Hey, everyone, welcome to another release of the Federal Reserve minutes today. We're going to see why did Jerome Powell turn so hawkish? What the hell is his problem? Is it the The Joltz report that we got I Got a video coming about that later, but that's not so important. What's important right now is the minutes and they come out within about the next 20 seconds. Keep in mind, the only sponsor for this channel are the programs on building your wealth.

A link down below and now you can Shadow me as we go, look for real estate for house hack use that second link down below. All right, S P is up point nine percent. Two-year treasury down 1.7 base points. Here comes the FED release.

Federal Reserve minutes. All right here we go. Oh, it's actually not out yet. Uh, waiting for it to populate.

Okay, I'm starting to get some feed here. Fed officials generally saw inflation risks as a key factor. Many Fed officials highlighted the need to balance two-sided risks. Okay, that's good I like to hear that two-sided risk.

Uh, wary of an unwanted easing of financial conditions? Yeah, that's that's a big risk is we don't want the FED to ease Financial conditions too much by bringing bond yields down potentially. And then then they have to hike more, right? Bond yields. Staying up is actually a good thing for stocks. so you kind of want to see Bond deals stay up.

Okay, getting a little bit more of, uh, the statement here. let's see here: I get this full state. But there we go. Finally, All right getting a little bit more of the feed.

Okay, several officials noted The Dot Plot tracking notably above the market. Okay, uh. so in other words, they're saying the FED is above, uh, thinking more aggressively than the market Cited the risk that inflation could be more persistent. That's old news.

Let's go ahead. I now that I have it here I Want to look for the word jobs? That's probably the most important part for me right now. Private sector job openings late as uh openings rate as measured by the Jolts report moved back down in October but remained High Yeah, well, guess what happened October was just revised up. that's bad news and November came in hot so that's double bad news, right? Uh, Okay, so let's make a little note here of that.

Let's see here: jobs more staff assume the slower place of decline in the natural rate of unemployment over the near term. In response to recent estimates suggesting that the job matching efficiency of companies was not improving as fast as previously anticipated. That's uh, you know that's a little bit of a neutral statement there, right? Because you're basically saying like, yeah, maybe people are quitting because they haven't really found where they want to be after covet yet I Believe that job gains have been robust in recent months. Unemployment rate has remained low, Inflation has remained elevated.

Yes, that's not news here we go. Participants observed that the labor market had remained very tight with the unemployment rate, near historically low level, robust payroll gains and a high level of job vacancies and elevated nominal wage growth. Now, if you actually look at real wage growth, we really have no real wage growth. Real wage growth is when you have wage growth above inflation, but we don't actually really have that.

We're at negative right now. I Mean for three years, you're basically flat on wage growth. When you consider inflation, it's the same. Several participants commented that there were tentative signs of labor market imbalances improving, including declines in job openings.

Well, that just got ruined today. So that's bad news, right? Uh, let's see more qualified including than anecdotal reports about seeing more qualified applicants. The BLS household survey suggests that job growth in 2022 may have been weaker than indicated by The Establishment survey. That's good.

It's good that they're seeing that, right? The Philadelphia Fed pointed that out as well that we're not really creating new jobs. Yeah, there are job openings because people maybe are mismatched, but we're not really creating new jobs. So maybe we're just an environment where we have higher job openings. Does that necessarily lead to higher employment costs? Not necessarily.

Uh, but it could. And so we have to track that payroll inflation right? Something to know is that of course on Friday we get the next jobs report that'll be at 5 30 in the morning California time. So I'll be covering that. Participants commented that labor demand had remained strong today despite a Slowdown in economic growth.

With a few remarking. Some business contacts reported that they would be Keen to retain workers even in the face of slowing demand because of recent experiences of Labor shortages. Yeah, so you've also got that shell-shocked nature right of uh of of employers not wanting to let go of good people. Members concur that job gains have been robust and unemployment rate has remained low.

Inflation is elevated. Okay, that's old news. Okay, let me see this. talk about two-sided because I'm seeing the feed.

Talk about this two-sided Risk This: Let's see if the word over tighten is in here. Over tighten is not the word. Uh, over is. But that brings up too many things.

How about recession? Do we have recession in here? We have two words. Two times: the word recession is mentioned: Sluggish growth in real private domestic spending expected over the next year. Okay, so this is interesting, right? Uh, sluggish growth in domestic spend over the next year? Uh is is, um, an expectation subdued global economic Outlook Persistently tight Financial Conditions were seen as tilting the risks to the downside around the Baseline projection. This is a way of basically warning the FED like, hey, let's not go too overly tight here, right? The staff viewed the possibility of a recession sometime over the next year as a plausible alternative to the Baseline Remember that in the last Uh commentary Jerome Powell basically gave us a 50 50 from J-pow on a recession verse 9.

And that's that's really new. That's a big time, a big moment of them, uh, or or a big admission that they realize, yeah, like we, we might be forcing recession here. Few participants remarked that the current configuration of nominal yields with longer term yields lower than shorter-term yields have historically preceded recessions. That's the inverted yield curve.

However, a couple of them also noted that the current inversion of the yield curve could reflect in part that investors expect to be nominal policy rate to decline because of the Fall inflation over time. Participants generally noted that uncertainty associated with their economic outlooks was high and the risks to inflation remain tilted to the upside possibility that price pressures could prove to be more persistent than previously anticipated. Not great due to the labor markets staying tighter than anticipated. The jolts numbers today were just bad news.

Uh, right. I mean And unfortunately, a lot of these minutes so far are talking about again. Jobs Jobs. Uh, that's not great.

We don't only want to talk about jobs here. Yeah, let's see start. Sure, Okay, hmm. let's see.

Okay, let's go to the next search result here on recession. Now we're at the final search result. They noted it for recession. They noted the sources of risk include: unexpected negative shocks, possibility of that household and business concerns about the Outlook restraining they're spending sufficient leaders.

Okay, that's not a big deal. What about anything on rate cuts? That would be really interesting? So let me just search for the word rate. A lot of those policy raid uh appeared to contribute to improved sentiment. So Central Bank communication signaling a slowing pace of the policy rate contributed to improved sentiment.

That's fair. Regarding the Outlook both the market and desk survey measured expectations. In the December survey, The median respondents model expectation for the path of the FED funds rate in 2023 shifted higher by 25 basis points relative to November. Let me see what the FED terminal rate is today: terminal rate for the FED What are we expecting at the moment? Let's see line chart.

So Peak Fed rates sitting at about 4 or 5.13 Right now. it's definitely more elevated than where we sat before the meeting, so they're right about that. We were sitting closer to about 4.9 We see the phrase runoff I'm seeing some of this come through the feed here. Only one mention of balance sheet runoff.

uh, suggesting that their quantitative tightening is basically preceding smoothly. Um, okay. now one of the things to remember with balance sheet runoff is that you actually increase yields because you have less buyers for Bonds in the bond market. Basically, when the Fed's not buying, when they're running off instead.

and uh, so you keep yields up, you keep Financial conditions tighter that that way? Uh, looking at The Five-Year break even for an inflation Outlook Let's see here because bonds right now. the 10-year sitting at 3.72 definitely elevated definitely going to hurt real estate and the five-year Break Even How's that reacting? After this release? it's coming. Actually down nicely sitting about 2.25 It's at the third lowest point all year right now on inflation break evens. This is probably because these notes are really suggesting that the FED is Keen to make sure that all potential sources of inflation come down.

Uh, before they really start lowering rates regarding the outlook for inflation in the U.S Uh, the inflation compensation implied. this is the break evens talk right? here. this is break evens responding to lower than expected CPI However, desk survey-based measures of inflation expectations were little changed from the prior surge. Uh, survey yes, suggesting that inflation risk premiums may have contributed to the moves.

Sure. Regarding the Outlook Okay, we talked about that. Talked about balance sheet runoff. That's fine.

Staff review of the economic situation I'm also watching the feed here. Uh, uh. not much coming through that. Yeah, so no discussion on how much officials want to raise rates in.

February Oh, let me look at the spiral part because they added the spiral part a few minutes. Uh, hold on. So they added that while they're freezing the wage price. Dynamics They added this section here.

That's very important. Where is it wage? We are here. It is. Consequently, while there were few signs of adverse wage price Dynamics at present, they assessed that bringing down this component of inflation to mandate consistent levels would require some softening in the growth of Labor demand to bring the labor market Back in Balance Okay, so so still no signs of a wage price spiral.

That's good, right? We want to make sure we continue to see no signs of that, and changes around this paragraph here are important. They have pushed indices down a little bit on, uh, on this report. mostly in my opinion because you're not getting any kind of good news out of this. you're really just getting the highlighter put on jobs.

And the Jobs report just wasn't good this morning. the Joltz Report. And so that's A. That's a big downside.

Uh, let's see what else we have here. Participants observe that measures of surveys from households and businesses as well as from financial markets indicated that longer term inflation expectations remained well anchored. That's good. However, participants stress that they needed to continue to basically stay on the path to two percent.

Now, remember, that's Pce two percent and it could average two percent over the longer term. So I Think that'll end up being how they end up copping out when they flip-flop and reduce rates after they realize they forced a recession. Um, number of uncertainties. That's not a surprise.

Here we go. more wage talk. All participants agreed. So unanimous agreement for the 50 basis points.

That's okay, We knew that already from the last time. but it's good to reiterate here: committee's goals of: Maximum Employment Price Stability. As monetary policy approached a stance that was sufficiently restrictive, participants observed that slowing the pace of increases would better allow the okay, this is good I Actually, like this phrase here, look at this. Participants observed that a slowing in the pace of rate increases at this meeting would better allow the committee to assess economic progress towards the goal of achieving maximum employment.

It's price stability. Remember, they want people to be employed. They don't want people to lose their jobs. That just might be a necessary part of making sure we can stay at that two percent inflation.

Hmm. Heightened uncertainty? Okay, that's no news. Committees resolve to achieve its price stability goal right? Maintain that. resolve fine.

Hmm. Number of risk management considerations many participants highlighted. the committee needed to continue to balance two risks. That's good.

We like seeing commentary about balancing risks. One risk was being insufficiently restrictive, meaning that inflation could remain above the Target. That would not be good. Uh, But then there should be the other risk.

Here we go. The other risk that the lagged cumulative effect of policy tightening could end up being more restrictive now. Uh, leading to unnecessary reductions in economic activity, but tense potentially placing the largest burdens on the lowest, uh, on the most vulnerable groups of the population. Basically, it's always the poor people that get screwed, right? The poor people get screwed by Fed action because the poor people get screwed first.

when there's inflation, the poor people get screwed first when credit card and car rates go up and rent goes up. Uh. And and when the FED flip-flops the first people to benefit are not poor people. It's actually richer people who have a lot of money invested into assets which go up when the FED is nice to us.

So it's always the poor people who get screwed. And so it's good to see that the FED is is aware that if they over tighten, they just end up screwing poor people more. Uh, uh. But they also have a report that just came out from the Kansas City Fed that talks about how you know maybe the the lag of monetary policy isn't as great as it used to be because they communicate so clearly Now uh, to the public is their argument Whether that's through Nikki leaks or through these minutes or whatever.

Okay, so I'm not really seeing anything here on recessionary talk I'm not seeing a lot of talk on um, you know, on them keeping the GDP close to 5.5 or anything more than them saying it's 50 50. likely not seeing any talk on why they went to 5.1 percent, why they think it's so necessary to be so aggressive. Uh, the only thing we see is a lot of aggressiveness so far on on wages. A lot of talk about wages.

Let's see here. here's some talk about high inflation continue to contribute to a decline in real disposable income. Uh, let's talk about China inflationary pressures because of Supply chains. News here: let's see: the minutes of the December 2022 Fed policy making committee appeared relatively balanced on first read, with comments that risks were no more two-sided.

However, the sentiment model suggests the minutes were actually more hawkish than the previous meeting minutes. This gives some context to the modest flattening that we're seeing in stocks. Okay, so basically they have an algorithm that determines the sentiment here and they see the sentiment is slightly negative. I Think probably I mean actually reading the report rather than just you know, focusing on sentiment AI I Think it's because you didn't really get a lot of talk about, uh, you know, being less aggressive here I Think you get a lot of reiteration that, uh, that that the most important thing they can do is is push job openings down.

and unfortunately, when you compare job openings, going down to the data we got this morning, the data this morning is actually going in the opposite direction, right? That's not good. In their discussions of the household sector, participants noted that growth in consumer spending in September and October had been stronger than that previously been expected. See, that's not good either. Likely supported by a strong labor market.

See literally everything they're saying jobs, jobs, jobs. So let's highlight this segment here for a moment. A couple participants remarked that excess savings would likely continue to support consumption spending for a while. Others noted that excess savings, particularly among low-income households, appear to be lower in declining more rapidly than previously thought.

Yeah, but nobody knows, you know, so we'll just have to wait and see. And so far it just seems like people are still spending. Concerns from Builders about people canceling loans um, Business noted that growth and investment spending appeared modest. Higher borrowing costs.

That's for business investment. That's fine. What do they say about price caps on oil? Diminished risk of severe disruption from Eu's embargo and price cap. Okay, that's good.

That's actually good. Diminished risk of severe disruptions from the price capsule on oil. That's good. And it's actually kind of been reiterated in the market over the last week here, as oil has actually been falling.

I Mean Brent's under 80 bucks. Again, it's down four and a half percent. Today it's at 78.40 WTI Crude That's the Western crude at 43.5 different blends of oil here. Sweet versus non-sweet How do you like your cookies? It's weird to think of oil as sweet anyway.

Um, under the appropriate restrictive path for policy participants, expected labor market supply and demand to come in better balance over time. but it's not. That's the problem, right? So this is not still not great. I Mean, maybe we're on the pro path, but but, uh, it's the numbers.

This morning just didn't reiterate that we actually were participants concurred that inflation data received for October November showed welcomed reductions in the monthly pace of price increases, but stressed it would take substantially more evidence. Of course, of course, this is what we expected they would say, right? Uh, we expected them to tell us, oh, one report doesn't make a trend. Oh, now we have two good reports. Well, two reports doesn't make a trend.

We need more. We need five. You know it's like they always want more. Maybe they would want less if it wasn't for all these these job numbers still coming in so strong.

But personally, I think it's weird that you know a a strong jobs Market is seen as uh, as bad. Uh, it's all because of fear of the wage price spiral, which again, they're not seeing signs of right now. But you know they're teetering on this a little bit. It's like oh, no, what if, What if it happens? You know, what if we, uh, reduce rates too soon and then we, uh, you know, uh, we do get a wage price spiral and then we have to Paul volcker the economy and actually cause an even deeper recession and then our inflation expectations run loose.

But so far, the based on the break evens that I'm seeing here, it looks to me like the market is really reacting in such a way that says the Fed's serious here. there's there's little indication of any kind of U-turn here and I think that's what they want. Several participants commented that the medians of participants' assessments for the appropriate path of the summary of economic projections. Okay, here we go.

Uh, this is one of the things I was looking for. Uh uh, was hold on a sec. Let me read this properly. Participants noted that because monetary policy worked through and through importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by the misperception of the Fed's dedication, basically would complicate the Fed's efforts.

Okay, so that's the other thing that I think is I Think you have a Fed here that realizes they have to talk the market down and as data comes in good, they just still have to talk dirty to us to make sure it keeps coming in. You know that inflation numbers keep coming in. Low risk management balancing the two risks. Okay, talked about that economic hardship of Ukraine fine.

ongoing increases would be necessary. Fine Members agreed that in determining the pace of future increases in the Target rate, they would take into account cumulative tightening. Yeah, this was just a line they added in previously, so that's nothing special here. All members affirmed that the committee is strongly committed to returning two percent inflation I Know they keep saying that.

Hmm, yeah. Okay, so let's see if I didn't miss anything here. Um, what do we have here? Uh, prompted substantial reductions. Investor concerns about the possibility that inflation would remain high for longer Inflation compensation measures based on inflation swaps declined notably stock markets increase leading up to the last meeting, but they fell after that.

Investor concerns about inflation Outlook narrowed right. but now they have to keep that down. Okay So see if there's anything else on the wire here. Some participants noted that by some measures, firms markups were still elevated.

Oh, that's interesting. Where's that section? Oh, it's right here. Some participants noted that by some measures, firms markups were still elevated and continued, and a continued subdued expansion in aggregate demand would likely be needed to reduce the remaining upward pressure on inflation. Uh, and then of course, we have the lag for shelter.

All right. So um, all right. My summary on the FED minutes is basically, you've got a Federal Reserve here. that's saying: look, inflation's starting to Trend down.

That's great, but we needed to keep going down In the meantime, the worst thing we could do right now is go. This is great. Let's have a party and open a bottle of champagne because then what's going to happen is treasure eels are going to fall I Think that's where the FED is right now. They're like look, inflation's coming down great, but if we start cheering about it, treasure yields will fall.

If treasury yields, fall rates fall, and people start spending more money, that's what we don't want because that pushes up inflation again. So I think they have to have this tough face to keep inflation down and what they're using is evidence of that is Jobs. They're blaming the Jobs Market and the data we got this morning again was bad. I'll go into that a little bit more deep in detail a little bit later in the video, but basically it was bad.

Uh, you know the the last report was revised up. the Uh report today came in hotter than expectations? Uh, and it's not great. So uh, the Jobs Report has a very real risk of creating upward pressures to inflation and and that's why the FED is keeping this hard face right now. So uh, no, no, um, niceness for us.

Now we do have CPI coming out soon I Don't believe the expectations are out yet, but I will look really quickly. Let's see what the consensus for CPI is. Uh, wow. The survey for CPI is that month over month inflation will actually be at zero percent and that core will be at 0.3 with year over year going down to 6.7 and core year over year going down to 5.7 That's interesting.

And then we do have the Jobs Report coming out this: Friday Uh, that's the sixth. I'll be streaming live for that at 5 30 a.m Make sure you're there for that. We're expecting 200 000 jobs, unemployment rate stable at 3.7 and average hourly earnings at 0.4 If that report comes in hot, it's going to be dirty again. You know, if instead of a 0.4 which is about a 4.8 inflation read for wages, you come in.

you know, at 0.5 or 0.6 like last time. It's just gonna reiterate to the FED we have to stay aggressive. So the only thing in my opinion the FED really has going for it right now in terms of being aggressive is jobs. That's it.

Otherwise, everything is slowing, Inflation is slowing. businesses are slowing. Uh, but jobs are still strong. So, and that's what they reiterate in this report.

And because they reiterate that in this report, indices are down, the NASDAQ just turned negative. Uh, there's there's no good news in this report. and so that's why things are turning negative. You know, we were sitting positive, uh, by by almost one percent on the S P 500 that just got ruined.

Uh, we just went negative on the NASDAQ and and we might Trail uh into a negative. Uh, close. Hopefully not. But nothing good came out of these minutes.

I Don't see anything bullish for markets in the FED minutes. Uh, the best thing that we could hope for is that inflation keeps plummeting, but that's just going to take time to prove that. in the meantime, the Fed's got to keep the hard face on. That's what they're gonna do.

So anyway, my thoughts: Thank you so much for watching. Uh, yes. I Do realize that jobs data is lagging and uh, that's the problem. That means they'll They'll keep the hard face throughout a recession.

Uh, and and then only after the recession's done. are they going to lift that hard mask off right and again. I Do expect them to U-turn I Do expect in the future them to go. Well, we just need inflation to average two percent so we're good.

We can lower rates now, you know I Expect that to happen, but uh, it's still going to take a little bit before we get there anyway. Thanks for watching. We'll see in the next one. Goodbye.