In just a moment, the Federal Reserves two preferred gauges are coming out. one which defines a wage price spiral which is the employment cost index. Also, we'll be getting the Pce numbers, but first have you seen this clip? This is a shocking. This is Jerome Powell.

He was in a conversation with Russian pranksters thinking he was on a zoom call with Voldemort Zelinski from Ukraine and listen to what Powell has to say. and then we'll get into the PC numbers which drop shortly. Let's listen in. and but what we're going to find is that growth in 2022 was was positive but modest.

It was subdued so you know one percent around that level. Um, in terms of this year, most forecasts call for the US economy to continue to grow but at a pretty subdued level. So growth of less than one percent. let's say.

But we we would tell you that that a recession is almost as likely as as very slow growth. Um, so that's that. That's a fact and I Think that is partly because of uh of us having raised rates quite a bit. But this is what it takes to get inflation down.

We to get inflation off of the high we've had inflation at its highest level in in 40 years. to get inflation to come down. What we need is a period of slower growth so that the economy can cool off so the labor market can cool off so that wages can cool off and so that that's how inflation comes down. That's the only way we know to bring inflation down.

and it can be painful. but there is. We don't know of any painful, wet, painless way for inflation to come down. Wow, put together what just happened there before we get into the numbers which come out in the next 90 seconds here.

Listen to this. First of all, he is revising that in 2022, we did not have a recession in the eyes of Jerome Powell Remember, in 2022, we technically had two quarters of negative GDP which aligned with when we had Peak inflation which is exactly what happened in the mid 70s and the late 70s. The recession aligned with when we hit Peak Inflation Peak Inflation was June of 2022. That's Technically when we had our recession.

That's the technical recession. Nobody actually felt like we were in a recession now. Jerome Powell is saying hey, no, that's probably going to get revised. Positive recession might be as likely now going forward as it is.

Well, not now. This is something that he said before in press conferences, but I think it was a little bit more transparent. You have to really read between the lines to extract what you just got out of this. Russian Prankster Leak With Voldemort Zielinski, you'd really have to read between the lines and listen to a lot of press conferences to get that blunt of an answer.

But blunt thing that he just told us is, as long as wages keep Rising we have to keep raising rates. So what does that mean for what happens in the next 30 seconds? Well In 30 seconds, we get the Employment Cost Index and we get the Pce Inflation Report. Here we go: Quarter One Employment Cost Index You want this to come in as low as possible? This is for wage price spiral. expectation is 1.1 percent, slightly higher than the one percent we had in the prior quarter.

Then we are going to get P C E that is going to. We're looking for a month over month of 0.1 month over month core of 0.3 We want those to meet expectations or if anything, come in soft. Uh. and then of course we'll get the year over year numbers.

Expectations are for one headline and four six core. Here we go. And oh shy. So employment cost comes in at 1.2 Uh, that's that's one tenth of a percent higher, but that's two tenths of a percent higher than the last report.

Not great. This is exactly where you want weakness, right? because if you take 1.2 percent and you multiply it by four, you have an annualized wage price growth of 4.8 percent. Not great. Personal incomes increase increasing coming in at point three percent.

The expectation was that these would come in at point two percent waiting. Now for the Pce deflator number. It is not out yet. But initially first reaction here.

Not great. Uh, we want to see softness in that Employment Cost Index because again, Drum Pals made it exceptionally clear that what we want, uh, is the uh, ultimately wages to come? Uh, to stop growing at this level, right? It's okay to have wage growth. Nobody's saying don't have wage growth People want people to make more money. But what the FED is saying is, we need wage growth to stabilize.

We can't have wage growth Uh, at uh, you know, five to ten percent every single year. Uh, and right now, we're sitting at 4.8 percent annualized for Q1, still waiting for Pce. Employment Cost Index is the only thing out right now. Technically, the Pce is scheduled for right now.

So oh there it is. Pce PC It comes in match point: one percent, year over year, Four point, two percent slightly hot, and the core matches and and matches. Okay, thank God. All right, So at least it's it's tiny tiny little bit of not great news, but mostly okay news here.

The mostly okay news again. the month over month at Deflator: 0.1 year over year, Uh, 4.2 If we go to Core, we're at point three and Core year over year 4.6 Basically completely along expectations with the exception of that headline. Now, we did just get some revisions. The prior Employment Cost Index report was just revised from one percent to 1.1 percent.

That revision just came through. Real personal spending. That's the inflation adjusted. The prior was revised down.

However, this spending came in slightly warm again. And and this is what we've seen in Q1 is: people have just kept spending. Remember Bank of America told us that people's ex personal savings are actually trending up, not down. This is remarkable.

We thought people were going to run out of personal savings. Yeah, right. the opposite is happening. Personal savings are trending back up.

American Express sees what individuals spending more money, not less money. especially Millennials and Gen Z it's the older Generations that are actually saving money. Uh, and it's It's somewhat remarkable to think about because it it really sends the signal that, wait a minute. We thought that poor individuals were going to suffer most in this recession, but they've received a disproportionate share of wage increases.

No, that doesn't necessarily mean they're not facing food inflation or rent inflation, but boy oh boy. we have seen a a big old push to where people with assets have been the ones getting burned over the last year because stocks and real estate to some extent have gotten hit. Real estate starting to rebound already a little bit, which might align a little bit with some of this boost in spending that we're seeing here Q1. Also, a lot of folks talking about spending boosting because of, of course, uh, this, uh, this this warmer winter that we've had now.

A lot of folks had questions about the GDP and I'm going to do a little bit more of a detailed segment on GDP and what I think about, uh, this recession. Uh, but a lot of folks are talking about stagflation and I'll tell you these numbers aren't stagflationary. What they are far as their Tale of Two economies, these numbers are telling us. Especially yesterday when you actually look at the GDP numbers.

when we see the GDP numbers, what do we find when we actually parse through them? We see no the the retail sales like individual people spending which is 70 of the economy that's exceeding expectations. What's actually coming in low are business inventory builds up buildups which if you read the end phase earnings report, that's literally exactly what they complain about they complain about. Oh, businesses have built up their inventories and now because working capital is tighter because loan rates are so much higher, businesses are are trying to get to leaner inventories so they don't have to carry as much inventory and they're able to do more with less inventory on hand. That means less orders.

Friend Phase: Because end phase is basically a wholesaler, People think you buy directly from end phase. It's important to know there's an installer in between there. they built up the inventory, but that's happening at every level of this economy. Every level of the economy is seeing uh businesses essentially say we've got too much, uh, inventory.

We need to start weaning this off. Now what happens when you wean off that inventory is you're not creating an inventory purchase so you're seeing a segment of GDP that comes in soft like what we just saw. But people continue to spend because their savings are going up. It's insane.

What it really is is it's a great normalization. Uh so I I did not see stagflation in the numbers that we saw yesterday in GDP uh and I Understand people like but Kevin Headline: GDP came in weaker and uh, and inflation came in slightly higher than expectations. uh in yesterday's report. Well, the inflation reports with a quarter over quarter ones that prefer the month of a month so we get the most recent data and I prefer the leading indicators uh, like earnings calls.

earnings reports were really the extent of any kind of pricing left uh to be taken is is in some foods which is our volatile component anyway. uh, or even Pet Foods So looking at the actual Pce, so in other words, not so worried about the inflation component. more worried about the fact that wow, how is it that inventories plummet? but people keep spending money? Well, like I gave you the example and when you look at that, Nuance we kind of go. wow, that's not what we expected, but that's okay.

That's uh, that's the beauty about. Uh Finance So uh, looking at the actual Pce report, I'm going to take a look here. Prices: Uh, actually, you know what we could do. Why don't we just go ahead and share this screen and then you could see it with me.

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So here's the piece. The increase in personal uh, and current of dollar personal income in March primarily reflected increases in compensation. see this was where where Pce ER or sorry the ECI The Employment Cost Index came in a little bit hot. Right at the annualized rate right now is 4.8 percent.

and what's what's likely to happen is inflation is actually likely to fall below 4.8 In fact, if you look at the Fed's preferred inflation gauge and uh, we, we look at where we sit with Pce right now. look at Pce headline Point One or excluding food. If you look at core Pce right now, right now, we are at three point. I'll put it here in the search bar.

we are at 3.6 for an annualized read on Pce. Well, the ECI The Employment Cost Index says we are at 1.2 times 4, which is 4.8 percent. Folks, What happens when wages are growing faster than inflation? Which is what's happening right now. Wages are still growing at a rate faster than inflation? Well, you heard it at the beginning of the video.

The FED says hey, the only thing we know how to do is raise rates and so that way we could, finally, you know, slow labor down. But the problem is I Want you to ask yourself how much do you think Rising rates actually affect labor I'm going to have a really big video coming out on this, so stay tuned. So to some extent it's like pushing on a string, but we'll be talking about that in detail. But anyway, so personal outlays increase 21 Bill personal saving was 1 trillion for March and personal savings rate uh, as a percentage of disposable income was 5.1 percent.

This is an explosion in uh in personal savings here, and it's reflective of people still making more money. In fact, unemployment claims keep coming in weaker than expected. We think there's going to be this massive joblessness. It's just, we haven't seen it yet.

It could come remember: employment is a massive lagging indicator, but it's annoying because this in this cycle, the FED wants to pause. or or maybe start cutting rates once they've solved this employment. Uh, uh. wage spiral Danger, right? But the problem is, it's it's they're waiting for a lagging indicator to flip.

People who are losing their jobs are just getting a new job. It's remarkable. So, uh, we've gone through the update numbers. We talked about the uh, the some of these numbers here.

Let's just see if we have any additional information. or let's go to related materials over here. Let's go to the full release: PDF I Just want to see some of these specifics over here. Okay, here it is.

This is exactly what I'm looking for. So can we just yeah. there we go. Get rid of that.

Okay, this is what we want. So what we're going to do here is we're going to look at the March 2023. Actually, we could get a percentage. Uh, Pce does this A little bit funky compared to CPI but they have a percentage.

This is changing. Billions of dollars in billions of dollars percent change from preceding month. Okay, where's our inflation folks? Come on. Is it going to be leisure? Hospitality Again, rental income of persons with capital consumption adjustment.

Okay, uh. Proprietors income. Uh, with inventory valuation of course. So business owners with inventory.

They are seeing the negative. They're seeing the negative 1.1 percent here. Wages say it is sitting at point three percent for the month, which is good because that actually matches our Pce. The employment cost index is a quarter over quarter measure, which is different from this report here, but that's good.

That shows a little bit of a Slowdown already in Pce from the ECI sorry for all those acronyms which just I think I think by now you probably know. Okay, look at this. Goods disinflation over here. Negative Point Nine percent prior month was negative 1.5 percent.

but remember those January hot numbers where we said this is just January This is weird. This is not normal. It wasn't normal it. We're right.

back to that negative Trend which is good. Uh, Services Ah, see Services accelerated once again here in March Look at that. We went from point two percent to point four percent. Again, that's that's where the stickiness is and that is directly correlated Barclays did a fantastic piece on this.

They said there's a direct correlation between people in the service sector. uh, seeing prices go up and wages go up. That's where the wage price spiral might be right. People spend more on retail.

uh uh. travel, entertainment, restaurants, uh, hotels. uh, filming in a hotel. Uh, and uh.

that leads to the ability to keep raising prices. So maybe inflation expectation specifically in the world of hospitality or high for for workers, That would be an interesting survey. Uh, durable goods we are at. yeah, durable goods? sorry was negative.

Point Nine Goods was negative. Point six and the non-durable goods durable goods just think of like washing machines, dishwashers, stuff like that, right? All right. Anything else. Uh, let's see.

these are more year over year numbers. That's fine, it's not a big deal. Okay, I think we've pretty much hit it. So oh and then we do a food over here.

These are going to be your year-over-year food categories. You can see food up eight percent year over year. Uh and uh. and you're excluding food and energy PCS 4.6 It's nice it's not eight percent anymore.

it's coming down seven eight percent. That's fantastic, but still quite High. You know, we peaked out in about June of Uh 2022.. So uh, this all of this so far this morning reiterates.

Unfortunately, a little bit of the Uh higher for longer a POV which isn't great because here's the other issue right now: the market is pricing in for the Federal Reserve. Let's get the uh. let's get the actual chart right now. the market is pricing in cuts for the Federal Reserve Um, we've got the price set for price cap being priced in right now at June 14th.

I'll show this chart one second. Uh, but we've got some. We've got almost. We've got over two percentage points of cuts implied by January which is absolutely remarkable.

And if that starts getting undone because the FED isn't bluffing and they actually are going to keep rates higher for longer, the market unfortunately is going to have to price that in, so that does present some risk to the market. All right here we go. Uh, so this is the uh. the chart that I specifically want to pay attention to.

Uh, yeah, that's fine. Okay, cool. So um, basically what you want to look at here is, let me grab a little arrow and it'll make it a little easier. So what you want to look at is right here, which you can see aligns with June 14th.

These are the Market's expectations of where we hit sort of our Peak rate and you can notice the market is really pricing in just slightly above 5.1 percent. That could be about 5.125 which is consistent with about one more rate hike. So one more rate hike? Uh uh. going in in May here.

Uh, and that roughly aligns with one more rate hike here? then? uh, this already is starting to price in Cuts Now that doesn't necessarily mean we're going to see Cuts in July I Doubt that even though the Market's trying to start pricing in, uh, that, uh, that the terminal rate will actually be lower. The way this works, by the way, is it takes all of everyone's expectations and so to some extent if these on the right side are weighted down, it's going to start pulling this and distorting this down. So this doesn't necessarily mean the first hike has to be here or the the first cut has to be here. but it does mean that come uh, December January This is December This is January We're expecting massive Cuts.

In fact, we're pricing in two percentage points of cuts by January with the massive bulk of the cuts coming over here in October November December So this is what the market is pricing in. However, if the rates end up looking a little bit more flat like if we do this right? So we hit this this terminal right here and uh, we get something like this before we get any kind of rate cut and so the chart actually looks something like this. Well guess what? this area right here is that you could kind of shade in. well, that whole area.

this whole area right here in in red that I'm shading in. that's your pain. That's pain for the stock market because that's higher. for longer, that's lower earnings, lower wage growth.

Uh, confirming that inflation is gone. All of that is just your your pain segment. so keep that in mind. Uh, you know the the expectations of uh of these massive rate cuts? I'm not convinced.

especially especially with a an ECI report right now for the quarter uh, showing inflation or wage inflation at 4.8 Pce showing wage inflation at 3.6 percent. Why? Why would the Federal U turn Yet you know people talk about. Oh, but Kevin The banking crisis? Come on man. The Fringe Banks are, are you know disappearing? So um, these are these are the Risk Takers So anyway, these are some of my thoughts.

Hopefully this is incredibly helpful for you. Stay tuned. My next video is going to be really important because the next video is going to be What? I Actually think about this coming recession and it is very very insightful. We'll leave it at that and I promise excitement Does it have to do with flip-flopping? You'll see.

We'll see you soon. Thanks so much for watching.