Let's talk about the Federal Reserve's reaction to CPI numbers for now the second month in a row, confirming not just a downtrend, but actually a below expectation downtrend which is very, very good for equities. Hopefully it stays that way. Uh, but it is also a very, very optimistic that eventually the FED is going to hit their Peak terminal rate and a U-turn Hey everyone Me: Kevin Here we've got that PP code expiring tomorrow for the programs I'm Building your wealth. We did extend it a little bit so we could catch up with emails now that we're back from New York City Ringing the bell at the Stock Exchange was amazing.

Join Lifetime Access to those programs on Building Your wealth Link down below. Now let's talk about Nikki Leaks who provides us some color on what the Federal Reserve may be thinking. And let's also understand what the FED term rate right now is showing. So this morning we saw the term rate abruptly fall after CPI It's ticked up again a little bit since this morning, but we saw the FED term rate dropped down as low as 4.97 That's straight down from about 5.15 Right now, we're sitting at about 5.02 Now let me give that to you visually what that looks like.

Basically what this is is right. Before that CPI came out, we thought the market thought we were gonna have a terminal fed funds rate of about 5.15 We've been teetering between this level and about 5.2 for quite a while now. Somewhere around two to three months we've been sitting around these levels and it's really pushed a lot of stocks to to blows. And then the NASDAQ While it's all flows, it's been bouncing.

uh, bouncing around relatively low levels. Now this has actually dropped to a current read of 5.02 And that's because the path for the Federal Reserve Uh, and their rate hiking cycle has potentially now slowed because of this now. second report in a row that prices are moderating. In fact, what I've done is I've kind of put together what I call a little a bit of a schedule of what I think for hikes from the Federal Reserve what to expect.

This is what that schedule looks like. looking at about where we sit now: 3.75 in November looking at about a 50 basis point hike in December that's tomorrow Tomorrow the Federal Reserve has their final meeting of the year. It is the December 14th meeting. That meeting actually starts today, so they'll have plenty of time to analyze data about inflation and we really want to get a lot of information from Jerome Powell's press conference tomorrow.

Remember the actual release where we expect to get the 50 BP hike comes out at 11 A.M California Time that's 2 p.m Eastern time and then at 11 30 just 30 minutes later, we'll have the press conference. In that press conference. we're going to want to listen and pay attention specifically to some very, very clear things. The number one thing that I want to hear is I want to hear about a wage lag now that we actually are seeing CPI rollover more consistently because pre previously we have seen it come down only to go up again come down only to go up again.

That's happened twice. This time we finally have down and down both below expectations too which is great. So we want to see in the press conference Now that Goods prices are consistently falling and rental prices continue to cool which is a huge anchor on inflation we could. We could honestly see massive deflation in 2023.

It could be remarkable how much deflation we end up having in 2023 depends. Stay on this trend and you start getting that rental inflation and CPI it's gonna be nuts, but we want to get some color on. Hey now that goods are going down, What is the lag that you're looking for for wages to come down and produce Her prices to come down? Producer price index PPI Prices right? Because remember first, if you're selling coffee mugs, the first thing to roll over. Just think about it logically is the consumer says I'm not willing to pay twenty dollars for your custom RuneScape coffee mug anymore.

The max I could pay is 18 or 15 or whatever, right? That is a deflationary force because now the shop owner says oh crap, we can't actually pay the higher wages anymore. We have to lower our prices. Demand has now dropped. Now we're going to Demand supplies less Ceramics inks.

whatever. That then forces producers to eventually lower prices. But what happens first is customers order less. Then owners respond.

When owners respond, they order less, They pay less. They hire less and that eventually leads those prices to come down. It's kind of like taking a big rope and on one end you're like inflation down and it kind of takes a while for that energy of that down movement to come down the rope. That delay is what we want some more color on tomorrow.

Specifically, wages lagging ppla. In the last meeting, we understood that the FED is very, very keen on rental inflation coming down, which is very good. They're watching this. but remember Jerome told us there are three big parts to inflation.

The three big parts are one, Goods two we had uh uh, Services uh, well and then sorry shelter and then number three services which are mostly wages here. Let's expand that a little bit so we can actually see it all. There we go. Those were the three core items of inflation.

we have. Goods deflation. We have Shelter inflation. So what's the delay? Hey, Powell How long are you looking for a delay here? The longer he gives us of a delay, actually, the better it is because it means they're being patient and potentially relaxing their hikes and bringing out that dovish bed that we had last meeting.

Remember Jerome Powell While he did previously say hey, look, if we over hike, we can just, uh, cut rates again. uh, he's flip-flopped on that now. He argues well, but that causes a lot of human hardship and pain. so maybe we don't want to be so aggressive, right? So he had a flip-flop here.

We're going to want to look for some insights here, so wages like PPI Again, keen on rental here? Uh, we already know that, so we want to see some commentary on this. Obviously, in addition to this and we're not likely to get it. But the third thing that we want to hear from this press conference is any kind of insight into a 25 basis point height. So I've actually charted this potentially here that we could get a 50 basis point hike, which we will very likely get here in December I Don't think this is going to come in low tomorrow I Don't even want to like provide any kind of that hopium that.

oh, maybe we'll get 25 tomorrow when the Market's over at that, that's it's so unrealistic it could happen, it could happen. but I think it's like a two percent chance it'd be like lottery I Don't think so. I would not make that bet. but I do think we're going to start seeing talk about going to 25 and that could potentially mean going another 25 in March Or it could mean staying at four and a half.

And look, if we end up pausing at four and a half and expectations right now are sitting at five percent, then the Market's going to have to move up uh, to to, uh, loosen that expectation which is great. So let's look at the Nick T article now. Usually Nick T is somebody who gets text messages from uh, the Federal Reserve and insights into. Okay, what's the FED gonna do right? So his insights are actually pretty powerful.

This is why we call them Nikki leaks so he introduces that Inflation came in as a miss this morning, but take a look at this. This was an interesting analysis and this is very fedesque fair. The FED loves doing three, six, nine month averages. so in my opinion, this right here it just and I Usually don't see Nick doing three month averages, but to me this sounds very much like it came from the FED.

Listen to this line over the past three months core prices, which we believe are a better predictor of future inflation than overall inflation because they include the more volatile energy or whatever uh, core does not. Over the past three months, core prices increase at a 4.3 annualized rate. No, that's not annual, that's multiplying by four. Basically, you take the three month multiply by four.

It gets you four point three percent. Anyway, the lowest such reading in more than a year. That's bullish. That's really, really, really good.

Uh, we know they just started their meeting. We're talking about getting that 0.5 uh percent, uh, uh hike tomorrow. So reiterating that 0.5 Fed officials began their two-day meeting and they had strongly signaled their attention to raise the Benchmark rate by 0.5 percent. Tuesday's inflation report is likely to intensify debate over whether to dial down the size of rate Rises to a more traditional quarter percentage point at their subsequent Gathering which ends February 1st there actually is no January meeting this year Last year we had a January meeting, but that was like January 22nd or third or something like that.

Anyway, Uh, Feds raised rates for that at the fastest. Pace Since the 1980s, one Camp of policy doves thinks High inflation is likely to continue slowing, wants to minimize the potential for job losses and basically damage to the economy and another Camp of policy Hawks more readily Embrace stiffer measures to fight inflation because they think it could settle at levels that is unacceptably above the two percent. Target Also, look at this: Nikki leaks here: Tuesday's report is not likely to alter the Fed's rate decision on Wednesday Uh, and I mean this is this is obvious, but instead I could hear someone is quoted and says I could certainly see the dovish Camp pushing for more forceful slowing uh or a more forceful slowing of the pace hikes to 25 basis points as quickly as possible. That's probably in my opinion Feb So I would say if data continues on, this trend in yellow is in the bag, 50 25s in the bag, then up in the air is going to be uh, potentially a 25 again in March which is right here or or the the zero uh hike in March which is interesting.

Obviously, we'll have multiple reports between now and then. we'll have the December inflation report that comes out in January Uh, We'll have the Uh February report that comes out all before the March meeting, right? and we might even get Oh March 22nd. We'll even get the the March release so we'll get three more CPI reports. That's actually really interesting.

Look at this: if they set up this tomorrow: 50 tomorrow. How many CPI reports do they get before Feb one one? They only get one more CPI report before Feb one, but before uh. But then they get the the one in Feb and March before the March meeting, they actually get three more CPI reports. If all three of those come in and this trend we're seeing now, we're probably going to go to zero and then we could potentially actually start aligning with the Market's expectation for May Cuts Nobody's been believing this.

Okay people, look at this and they're like the Market's getting this wrong. Like, how could that I'll pull up a picture of them. This has regularly been a Wall Street discussion. Okay, people are looking at it's going.

The fed's telling us they're going to keep rates higher for longer. Why? Why is the market pricing in a U-turn like this Doesn't make sense. This has been regularly what's been talked about in financial media on Wall Street and sometimes the market is actually pretty damn smart. Uh, and and pretty like I Don't want to say the stock market stock market's like a poop show I'm talking about the Bond market.

Like the bond market tends to be pretty impressive, uh, with some of its predictive powers. So take a look at this. this is that chart. This was from about uh Friday so this has probably shifted to the downside, even more so since then.

But either way, if we look at this, what we actually see is even though the Fed's been basically talking about going above five percent roughly, they've been implying that five, five and a quarter percent, even hinting maybe we'll need six percent, right? The the market. the Futures Market never got to that five percent level. You see that right there. It's it.

It doesn't get to that level. Uh, which is really interesting because and this is, even though the FED terminal rate bounces around like I said earlier in this video around five, this particular curves chart does not show that a couple different ways you can look at it. The curves chart doesn't show the hitting five percent. So what's interesting though is they also show this inflection point of rate decreases right here, which you'll notice that's right here May and June as an inflection point.

To the downside. Uh, the latest curve showing your first reduction probably of about a 25 basis point reduction ish. You know, just because you see this trend down on a curve doesn't mean that that it could mean the drop happens here. It could mean the drop happens over here, right? but somewhere over here in the summer.

So Q2 ish the Market's pricing in our first Cuts in Q2 and if CPI the next three CPI reports come in, we could have a March pause and we could have a summer u-turn summer fed U-turn would be pretty intense. so Wow. Absolutely incredible. so very cool.

Anyway, check out the programs I'm building a rough link down below. Thank you so much for watching and folks we'll see you in the next one. Goodbye.