Banking Crisis or Inflation!? Pivotal Fed Press Conference!

The Federal Reserve is about to Pivot Because of the banking crisis right well Not exactly Last week the FED announced its latest Rate hike and chairman Jerome Powell Chewed through all the juicy questions That reporters had for him during his Subsequent speech and press conference So today I'm going to give you a bit of Background about the interest rate Situation summarize Jerome's speech Break down the questions he got from Reporters and tell you what it all means For the markets Let's start with a bit of background the FED began raising interest rates almost Exactly a year ago in order to try and Tame inflation after inflation started Coming down from its highs last summer It appeared that the Fed was winning the Prospect of a pause or pivot that is the Fed stopping its rate hikes or even Starting to bring rates down caused Markets to Rally earlier this year This is because markets are Forward-looking meaning that investors Are always thinking about what will Happen next and buying or selling today Based on their expectations of what the Future holds seeing inflation come down For months led to the expectation that The FED would stop raising rates or Start lowering them This changed when inflation data came in

Higher than investors were expecting now The most concerning inflation statistic Was the personal consumption Expenditures index or pce for January Which was published at the end of February for context the pce is the Fed's favorite inflation metric we all Have our favorites after all The pce for January came in slightly Higher than the previous month this Suggested that inflation may have Started going up again instead of Continuing its gradual decline logically This sent a signal to the FED that it Needed to raise interest rates more than It already had and keep those rates Higher for even longer If you've been keeping up with our Coverage of the FED you'll know that It's chairman Jerome Powell testified to U.S politicians earlier this month he Took the opportunity to tell the world That the Fed was determined to raise Interest rates and keep them higher for Longer in response to this inflation Data the very next day Silicon Valley Bank went under kicking off a banking Crisis in the United States if you've Been keeping up with our coverage of the Banking crisis you'll know it happened Because Banks invested their deposits in Assets which lost value meaning they Could go bust if too many of their Customers tried to withdraw their money

To fix this liquidity crunch the FED Introduced the bank term funding program Or btfp which allows Banks to borrow Money against their assets to honor Customer withdrawals without having to Sell their assets as a loss this caused The fed's balance sheet to grow by 300 Billion dollars in a week Investors took this as a sign that the FED had broken something and would soon Be lowering interest rates so the Markets rallied for reference it's long Been assumed that the FED will continue Raising interest rates until inflation Comes down or until something breaks Many considered the banking crisis to be The breakage that's why investors Expected the FED to stop raising Interest rates or even lower them at its March meeting these expectations started To change when the banking crisis Started to calm down by the time of the Meeting investor expectations went back To what they were before the banking Crisis the fed's rate hike ended up Being in line with investor expectations But the markets didn't move that much This is because of the mixed messages That were given by Jerome during the Subsequent press conference by the fed's Economic projections and by other U.S Government officials in the days that Followed so let's dig in shall we now Jerome normally Begins the fed's press

Conference with a speech but this time He started by addressing the elephant in The room the banking crisis Jerome Acknowledged that there have been Difficulties at a quote small number of Banks which risk undermining trust in The banking system that's why the FED Worked quickly with the U.S treasury Department and the Federal Deposit Insurance Corporation or FDIC to Increase trust in the banking system One of their initiatives is the btfp Facility I mentioned a few moments ago And Jerome said the banking system is Safe and liquid as a result Then Jerome said something significant And that's that the FED is prepared to Use quote all of its tools to prevent a True banking crisis from occurring now This has been interpreted as Confirmation that the FED will lower Interest rates if the banking crisis Doesn't go away or gets worse which is Possible So with the elephant in the room Julie Confronted and happily munching on some Hay or well whatever Jerome began his Speech he talked about how inflation is Still well above the fed's two percent Target and how unemployment remains well Below the fed's four percent Target For those unfamiliar the fed's job is to Address both by adjusting interest rates Known as the jewel mandate

Now throughout his speech Jerome was Citing statistics from the fed's summary Of economic projections or SCP which are Published every other fed meeting I.E Every 12 weeks Fed officials see the economy weakening And unemployment Rising by the end of The year because of higher interest Rates Jerome cited the concerning pce Print for January and pointed out that Fed officials project a pce of around 3.3 percent by the end of 2023. he Warned that it will be a quote bumpy Ride to get there and reiterated that The FED has raised interest rates to Five percent and will continue to shrink Its balance sheet note that shrinking The fed's balance sheet has the Practical effect of causing interest Rates to rise now Jerome admitted that The banking crisis might tighten credit Conditions meaning that banks will be Less likely to issue loans the Practical Effect of this is further economic Contraction this is ultimately what the FED is trying to achieve and why the FED May not raise interest rates at its next Meeting even so Jerome stressed that Whether the FED decides to raise Interest rates again will depend on the Incoming data not only that but he Pointed out that fed officials see Interest rates at 5.1 percent come the End of the year given that the fed's

Funds rates are in increments of 0.25 Percent this means another 25 basis Point rate hike in May Jerome also Underscored the fact that the fed's Economic projections are almost the same As what they were back in December this Doesn't necessarily mean that they will Follow through on their projections but It highlights the fed's continued focus On inflation which Jerome repeated at The end of his speech Jerome also warned That getting inflation down to the fed's Two percent Target will require a quote Period of below Trend growth and a Softening of labor market conditions in Other words this will require a Recession which many investors are Finally starting to expect as a Consequence of the banking crisis so Once Jerome was finished the question Period began The first reporter to ask questions was From the financial times they asked Jerome whether the banking crisis was Contained or if depositors are still Withdrawing Jerome said that the banking system is Safe and that quote all Bank deposits Are safe this is a small but significant Detail because Bank deposits are only Insured up to 250 Grand in the USA and You'll know this if you watched our Video about Bank balins given that the Fed and Co had made all Silicon Valley

Bank depositors whole Jerome's comments Implied they would do the same for Everyone if it came to that now the Ft Reporter followed up with a second Question and that was whether the FED Had considered pausing its rate hikes Because of the banking crisis in a rare Move Jerome said yes and even revealed That the FED has in fact been getting Ready to raise rates even more Aggressively He explained that the FED settled on 25 Basis points estimating that the Tightening of credit conditions because Of the banking crisis would count as Another 25 basis point hike but Jerome Made sure to remind everyone that the Fed's future rate hikes will depend on Incoming economic data The next question came from CNBC and Their reporter asked Jerome what he Meant by quote additional policy firming In his speech Jerome was surprisingly Direct and said that the FED will raise Rates again if inflation doesn't come Down and will keep rates where they are If it does The CNBC reporter also followed up with A second question and that was whether Additional rate hikes will make things Worse for banks Jerome argued that they Won't because banks have access to that Btfp facility so they will always be Able to honor withdrawals even if their

Assets continue to fall in value more About that in a moment now the third Reporter to ask questions was from the Wall Street Journal and they asked Jerome how much the banking crisis could Affect the fed's rate hikes Jerome said It's too soon to say and made a comment About how the people editing the summary Of the fed's meeting will have lots of Work to do the Wall Street Journal Reporter continued the theme of Following up with a second question and That was If the Fed has any other tools Besides raising interest rates seeing as They're destroying the banking sector Jerome basically said no and insisted That adjusting interest rates is the Appropriate approach to solving the Inflation issue Then the fourth reporter to ask Questions was from Politico and they Asked Jerome whether the FED FDIC and Treasury bailed out Silicon Valley Bank Depositors because of concerns that the Banking crisis would grow larger if they Didn't amazingly Jerome admitted this Was the case there was risk of contagion And the Politico reporter followed up With a second question since when did Everyone start getting two questions at These things and that was why the FED Didn't see this coming given that it's Technically their job to keep track of Banks

Jerome said that Michael Barr the fed's Vice chair for supervision is looking Into this and revealed that he that is Jerome is not involved Now this is concerning given what we Know about Michael more about that in The description Anyways the fifth reporter to ask Questions was from Reuters and they Asked Jerome if he still thinks there's Disinflation in the economy Jerome said yes but that this Disinflation is limited to Goods on the Services side inflation is still high Especially Services excluding housing Which the FED watches closely on that Note you should note that this Services Inflation is no joke As you can see here the Consumer Price Index or CPI is still coming down but The core Consumer Price Index which Excludes food and energy seems to be Flatlining put simply Services related Inflation could get stuck at around five Percent in any case the Reuters reporter Followed up with a second question Because well everyone else was and that Was whether the Fed was quote welcoming The credit crunch that will come because Of the banking crisis Jerome tacitly admitted this was the Case but also admitted that the FED Knows there could be unintended Consequences

The sixth reporter to ask questions was From the New York Times and they asked Jerome what happened to Silicon Valley Bank and whether other banks are at risk Jerome said that the bank was managed Badly and that Michael is working to Make sure the fed's oversight of such Banks is better Regarding whether other banks are at Risk Jerome again said that other Banks Aren't at risk but if you watched our Recent video about the banking crisis You'll know that's not true as many as 190 banks in the United States are at Risk of going under because of Withdrawals including one of the biggest Banks regardless the seventh reporter to Ask questions was from Bloomberg and They asked Jerome whether investor Expectations that the FED will raise by Another 25 basis points and then cut Were correct Jerome said it's possible that there Will be another rate hike and insisted That rate Cuts will not happen in 2023 The Bloomberg reporter then yup followed Up with a second question and that's When the FED will stop raising rates Jerome said that it all depends on Whether the banking crisis causes credit To contract he seemed to suggest that This depends on how long the banking Crisis continues which is of course Unknown

The eighth reporter to ask questions was From The Washington Post and they asked Jerome about the commercial real estate Market They noted that most commercial real Estate loans were issued by small and Medium-sized Banks and asked if this Means they are at risk Jerome said no but that is a lie now the Ninth reporter to ask questions was from Fox Business and they asked Jerome about Whether the Biden administration's Continuing spending is impacting the Fed's ability to bring inflation down Jerome said that fiscal spending is not The primary driver of inflation right Now keywords not right now The tenth reporter to ask questions was From axios and they asked Jerome why the FED felt the need to create a new Facility and why the fed's balance sheet Has increased Jerome said that a special facility was Needed given the circumstances and that The increase was due to loans to the FDIC and to Banks The 11th reporter to ask questions was From the Associated Press and they asked If the FED will keep raising rates if Inflation stays High regardless of the Consequences Jerome confirmed this is The case but said that additional rate Hikes may not be needed if the banking Credit crunch comes about the 12th

Reporter to ask questions was from American Banker They asked Jerome a very good question And that's whether the increase in the Fed's balance sheet is at odds with the Fed's balance sheet reduction Jerome made it clear that the balance Sheet increase is not quantitative Easing or QE now without getting too Technical QE consists of the FED buying Assets from commercial Banks typically U.S government debt with the goal of Keeping interest rates low these Commercial Banks then turn around and Invest this cash in other areas of the Economy and also lend money due to the Lower interest rates Jerome explained That the increase in the fed's balance Sheet is not QE because the Central Bank Hasn't bought U.S bonds to lower Interest rates all it did was let Banks Borrow against their assets to honor Customer withdrawals though it's funny That most of these withdrawals are going Into U.S bonds if you think that's crazy Consider the question from the 13th Reporter who was also from Bloomberg They questioned Jerome's claims that the FED didn't see the banking Crisis coming This is because the FED had discussed The possibility of Bank runs at their Previous meetings so why didn't they do Anything well believe it or not but Jerome claimed he couldn't remember the

Specifics of the meeting and insisted That the online banking aspect was what Took them by surprise as a fun fact the Summaries of fed meetings are released a Few weeks after the meetings occur but The actual transcripts are kept secret For Years anyway fun facts aside the 14th reporter to ask questions was from The Economist and they asked Jerome Whether it's true that all depositors Are safe meaning that the FED will bail Them out if needs be Jerome just said That the FED has the tools to protect Depositors in a worst case scenario Obviously this implies that the FED will In fact bail out all depositors in the Event of a Countrywide banking crisis Now the problem with that implication is That it's illegal for the FED to do this In the absence of a new law treasury Secretary Janet Yellen had to come out The next day to say it wasn't the case Janet's comments caused the markets to Crash which caused her to issue a Correction that sounded like all Deposits are protected now this Correction seems to have caused deposits To flow from European Banks into U.S Banks for this protection which forced Janet to issue yet another correction Madness after that the 15th reporter to Ask questions was from MarketWatch and They asked Jerome about the recent Acquisition of Credit Suisse by its

Rival UBS jerem said that the fed had Been and still is in contact with the Swiss Central Bank which makes sense Given the circumstances the 16th Reporter to ask questions was from CNN And they asked Jerome how the FED can Ensure that unemployment doesn't Spike Way past the 4.5 Target the FED has set For the end of 2023. Jerome didn't have An answer because history shows that Once unemployment spikes it just keeps Going up The 17th reporter to ask questions was From MarketWatch and they asked Jerome Whether a soft Landing was still Possible I could swear that half the Room laughed Jerome's knee-jerk reaction Was ah which presumably means a soft Landing is no longer possible but Jerome Said it still was somehow Now the final reporter to ask questions Was from Yahoo news and they asked Jerome when the FED will start cutting Interest rates and stop reducing the Size of its balance sheet interestingly Jerome addressed the balance sheet Question first saying they will keep Reducing as for rate Cuts quote not our Base case So this brings me to the big question And that's what all this means for the Markets well the short answer is that Markets will likely continue to slide as The FED raises rates directly or

Indirectly via the banking crisis it Seems to have allowed to occur for now The FED is in control because so far We've only seen the liquidity I.E money Aspect of the crisis the btfp facility Addresses this aspect by providing money To Banks for withdrawals the next stage Will be the credit aspect of the crisis When debts start getting refinanced at Higher interest rates that nobody can Afford This relates to the question about Commercial real estate from The Washington Post reporter 400 billion dollars of commercial real Estate loans will be refinanced in 2023. You'll recall that most commercial real Estate loans have come from small and Medium-sized Banks this begs the Question of what happens when the value Of these commercial real estate loans Plummets because they can't possibly be Repaid now I honestly don't know the Answer but it's not going to be good the More important question is how the FED Will react to something like this it's Assumed that the FED will lower interest Rates but if inflation is still high or Starts to go up again the FED won't be Able to This all depends on how high Unemployment is at the time which is Really anyone's guess one thing is for Sure though and that's that the FED is

Intent on raising interest rates and Keeping them high for the foreseeable Future you can bet that they're going to Use every tool in the Box to make sure They don't have to lower interest rates And apparently that includes allowing a Banking crisis to occur This is why I've been wondering if it's Possible that the FED is Raising Interest rates for reasons that aren't Necessarily related to inflation or Unemployment Some have said that the FED has a third Mandate and that's to ensure that the U.S dollar Remains the world's Reserve Currency a status which is currently Under threat you see when the FED raises Interest rates it makes us dollar Denominated debt more expensive because The U.S dollar is the most used currency For international trade almost every Country has massive amounts of dollar Denominated debts that become more Expensive as interest rates rise the Practical effect of this is a dollar Shortage and the risk of a dollar-based Debt default if you watched our video About government debt defaults you'll Know that the international monetary Fund or IMF will often step in and Provide dollars to countries that need Them with of course lots of pro-us terms And conditions attached as it so happens The FED offers a similar service called

The dollar swap facility the catch is That the dollar swap facility is only Available to countries that are closely Allied with the United States well the FED recently announced it would be Expanding its dollar swap facility to Ensure allies get the dollars they need Now call me crazy but I think the FED is Going to keep raising interest rates to Squeeze America's enemies and use the Dollar swap facility to ensure America's Friends always have USD to pay their More expensive dollar debts the fact That the new dollar swap facility has Been Barely Used suggests that the Credit squeeze is still coming Well I suppose we're about to find out And that's it for my video today but if You enjoyed it you know what to do like Button subscribe button and the bell Icon too I also have to let you know About my deals page this is where you Can get crypto discounts promos and Bonuses of thousands of dollars only for The viewers of this channel that is all Linked to in the description below so be Sure to check it out thanks so much for Watching this is guy over and out Foreign


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