What's up, graham, it's guys here, so you know the saying that history doesn't repeat itself, but it often rhymes. Well, that's what many believe is beginning to happen. Is the federal reserve heads towards an event that we haven't seen in almost 50 years, and that would be the vulcar shock? This was a method used by the federal reserve to bring down record high inflation throughout the 1970s and even though it worked, it also brought a recession, falling stock prices, higher unemployment and a decade-long recovery. That's become so infamous that even the white house references them in comparison to what's happening today, so it's worth discussing their new plan to fight the market, the impact this is going to have throughout the entire economy whether or not this could also lead to a vulgar Shock and then, finally, how you could use this information to make you money all of that and more on today's episode of the market still makes absolutely no sense, but at least this guy is bringing back blockbuster 2 from his basement watch out, netflix all right before Real before we start, it would help me out tremendously if you vulgar that, like button for the youtube algorithm by inflating it until you see confetti or basically just give it a gentle tap, because it helps with the channel and as a token of my appreciation, here's A picture of a chipmunk and also big, thank you to wealthfront for sponsoring this video, but more on that later, all right.

First, it's important to mention exactly what the federal reserve is actually doing, because, unlike what most people think, their goal is not to make the stock market go up so that you could post your profits on wall street bets. But instead the federal reserve is what's known as a central bank whose role is to oversee your economy, regulate financial institutions and control the supply of money into and out of our system. Their priority over everything else is to ensure that we have a strong labor market. We have maximum levels of employment and inflation doesn't one day lead us to paying 50 for a loaf of bread by 2030..

Now they've made it very clear since the beginning of the year that they intend to raise rates and tighten their policies to reduce the demand and price of goods and services, and so on march 16th. They approved their first rate hike of 25 basis points, even though that might not sound like a huge rate increase on paper. Mortgage rates quickly shot up to five percent the stock market tumbled on concerns that china's lockdown could make us inflation even worse and now it's all but confirmed that we'll see a 50 basis, point rate hike throughout the rest of the year, potentially causing prices to continue Falling so that, of course begs the question: how have similar rate hikes happened in the past and is there a chance of the dreaded? Vulgar shock happening again, 40 years later? Well: here's where things get interesting, or at least interesting for me, because i'm obsessed with all things, personal finance, but listen to this. The vulgar shock all began when paul volcker became the chairman of the federal reserve in 1979 during a time known as the great inflation see prior to then, congress enacted.

What's called the employment act of 1946, which designated the federal government to promote maximum employment production and purchasing power, or in other words, congress basically said to the government figure out how the economy could grow so that everyone starts making more money, although, as inflation began, to Increase as a consequence of low interest rates, economists got worried. Many countries began redeeming their us dollars for gold and when the us couldn't keep up with demand, they abandoned the gold standard, causing the price of just about everything. To skyrocket, investopedia reports that in 1973, inflation more than doubled to 8.8 percent later in the decade it would go to 12 by 1980. Inflation was 14, that's, of course, when paul volcker came to the uh, how should we say rescue? He had the goal of bringing down inflation and after securing his position within the federal reserve, he announced that he would start limiting the growth of the nation's money supply as money became.

More scarce banks would raise interest rates, limiting the amount of liquidity available in the overall economy. However, the end result was that interest rates quickly jumped to 20 percent. The united states fell into a deep recession: unemployment surpassed 10 and stock and real estate values plummeted, but hey at least on the bright side by 1983. Inflation finally dropped below 4, as the economy began to recover.

So that's good right right. Well, obviously, as we're beginning to see, there are risks with raising interest rates and with many more rate, hikes planned throughout the rest of the year. Here's what you need to know throughout the last few weeks, you've probably heard the term soft landing. This refers to a gradual slowdown of the economy following a period of rapid growth, kind of like landing a plane on a smooth tarmac versus dropping glass from 45 meters in the air, and as of now that is the federal reserve's goal, the plane, not the glass.

I want to make that clear: in a perfect world, the federal reserve could slowly increase interest rates, inflation would gradually begin to decline and then the economy could shake it off like taylor swift, but they don't have the best track record of doing that. Out of the previous 13 rate, height cycles, 10 of them have preceded a recession and, as fannie mae concludes, it's a lot more likely that we're gon na see what they call a hard landing right, as the fed signals that they're about to be much more aggressive Than they have been in the past, in fact, they even go so far as to say that we believe enough has now changed over the past couple months to expect this eventual downturn by the end of 2023, with inflation continuing to rise, the federal reserve has all But confirmed that we're likely to see an upcoming 50 basis, point rate hike in may and some of the more aggressive fed members even suggest a 75 basis. Point rate hike to get it out of the way. The goal in the short term is to achieve.

What's called the neutral interest rate, which is a rate that neither sparks nor hurts growth, it's just neutral and to make things even more confusing. The neutral interest rate isn't even known. It's just estimated based on various analysis and observations, but others argue that this assumes that inflation has to come down. But if it doesn't, they may need to hike rates even further, with one analysis calling for rates to hit 4.25, which is far from where we currently stand at 0.25 percent.

Although in terms of what this means to the stock market, housing values and your money. These are the risks, because rising interest rates affect a lot more than just your wallet. Although speaking of your wallets here's the thing, it was just reported that the average retail portfolio crossed into negative territory and that's a problem study after study shows that even the best professionals can't beat the market. So when our sponsor wealthfront heard that i was making this video, they wanted to help for those not aware wealthfront is an automated investment platform that utilizes software to find the optimal portfolio to grow your money long term.

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So if you're interested feel free to use the link down below in the description to get started today with as little as 500, and now with that said, let's get back to the video, but in terms of other risks, rising rates would have several large effects with One of them being savings accounts for the last two years. You've probably noticed that most bank accounts, including high-yield ones, are not paying you a high interest at all. In a way, this type of scenario incentivizes people to spend and invest their money, because otherwise, if they keep it sitting in a savings, account they're losing value to inflation. But that might soon begin to change.

Now that the federal reserve is beginning to raise rates, a savings account could actually pay you. What a savings account should like the good old days when ally bank actually paid you 2.2 percent, and a savings account could actually outperform the stock market. Now, unfortunately, do not expect your bank to pay you out three percent anytime soon, but as the federal funds rate continues to rise, expect that savings accounts will start paying you a little bit more each and every time. Second, the stock market on the most basic level.

These charts are right: low interest rates, help fuel growth by making money cheap and accessible to borrow it incentivizes spending, and that in turn leads to more profits. But, surprisingly, there's not a one-size-fits-all approach that says that high interest rates are bad. Low interest rates are good and here's what i found surprising since the 1950s, even throughout interest rate, increases and decreases the stock market has continued to trend upwards. If we then take an even closer look since 2017, we could see that, throughout several rate hikes the market defied the odds and even kept going up so overall, the conclusion is that, yes, higher interest rates can lead to a rotation away from growth and tech as Well as declining profits, but other industries like banking, industrials and semiconductors, tend to outperform as rising rates, go together with an improving economy.

That's why, in the big picture, other market conditions like demand, inflation and employment, can play just as big of a role. That means that over time, stocks and interest rates could go up together, even though, in the short term, it might be a little bit choppy. This would also make it a very good time to claim all the way up to a hundred dollars with the free crypto, when you use my link down below in the description and sign up for ftx us with the codegrams, since cryptocurrency can be a great way To diversify across a broad subset of markets, not to mention their fees are up to 85 percent lower than the top competitors. So, if you're interested the link is down below in the description and third, we have home prices.

Mortgages have now risen for seven weeks straight and now the 30-year fixed rate stands at just over five percent. As a result, mortgage demand has dropped by 40 percent and the worry is that home sales may begin to fall now that housing prices have hit record highs. Well, i guess all record highs are new, because that's what makes them a record right anyway, in the surface, it makes sense that the higher interest rates go, the less home people could afford and, as a result, the more home prices drop. But the more you begin to look at it, the more you begin to realize: it's not that simple.

If we look back historically, we could see that after world war ii, housing prices continued to climb right, alongside with interest rates. After that rates dropped and home prices continued going up even more, it was also found that overall, a change in interest rates has not substantially affected housing values over the long run. That means that most likely, there are other factors that have just as big of an impact. For example, the homeowners who just locked in historically low interest rates, might be less likely to move because if they sell, they'd have to buy a new home with a higher interest rate than they have today.

So perhaps it's better for them to stay, leading to less inventory in an already constrained market, and even though it is true that higher interest rates directly affect home affordability, other factors like local market conditions, supply demand, inflation, tax deductions, population changes and the overall health of The economy play just as big of a factor, so rising rates alone are not going to be enough to cause prices to decline. Of course, we also have other side effects like higher credit card interest rates, higher auto loans, higher personal loans and higher borrowing rates. But, according to the white house, they say that the inflation we're seeing today is very similar to what happened right after world war ii. This was concentrated in supply, disruptions and pent up demand.

After a period of temporary suppression and in 1956 it was said that the inflation episode ended after two years as domestic and foreign supply chains, normalized and consumer demand began to level off now. Obviously, every time period is going to be different and every situation is going to be unique, but with the federal reserve having a history of um, well hard landings and spooking the markets, i think the best thing we could do is stay employable. Make yourself as indispensable as possible if we see a recession, keep a three to six month. Emergency fund, at all times, only take fixed rate debt if you're buying a house or a car, and only buy investments that you plan to hold for at least seven to ten years now.

Yes, these are the same things that i would be telling you to do when times are good and frankly, you should always be practicing good financial habits, even when the markets move up for seemingly no reason, but the tried and true investors educate themselves on the markets. They understand what's going on and then they buy and hold as usual, even though i wouldn't be surprised if housing prices begin to fall or the stock market continues to sell off, i'm not changing my plan at all, because we have no clue what might happen when Things might turn around or how long things will last. So, yes, even though the federal reserve can bulk or shock the market and drug pull everybody with higher than expected interest rates, i just keep piling in every single day riding the roller coaster and no matter what smash the subscribe button for the youtube algorithm and also Don't forget to check out our sponsor wealthfront down below in the description to take advantage of their offer before it expires. So with that said, you guys thank you so much for watching also feel free to add me on instagram and do not forget to get your free stock down below in the description when you sign up for public using the code, graham because that could be worth All the way up to a thousand dollars, so you may as well do that it's pretty much like free money.

Let me know which free stock you get. Thank you so much for watching and until next time.