Is it possible that the Federal Reserve could continue to keep interest rates High while inflation plummets And the answer is yes. But in this video, you're going to learn why. And it's unfortunately something that is not a good news video. And it's not potentially bullish, but it's true, so we need to talk about it.

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Remember, we get lifetime access. All right, let's get started. So is it possible that the Federal Reserve actually continues to hike interest rates of What War or at least keeps them at elevated levels. Potentially, they hike uh through to about a 5.25 interest rate and then potentially keeps those rates High while inflation actually plummets and doesn't actually cut anytime soon, Is that possible? Well, initially when we look, we think to ourselves, why would they do that? They're going to put us into a deep recession.

But remember back to January of 2022 I mentioned in many videos and I've referenced this many a time that the worst thing that could happen for the Federal Reserve is something known as a wage price spiral. This is generally defined by wages being significantly above inflation and then eventually those wages dragging inflation back up. Now for our current terms here in December of 2022, that could actually spell what's known as a second wave of inflation where inflation starts plummeting like crazy next year, especially as owners equivalent rent comes down and the the housing sector slows down to a halt substantially. But then so so we see headline and core inflation I'll plummet next year.

and we actually do see inflation Trend towards maybe a two percent average over the long term. Maybe you know the high three percent by by the end of next year, and then in the two percent range thereafter, right? But what if the Federal Reserve is concerned? Oh no. we might actually see inflation jump back up because wages are high. Consider this: wage growth right now is in excess of five percent.

Let's go back to the last time we had high wage growth. it was actually in the 2008 recession. Or leading up to it, was sort of the crazy Market the crazy Bull Run Market of 2006 and seven. And what you had here was you had wage growth sitting somewhere around four, uh, to five percent.

And the 2008 recession saw wage growth fall rapidly, but it took a deep recession to actually achieve it. Consider this in December. Well, I should I should start here in March of 2008. you had wage growth sitting close to four percent.

By December of 2008, you had wage growth at 3.6 and now you are already knee-deep in the recession that ended up falling by December of 2009 to 1.9 percent, which is good. wage growth fell substantially. If wage growth is sitting somewhere around two or three percent, and inflation is somewhere around 1.8 percent, that's probably where the FED says we're okay with that. Consider what happened after the recession.

After the recession, it took nine and a half years to get wage growth back over three percent. That means that wage growth was sitting at as low as 1.9 percent in December of 2009, and it took nine and a half years to 2019 to actually get back over three percent wage growth. But at the time, inflation was sitting at somewhere around again: 1.8 1.7 1.9 percent. So the Fed was really okay with this spread of maybe a third to one percent, where wages are growing a third of a percent to one percent above what the inflation rate is, right? Well, where do we sit now? Well, right now, inflation is over seven percent and wage growth is five and a half percent.

Okay, cool. no wage price spiral because inflation is higher, right? Well, what happens at the end of 2023 when all of a sudden inflation is 3.9 and wage growth is potentially still 5.5 The spread is too large. and if in 2024, we see that wage growth continue to stabilize around five percent and inflation sitting at say two and a half percent and we have a two and a half percent spread or a three percent spread between where inflation is and where wage growth is. Guess what? The FED has to do? Well, they have to bring wages down.

Otherwise, they risk a second wave of inflation. Wages are so high that now people go back to spending. They keep spending like crazy and then guess what happens? Inflation comes back and it never goes down. And if it doesn't go down, then it becomes entrenched.

and then you're back to the 1970s where you had sort of a decade long of inflation and then you never average that two percent. Target. But consider this: The FED has three solutions for bringing inflation in the wage sector down. There are three ways you bring wages down and remember, the FED wants some wage growth, right? This isn't to say we don't want to see people have their earnings go up, but there are only three solutions.

Number one: you increase the supply of labor, which is immigration, right? You have you loosen immigration policies, You bring millions of people into America hopefully through legal means. And all of a sudden now we have more workers and wage growth can stop. Everybody can have a job. Wages can still go up two to three percent, but they're not going up by five and a half percent every year, which is unsustainable.

That would lead to a second wave of inflation, right? of course. Congress ain't going to do that because Congress is never going to loosen the immigration rules because they just don't. Uh, it's very, very difficult to have immigration into the United States So the second option would be you train workers to take jobs that are needed. Unfortunately, that requires better schools.

and I ran a Governor campaign in California All About Better Schools And Financial Education And Schools and Trade Schools. And let's just say everybody says it's a good idea, but then everybody wants to tell you how hard it is to change the school system. and how are you going to work with the politicians on the school board. How are you going to convince them that they should actually do something? Okay, that's no offense to school boards, but let me just say that's what other people were telling me when I was in that world and it's just like oh, God Okay, everybody just wants to tell you it can't be done I I'm not a big fan of it.

can't be done I'm a big fan of how can we get it done? The only option remaining to actually get wages back in check is the painful one. It's crushing demand. That's the only other option. This is why Tech is laying off because advertising demand is down.

Uh SAS Service Uh, demand is down. And when demand goes down, companies go. Uh, we have too many people. We need to preserve margins.

Let's lay off. So this is why the FED is looking and saying okay, well we need to get job openings down because right now we're in a situation where we still have, oh, that's so loud, we still have three million more job openings than we actually have. Uh, you know, people willing to take those jobs and when you have that many job openings, it suggests that there's still more demand for labor than there is labor. Supply And what happens in a situation like that? Wage prices keep going up.

So this is actually a really crappy situation where I realized you know I like to go back to why did the FED go more hawkish the fed you know Jerome Powell All of a sudden was like really chill in November He seemed happy. he's like okay, great, like we've got a good inflation report. Let's get a second good inflation report and inflation starts trending down and then all of a sudden he comes out like a total jerk in the last Fomc meeting and I'm like why, dude, Why? Why all of a sudden you're turning into a jerk again and I now you know I'm studying more. My goodness, it is so loud today.

Hopefully you can't hear that this is so loud I'm sure you're here a little bit, but but anyway, I'm like, why is it so uh, why did you turn so hawkish and then I I study every single day. That's just all I do. And now I'm realizing oh my gosh, we cannot have wage growth at five and a half percent while inflation is even three percent because now we for sure have a wage price spiral. We're gonna have a second wave of massive inflation now.

I'm not trying to be all doom and gloomy here. Uh, like there, there is a way this can still happen. Basically what we need is yes, companies to stop raising prices. That's step one.

Let's actually get inflation under control. I Think everybody is kind of convinced at this point that inflation is going to come down substantially in 2023.. My concern is what happens when we get to May Or you know, March right? Because I Talk about March on the summary of Economic projections. So by March we're going to have another three CPI reports.

So let's say inflation is is super low in March right? And the summary of Economic projections is like, all right, great, we're doing good. Inflation is under control, But what's the FED going to look at? They're going to look and go. How are job openings? Uh-oh Still out of balance? Okay, well now we have to revise that. Dot Plot To say potentially we have to keep rates higher for longer so that's not going to be taken well by the stock market because I don't think most people in the stock market right now are looking saying okay, yeah, inflation is going to fall and there's actually a chance that inflation could Skyrocket again I Think we're thinking inflation is going to fall, the Fed's going to U-turn and game over.

We're back to the party that we had before the pandemic. You know this is all caused by all the crazy money printing we had and it's all going to go away. But the problem is it may not because wage inflation could keep going. So I actually think that in the next few months, the real Catalyst that we need to look at and and the CPI report's still going to be very important because we need step one to happen right? We do need that inflation to follow.

so we need the confirmation that inflation is trending down just like Jerome said yeah, inflation's falling just like we're expecting it to. That's what he said last time like super Cavalier and I'm like, why is he saying that and if he's expecting it to go down and it's behaving the way it is, why is he still being so hawkish and then I'm like oh no, it's that like that wage growth. Seriously, their concern is it's going to lead to a second wave of inflation. So what do we have to look at? We have to look at the jolts data, we have to look at the labor reports, and we actually have to see companies slow their hiring.

But until that happens, buckle up. Raise cash, Have more cash, you know? I Don't think there's a massive Rush here to get in the market. And if I get asked one more time, uh, should you start taking on margin to buy the dip? The answer is a resounding no. Anyway, check out the programs I'm building your wealth link down below.

Uh, this is going to be something I'm going to study some more and we'll have some more videos on this. but uh damn it. Damn it. Honestly damn it All right.

we'll see in the next one. Bye.