations we have start changing. So what expectations did they lay out in the federal reserve meeting last week? Well, last week they told us that before ukraine, they thought inflation would peak in march and then come down towards kind of flatten for a little bit in the summer, come down towards the end of the year. Now and j-power reiterated this today. He said all of that has fallen apart.

Their previous expectation of a peak has fallen apart now. They believe that inflation will peak in q3 kind of go flat for a little bit fall more sharply in q1 of 2023. But if that also falls apart, then they will hike more and i think that's what the market here is missing is the market is freaking out because the market's hearing - oh my gosh, you said - maybe we're going to go for a 50 bp hike, but wait a Minute he said we'll go for a 50 bp hike if the data shows that these expectations are falling apart, and so this is where i've mentioned in many videos that what you want to pay attention to is, if you want to know, if the fed's going to Go 50. This conversation didn't change anything all.

It does is reiterate the fact that you've got to look at the month-over-month data for cpi. We got to see if there's a wage price spiral which we do not have right now. We do not have a wage price spiral. We want to watch this inflect over the coming months and of course, we want to watch the five-year break evens, which we, i showed you already as spiking, which is a problem.

This is a problem and then we want to watch the uh consumer sentiment, inflation expectations right. These are the some of the four core things we want to be paying attention to. There are more you can watch my video from yesterday from that, but jerome powell reiterated how important expectations are here and that inflation is high and we've got to get this inflation down. In fact, here's some of the other things that he says he says we're at this market right now, where we cannot assume that supply chains are going to provide relief.

Jpow told us that hey we're starting to see some relief, maybe in like certain auto sectors, but we can't assume that supply chain relief is going to be what's going to move inflation down. He does say it doesn't all have to be the fed that waning fiscal support like stimulus, uh, some progress in these supply chains and uh, maybe less reopening spending like less travel spending, could potentially bring down inflation, naturally, but they're going to respond to the data and If the data continues to inflict in the wrong direction - and there is no q3 peak of inflation - then they're going to hike 50. now jay pal didn't give us a time frame. But waller did on friday, waller told us that we could have a 50 basis.

Point hike potentially two 50 basis: point hikes uh at uh, one of the next coming two to three meetings, so that gave the market a little bit of anxiety, but jerome powell today reiterating that yeah, nothing stopping us from going 50. That, i think, is what led the market to be a little bit nervous today. Personally, i don't know that this is too terribly different from what he told us. Last week he said he's going to be very data dependent.

They have not made the decision. He reiterated that today they have not made the decision to go with a 50 basis. Point hike. We recognize that inflation is too high, but uh we're just going to respond to the incoming data.

So i've already talked to you about what data to monitor we're going to monitor this market's a little bit nervous about just j-pal, even mentioning nothing, stopping us about a 50 right. But let's talk about some things that are really good that he talked about. So one of the things that he was asked is wait: what are the odds of of a recession? And he says quote, i don't see a recession likelihood that is elevated and the main reason for that is the economy is still very strong. He says: look at growth, we're at or above potential.

This is reiterating what he said during the fomc meeting in the summary of economic projections that hey look, we're still expecting 2.9 gdp growth, that's more than what we would have had in any period of time. Prior to the pandemic, uh, you know a post post the great recession, so this is remarkable growth. He said the labor market is doing very, very well and uh that ultimately yeah, while we're committed to restoring price stability. We at the same time want to make sure we maintain a strong labor market and these things can go counter to each other right.

For example, if you go all in on fighting inflation, you could end up leading people to lose jobs, but you can't have inflation going forever because then, then you could end up unwinding a strong labor market right. So a lot of complicated things to balance here. Right now, for me, i don't think much has changed beyond this. We're just going to go 25.

25, 25, 25. Until and unless that data starts looking uglier, which we know march's data is already going to look ugly because of ukraine. We're going to be paying a lot more attention to that data for the months of april may june july, and maybe this is just the fed kind of throwing it out there that hey just remember 50. Bp is a possibility which that makes sense when he talked a little bit or when he was asked about the 10-2 yield curve.

This is a big one, so the 10-2 continues to flatten, in fact, i'll pull up the new 10-2 right now and it flattened quite a bit as well after powell spoke uh, and we know that the 10-2 can be a little bit of a signal for a Potential recession, in fact anytime, the 10-2 has inverted before we've had a recession within uh 18 months right. The current 10-2 has a spread of about 18.8. In fact, if you just look down here under where i am right here, 18.8 is the current spread. It's at the lowest point that it's really been at and we're seeing 10-year treasury spike.

When jerome powell was asked about the the ten two, he made a very interesting comment. He said, while he looks at the ten two, he focuses much more on the shorter end of the curve. He focuses much more on the first 18 months, and this makes a lot of sense to me in fact, in the video that i posted this morning, but then i made private because youtube wasn't playing it. It was a disaster this morning.

One of the things i mentioned in it is you might consider looking at the three month to the ten year, and the reason you might want to look at that spread is because it shows you a little bit more of of uh how the shorter portion of The curve could impact the yield curve a lot and take a look when you go really short. Look at the yield curve over here it it bottomed, uh at uh, at just after the invasion here in ukraine 224. We saw a collapse of that curve and it's really started steepening again here. Why would the yield curve start steepening again on these when we look at the shorter ones like the three month to the ten year? Well, in my opinion, as markets get less fearful about the fact that yeah inflation's high yeah we're at war with ukraine, yeah oil prices are high.

Uh yeah gas prices are high. Yeah food prices are high. What the more we become comfortable, realizing. Okay, we've got a bunch of bad news, got it what happens? Well, people start dumping their hedges in bonds, so they start dumping the three month bonds.

They start dumping the one-year bonds and the two-year bonds. They start dumping these and that leads the yield on those to actually go higher faster. Why? Because, when you get these uh moving when you, when you dump the shorter term bonds, you increase the yield of the shorter term bonds that makes sense price goes down. Yields goes up so uh.

It's interesting to me that j-pal says hey. We like to look at the short end of the curve like that 18-month curve, because, in my opinion, what he's trying to say here is hey we're looking at how the market is reacting. To fear when markets are fearful, people go by the short-term bonds. Well, they're less fearful, they start dumping the short-term bonds.

So for me, i had a similar kind of reaction to j-pal just had this morning in my video, which i wish was still available for you, but anyway in the video that i posted this morning. I said i've kind of gotten tired. Looking at the ten two yield curve, because i think it's totally manipulated because of the disaster - that's happening in ukraine and people using bonds as hedges, j powell kind of said something similar here, he said: look we're not looking so much at the 10-2. It's a weird phenomenon: it's just one of the things we look at.

We look at a lot of things. We look at pe multiples, risk spreads, bronze, broad range of conditions, he says uh and, and the focus really right now is hey. We do have to focus on inflation and those inflation expectations. That's a critical piece that he talked about and i think it's one that it's very easy for market or inflation expectations are one that are very easy for markets to kind of sort of just like bypass, because if inflation expectations - and this is such a weird thing - If inflation expectations are really high, then what happens? Inflation becomes self-fulfilling.

This is really like a bizarre phenomenon, but basically the way this works is, if you think, inflation's going to be 10 this year 10 next year, 10 the year after what happens? Well, you as a consumer are more likely to buy things today rather than next year. If you think inflation's going to stay around for let's say the next four years, 10 every single year, you're more likely to buy a computer today, you're more likely to buy a car today, because you think those things are going to continue to get more expensive. Just like when we increase the price of the courses which the next increase happens in four days, you're more likely to buy before because you want to have a lower price, this makes sense. But what that actually does is it reiterates it sort of self-fulfills inflation in broader markets when people know that prices are going to go up, they move their purchases up and what happens well now the market overall sees more inflation, and this is why the two massive Things the fed pays attention to are not just what actually, the inflation rate is write that down.

So what is the current rate of cpi? But it's also those expectations and we have those two ways which we talked about earlier in this video to measure those expectations and those are things like looking at the five-year break, evens and, of course, the consumer sentiment, inflation uh expectations right, which, on friday, we'll get New numbers on this, the five-year break, even you, could just watch the chart on every single day and, and that is a chart that has been steepening. So when powell comes out - and we have these fed speak periods - which we talked about this in the course member live stream this morning, there are a lot of there's a lot of fed speed coming up i'll give you the calendar, really quick here, it is. Oh it's on this phone. When the fed comes out to speak, what they're really trying to do is they're trying to manipulate expectations down to make sure that people don't basically let these inflation expectations get unanchored, because once inflation expectations go unanchored, what happens you end up? Having to force a recession, the federal reserve remember this can wave a wand and force a recession.

Unfortunately, that comes at the cost of high unemployment. So it hurts poor people even more, which is a problem or even even medium income people, but look at the schedule that we have uh bostic spoke this morning. Uh powell just spoke, we've got daley speaking tomorrow, mester speaks tomorrow. Bollard speaks on wednesday.

He's he's a pretty big hawk, uh kashgari speaks on thursday. Evan speaks on thursday, and then we get our consumer expectations on the 25th, which is friday and barkin also discusses inflation on the 25th. So you've got a whole week of the federal reserve coming out and giving us this kind of nonsense so expect a lot of volatility this week, which previously i wasn't expecting. I thought this would have been a little bit more of a calm week, but with this fedspeak schedule it's just going to be more and more of these fed headlines.

So, okay, so we talked about j-pal, we talked about the bond dump, we talked about. Oh now. We got to talk about real estate commodities and some stocks, so i want to touch on real estate. This this rise in the 10-year curve is a problem for real estate.

Remember i've previously and many times before on the channel said that i believe the 10-year treasury bond is going to run up to 3 percent. And let me tell you about what that means for real estate. But i do want to give a quick message and shout out to our sponsor today, and that is extra. Remember if you want to get into real estate, you got to have a good credit score.

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They've also got a rewards program which is amazing, go learn more about extra med, kevin.com extra. Okay, so let's talk about real estate. Well, you got to look at the 10-year treasury and this morning when, when i woke up, i look, i go. Oh gosh man, the 10-year went to 2.24.

Remember: i've been shorting the 10-year treasuries. I've been shorting them since under 2 because i'm like these things, are going well over 2. Now i closed my short on the 10-year treasury. I should have closed it today.

I would had you know a little bit more profit on it. Maybe another one or two percent big deal, but the point is like directionally, these 10 years keep going up. Look at them now, they're, two point: almost three percent: this is insane tomorrow, we're going to see the highest mortgage rates that we have seen since 2018., and i tell you i think this is just the beginning. I think we're going to go back to that three-year 10-year treasury yield.

I don't think it's all going to happen immediately in the short term. I wouldn't be surprised to see this 10-year fluctuate between 2.1 and, like 2.5 percent fluctuate around, but over the medium term, which is like 6 to 18 months. It wouldn't surprise me to see us go back to that 3, which would be equivalent the equivalent of about a five to five and a quarter percent mortgage rate, and i think we're going to see headwinds against the real estate market, probably in the neighborhood of 20. 25 is in zapped purchasing power.

That doesn't mean prices will go down that much. I think that'll just offset all of this excess demand that we have in real estate, and maybe we only end up seeing like a sort of a soft move down in real estate prices somewhere in the direction of five ten percent. Until rates start coming down again, which we expect rates will start coming down again, probably end of 2024 - maybe 2025, something like that uh. So that's something to keep an eye on remember j-pal tells us no risk of recession.

Uh we've just got to make sure we keep those inflation expectations anchored, but yeah we are going to go up just like we did at the beginning of the 2000s. Many rate increases over time, and so this is a headwind that i definitely see for real estate. Okay, so we talked about j-pal, we talked about the bond dump and how complicated these bonds are being right now talked about real estate. I do briefly want to look at some of the individual charts that we're seeing here.

So this is the nasdaq. Obviously, we were having a pretty decent day sitting around that 38.2 percent fibonacci uh until jay pal started talking, and he really pushed us right back down we're sitting right now about 348 still nicely above that uh well, actually we're just barely below the um 38.2 fibonacci. Here so we're still moving nicely up and for me a lot of folks are asking me kevin. When would you short in this market again, i'm not really interested in shorting or hedging to the downside? Until i see the indices get back to about that 61 to 78 retracement, we get back into this territory or imagine we get some crazy euphoric week or something and we get into this territory over here.

This is when i think it's going to make sense to to short the market uh or to at least hedge, because i don't really like it's going to take a lot for us to get back to this 318 qqq. In my opinion, we've already got so much freaking bad news priced in uh that that it's going to take a lot to really push us down and keep us down in my opinion, and that's why i think also today you're yeah, we saw a little bit of A push down, but we're no lower than where we were this morning on just typical trading uh and and no news from the fed right, so really we've we've gone. Nowhere is really what it feels like here, which is fine. So where are the opportunities? Well, if you believe a recession is coming, you do not want to be in the stock.

I have said this since i originally started talking about the stock. You do not want to be in a firm holdings if you think we are going into a recession. However, if you think, like jerome powell, that the odds of a recession are low in an inflationary time, a company like a firm could actually do quite well. The reason a company like a firm could actually do quite well is, first of all, we've barely retraced.

Anything off the bottom here, which, if anything, gives you a greater potential fear factor that doesn't mean that we've actually hit a bottom here on a firm right. Could a firm go even lower? It absolutely could, especially if the market price is in more of a risk of a recession, but i have a belief that uh, in an inflationary time, absent a recession, people are going to be more likely to want to use things like the affirm debit card and Do you essentially use buy now pay later services on things like you know their general purchases, which you could then apply using the uh, the firm debit card to a sort of buy now pay later plan uh. Now i don't recommend this, but i also don't think the people who use this stuff watch my videos. I really don't recommend people spend money, they don't have ever uh.

You know some people like hey kevin. I really like the fact that i can check out for your courses with paypal and do buy and you know pay in four or whatever i'm like whatever. I don't recommend it, but if you want to use that you can so uh. I think, if we're in an inflationary time absolute recession, there could be an opportunity to invest in a company like a firm and probably see them come back to this 38 to 50 fibonacci.

Here no guarantees, certainly not this insane euphoria - that we had over here at like 177 143. I was a seller of a firm over in this area here because it was just pure euphoria, but somewhere this midpoint, uh retracement. I see that we're kind of already seeing those midpoint retracements in stocks like end phase already above the 38.2, we're seeing that sort of midpoint retracement on stocks like tesla, also already over that 38.2, and so there is some argument that maybe it makes sense to look At other companies like uh, even roblox or firm or whatever, that just still haven't even gotten to their first level of retrace, but just be careful with these, i would. I would keep these at lower portions of your portfolio.

A bigger concern that i actually have, though, is this the consumer discretionary spend in general, and that would be like your shopify. So shopify is another one. That's really struggling uh to to go anywhere, and the reason here, in my opinion, just like jpow said is people are probably more likely to save money or spend less money, just like the chinese are doing. Why? Because uh we're at a very uncertain time, gas prices are high, food prices are high, everything's getting more expensive, and so it's likely that you would spend less money on shopify or etsy right and see look.

This is why etsy continues to get rejected by the 23.6. Its consumers are going to be a little bit weaker. The same is going to be true of the lending platforms to some degree that includes square and paypal, but probably to a more greater degree. It includes the uh student loan company and mortgager.

So far you know they've also got their brokerage division, which all three of those things mortgages student loans and brokeraging like robinhood kind of stuff right trading. I think all three of those are have huge anchors on their business, which is not great people who have made new accounts for savings via sofi or paypal or square. Probably already did so during the stimulus era. Now it's really tough people are spending even more money to try to get more customers here, and this is why i'm purposefully trying to stay away from some of the lending companies i'm trying to stay, or at least limit my exposure to them.

Uh because i do have a little bit of sofi just like i have a little bit of talent here, but i'm trying to limit my exposure to them and i'm trying to go heavier when i get little dips uh, especially if i get under 60 on trade Desk, i'm really trying to pick up a lot of trade desk under 60.. The reason for that is because i really think we're going to see a big move into advertising and uh, as as companies try to spend more money either partnering with companies like affirm for buy not pay later or advertising companies to fight for the consumers who are Willing to spend so these are just some ideas that i have in terms of stocks that i'm watching. Obviously, i'm also keeping an eye on what's happening with uh occidental petroleum here it is now at another all-time high. Over here uh i mean, i shouldn't say: all-time high post uh, post 2018 kind of high and uh this.

This, in my opinion, has a lot of retail momentum in it. In fact, it's not even just my opinion. I can tell you what the most popular retail stocks are right now they are yep. Okay, so retail trading flows, alibaba neo, occidental, xle, uh you're, actually seeing some expansion over some by the dip on jets, which i'd be a little bit more careful about that one.

One i do agree with personally would be like a taiwan semiconductors talked about them on my video yesterday, but i do think that commodities like uso wheat, corn, occidental uh. These are going to see a peak at some point. I've got a fibonacci drawn over here on uso and i'm looking for an opportunity to probably short uso. If we end up somewhere between the 61.8 to 78.6 fib over here, because i i don't think we're going to get to the same sort of peak fear moment - we had up here but uh, certainly somewhere in the 80s for uso, is going to be a potential.