Hey everyone Me: Kevin here. Oh boy. the Federal Reserve is now talking about the potential for there to be a lot of room to cut rates because things could go south very quickly. This in a piece out from Nick t on my birthday yesterday.

By the way, if you haven't seen it yet, I did have the fortune of spending my birthday lunch with Kathy Wood in Florida which is really wild because then I had birth a dinner with Lauren my wife in California. So it was a little bit of a long day, but technically that means I had a 27-hour birthday H Let that one sink in. Anyway, So plummeting inflation that is Nick T's headline. But what's buried beneath the headline? what's buried beneath the headline is very interesting.

We're going to start here. Let's keep this simple. Let's say that core inflation is is 4% and these numbers aren't supposed to be exact. This is just to give you an example here.

Okay, let's say core inflation is 4% Let's say the FED wants our star or are not. No, not like Co days. it's the level of restriction that the FED has. Let's say they want that level restriction to be 1.5% Well, then your total interest rate at the FED would be 5 1.2% Okay, great.

That's understandable. but core PC isn't 4% It's lower than that. It's probably closer to 3% Okay, so let's throw on 3% here and they want us to be at 5.5% Okay, fine. so then we say this is 25% This is another way you could achieve this.

But what happens when Core Pce goes down and you don't change the headline rate? So in other words, what happens if we take this, uh, delicious line line right here for Core? PC We drop it all the way down over here so we don't actually have 3% Core? PC We have, let's say, 2% Core Pce. Well, then to have the same level of restrictiveness, we should actually be cutting rates a full 1% to about 42% And the reason we would do that is because if you don't cut rates, while inflation is falling, you actually start adding more tightness to the economy. And when you say you want to keep rates higher for longer, you're not trying to keep things getting more restrictive for longer or increasingly restrictive every single month for longer. because you're adding more pressure to the economy and you're likely to break something.

You're likely to cause an unemployment style recession. Large joblessness. Okay, now we understand this, at least to some extent. The big thing to remember here: the big takeaway is if you don't cut as inflation is falling, you add more pain.

Okay, fine. well, maybe more pain needs to be added, right? I Mean the inflation figures are all rigged anyway. They're all fugazi, Fugazi. And yeah, to some extent, many of them are Fugazi.

fugazi. but the FED bases their rates on that. Fugazi Gazy. Okay, so what did the Federal Reserve think that inflation was going to be at the end of 2023? All right.

So we look here end of 2023 projection and we could see this projection was made September 20th. All right. So what do we have September 20th? Well, September 20th. We had projections that Pce inflation would be 3.3% and that core PC would sit at 3.7% and in June the projection.

Before that, we were at 32 to 37 or uh, 3.9 So let's just take a midpoint here for a moment. So take a midpoint of these projections. Let's say basically, at the end of the year, the Federal Reserve thought that inflation would be 3.25% on the headline and 3.8% on Core. All we did here was take the difference between the Fed's Jun opinion and their September opinion.

Keeping in mind that their last rate hike was in July in that midpoint. See that. What was their estimate of inflation here? What was their inflation estimate here for the end of the year? Well, that was between 3.25 and 2.8% What did we actually get with the Rigg numbers? Well, Core Pce. Instead of being 3.8% for Core PC, we actually got 2 .9% 2.9 and the annualized rate for the year 2.4% Well, okay, but what about headline headline, which was expected to be 3.25 Well, for headline, we got 2.6 so in other words, substantially lower.

Now that's very interesting. So 2.6 for non-core is about 625 per lower. That's like 2 and a half rate cuts of 25 BPS lower. than what the FED thought it was going to be.

And the core figure was about 30 basis points lower than what the FED thought it was going to be. But not only that, this is where it gets a little ridiculous. Nick T makes this really interesting analogy. Well, I guess I shouldn't say it's really an analogy.

It's kind of just pointing out by Logic here that it might actually be even worse than what I've just described. The reason is he says in the last 6 months, if you annualize what PC inflation has been over the last 6 months, you actually end up finding that inflation has been 1.9% Okay, so that's interesting. So the Federal Reserve is potentially way behind. In other words, they've already gotten inflation substantially down, at least via Pce and the Fugazi numbers.

This doesn't mean prices are lower. Remember the Federal Reserve isn't actually trying to get inflation lower. They're not actually trying to get prices lower Like the inflation. All the crap we felt from 2019.

They don't really care about you. They don't really care about you having normalized prices again and going back to 2019 prices? They don't care. How do you know that? Because they bluntly told us that in the December Fomc meeting Dron pal bluntly responded to a reporter who asked, hey, what do you say to the people who are upset everything is so much more expensive and his response was well, we hope they can make more money. In other words, good luck Prices ain't coming down anytime soon Mhm.

So where does this idea of a lot of room to cut come from? And where does this idea come from? About potentially a very rapid decline? Things going south very rapidly. Well actually comes right from the FED as well. Quick note: This video is brought to you by Streamyard. Check it out Metkevin.com Streamyard They help me multistream broadcast every time I Go Live which I do every day the market is open for the market.

Open Live Stream Take a look at this. First of all, there's the evidence of the 1.9% that I talked about about the annualized rate of PC inflation between July and December down from 4% in the prior six-month period. But listen to this: Esther George who left the FED at the end of last year, so potentially could be a little bit more transparent, says we made a very aggressive tightening Not only uh, look at the supply that came back, but also the demand that came back uh uh, you know, down last year. But more importantly, listen to this.

There's potentially a lot of room to cut rates before they are in neutral territory again. and you've still got quantitative tightening restricting the economy In her words, on steroids. And on top of this, listen to this. Policy makers are right to be worried that cutting would blemish their credibility.

However, in November the hiring rate in the United States dropped to its lowest level in 10 years, a sign that more companies might feel they are overstaffed. The labor market is a tricky one. before a downturn. it always looks like it's not too bad and then it goes south quickly.

In other words, the Fed's got to be very careful here. If they really start inducing an unemployment recession, we're screwed. Now, what's my opinion out of all of this and what's Kathy Wood's opinion? Because we talked about this at lunch yesterday. Well, her opinion is the Fed has already gone way too far and they're not going to be able to prevent deflation by cutting rates.

I Also believe the FED has gone too far, but I re I believe the FED at least maybe I'm hopeful will realize that will cut rates and while there will be a surge in unemployment I Hopeful that they're able to minimize the real damage of increasing layoffs which have already begun. So in other words, I have slightly more hope than Kathy Uh. In other words, she believes we are almost certainly heading into deflation. I Think they'll be able to print their way out of deflation and kind of keep the Ponzi going a little longer.

We'll see, nobody knows, but the point is Federal Reserve through their Nicki leaks Wall Street Journal Buddy is starting to signal that we may need to come down frankly, just because inflation is coming in way lower than expected. Maybe it'll heat up again, but the data doesn't seem like it's indicating that it is. And if we look at the earnings calls we do every day in the course member live streams, what do we find? Lack of companies indicating they are remotely willing to raise prices or even if they're willing or unable to talked to Kathy about that yesterday as well and she was shocked at what? Texas Instruments and 3M told us about the lack of growth, the negative growth, the frankly negative growth they are forecasting. So with all that said, and those manufacturing indicators economic indicators causing potentially more cause for concern.

What's Dra Powell going to tell us this week when the Fomc meeting takes place, which of course I'll be streaming in a couple days on Wednesday Well, probably exactly what we just talked about. Now we won't get a rate cut this Wednesday but we are expecting to see the balance of the FED saying we might have to cut just to stay at the same level of restrictiveness. We might see them try to explain that to markets which potentially to stocks could be bullish. If they don't, the lack of them suggesting this could be bearish, we'll see what happens.

Thanks for watching. Check out Streamyard a link down below paid sponsor on the channel and we'll see you in the next one. Goodbye, Why not advertise these things that you told us here? I Feel like nobody else knows about this? We'll We'll try a little advertising and see how it goes. Congratulations man! you have done so much.

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