Hey everyone meet kevin here we actually got a monday holiday update from the federal reserve. Let's talk about what we just heard and what meeting was just scheduled between powell and somebody else we'll talk about that as well. Quick reminder: this video is brought to you by the expiring coupon code, for the programs linked down below most of you by the way who are checking out right now are grabbing bundle number one don't feel obligated to go for the bundle. It's it's.

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Oh no we're gon na be at two at the end of the year. Oh no we're gon na be at three at the end of the year right so now. You've got waller, though, he's a big fan of being so aggressive that we don't even have to care whether it's a demand problem or a supply problem, which he just said in the interview with regard to what's causing inflation, the problem is, inflation is too high and It's taking too long to get it down now this taking too long to get it down is something that could create issues of impatience at the fed, and it could lead them to make a policy mistake by hiking too much and then all of a sudden inflation Does potentially come down at the same time as they've hiked too harsh, which remember generally their efforts have a lagging impact on the market. So we usually don't feel the impact of that fed funds rate until six months after, even though verbally and then in the stock market, the fed can verbally kind of affect the stock market with just what their plans are.

The latter impacts can take around six months to actually be felt. It used to be thought that it takes about 18 months to feel federal, reserve monetary policy efforts, but now it's believed that because of the communications and modern age and how quick financial markets react, that we could price things in quicker. But still you have a lag here and so the big thing with waller is: he wants to continue to hike hike until we start seeing a meaningful excite in inflation, which you can't really blame him, because we're not seeing a meaningful decline in inflation. You look at the next cpi report and the expectations for the next one, we're expecting to go from 8.3 inflation down to 8.2.

It's like a 0.1 percent decrease in inflation. That's not enough! Now! The good news is, we already know the fed's planning on hiking in june and july 50 basis points. That's already priced in the big question is what's going to happen on the september 20th meeting. Well, the other thing to consider is we're going to get guidance not by this next cpi report, but by the three after that see we're going to get on june 10th.

The cpi report for may okay great, but then we have three more coming out after that. The june report on july 13th, the july report on august 10th and the august report on september 13th. Those three need to start showing meaningful declines in inflation and, if we're not actually getting meaningful declines in those three reports, not the next one but the three. After that, then we're gon na have problems, and the worst case scenario is that we end up stuck somewhere of an inflation rate of like six and a half to seven and a half percent.

Because then, the fed is going to have to painfully paul volcker us because we'll probably see inflation expectations rise in the market because we're not getting them to come down. Inflation expectations can be measured by two things: consumer surveys, but my favorite is the five year break. Even because we know the fed uses it as well, take a look at the right side over here 2.99. This is the five-year break-even rate.

That's essentially a market's expectation of inflation. You can see how we've really declined here in our inflation expectations from this peak over here in march, and we kind of get these sort of like bobs up and down as long as we do see this rotate down. We do believe and expect that inflation will also come down. That's the hope, fingers crossed we'll see, so the cpi reports are going to be really really important.

The last thing that waller says that we want is that the public to believe that inflation will continue to go up because then he says it becomes economically difficult and painful to reduce inflation and he's right because he's basically talking about then having to paul volcarus. Fortunately, right now even the hawk - and this is a really important one. In my opinion, even the hawk is not saying we need to paul volcker, even the hawk the most hawkish one is essentially saying: hey like yeah. We need to go above neutral, maybe as much as a percent above neutral.

That would be three and a half percent right, but we're not getting any indications from even the most hawkish person at the fed that oh, we need to. You know: rug pull everybody. We need to go for like an eight percent, fed funds rate and and paul volcker. Us essentially like what happened in the early 80s, where they raised the fed funds rate to above the rate of current inflation, to really show markets that were forcing it down.

But always remember the big difference between the early 80s and now is that inflation expectations were skyrocketing. We just left the dollar, so you know the gold standard, seven eight years before that, actually a little bit more before that and uh expectations, where this is it. This is the end of a monetary regime that is not happening now, which is good, but what is happening is joe biden is going to meet with powell, and you can only imagine that joe biden who's been sandbagged by a mansion and cinema who's gotten virtually nothing Done the first, his first two years is probably nervous about losing both the house and the senate in november, and this is widely expected to happen. And you know that, even though powell and biden should be politically separate because powell does not work for the government, they work for the fed, and that is not part of the government.

You know that biden's got to sit down powell and probably in some private meeting, go dude man like. Can we get inflation down at the same time as we can pump the stock market back up? Okay, because trump said in his rallies, the stock market would crash. If you like, the biden and i got an election coming up and uh, we need uh and it's interesting because that political motivation kind of already aligns with what we're hearing from the fed that, oh, you know, we'll probably pause in september and just see how things Go and it's like, oh okay, really! So if you pause in september and you pause and you go with like 25 bp hikes, let's say september and november, you still have the december meeting after the election, where you could get more aggressive if you needed to so it wouldn't surprise me if they go 25 september 25 november worst case scenario. If they need to go higher, they go like 50 75 or something insane in december and that'll be problematic.

That would mean that inflation didn't end up coming down. It wasn't transitory, which i know a lot of people are. It was never transitory kevin, let's get over it, fine uh, but but very interesting, in my opinion, paying attention to what comes out of that meeting, probably going to be something relatively political and i'm curious to see what levers biden's going to try to pull and it'll. Be fascinating to see if powell changes his tune, he definitely changed his tune from the last time they met the last time they met when uh powell was getting ready for confirmation.

All of a sudden powell became a little bit more hawkish and started stopped using the word transitory and all of a sudden. It's like. Oh my gosh, like we need to speak to the american people. We will get inflation down, it's kind of like to some degree, and i hate saying this - he kind of has to play a little bit as a joe biden puppet and this kind of.

Similarly, this pressure happened with trump as well. Trump was threatening to fire jerome powell back in 2018. If he didn't stop raising rates and powell ended up pausing now it could. The argument could be made that don't worry like that powell would have made those decisions anyway, but every time we have these meetings, there tends to be in a little bit of an inflection point.

So let's pay attention to what comes out of that meeting. The meetings on tuesday all right, so thank you so much for watching folks, coupon code down below take advantage of it and we'll see in the next one. Thanks bye.