Fed’s Most Hawkish Meeting!! What It Means for The Markets!

Last week the Federal Reserve announced That it had raised interest rates by Another 0.75 percent as expected this Caused plenty of volatility in the Markets including of course crypto However it was the subsequent press Conference by fed chairman Jerome Powell That really made the markets move What he said suggests that the worst is Yet to come for all asset classes so Today I’m going to give you a summary of The fed’s press conference explain what Jerome said in simple terms and tell you Why interest rates might stay much Higher than what investors are pricing In Foreign Since that press conference the crypto Space has had slightly more pressing Concerns to address than Jerome Powell And a video about the FTX disaster is Linked to below so do have a watch after This if you can bear it But despite all that’s been happening in That sphere the actions and Outlook of The Federal Reserve will have a big Effect on the crypto Market in the weeks And months ahead so let’s start with a Quick bit of context The Federal Reserve aka the FED is the Central Bank of the United States every Six weeks its Board of seven Governors Has a meeting where they decide how much It will be raising interest rates by and

Issue a statement announcing their Decision after the meeting fed chairman Jerome Powell holds a press conference To answer questions from the media about The fed’s meeting its interest rate Decision and its future plans note that The minutes of the meeting are only Released three weeks later more about That in a bit Now given the impact that interest rates Have on the markets and the economy Every word that’s uttered during the Fed’s meetings and its press conferences Is scrutinized by investors what they’re Looking for is forward guidance hints About how and when the FED will change Interest rates If you watched our video about the fed’s Previous press conference back in September you’ll know that Jerome said That the FED would no longer be Providing the forward guidance that Markets want well it’s safe to say that The FED Governors didn’t keep his Promise including Jerome himself the Forward guidance continues and the Markets have been responding as expected Any suggestion that interest rates will Be coming down results in a rally and Any suggestion that interest rates will Be going up results in a crash Because the FED is fundamentally raising Interest rates to fight inflation this Means that a higher than expected

Inflation reading for the Consumer Price Index or CPI results in a crash the same Is true for the personal consumption Expenditures index or pce which the FED Watches very closely And because the FED is also tasked with Ensuring unemployment remains low a Higher than expected unemployment rate Paradoxically results in a rally this is Basically why the markets rallied in the Days following the fed’s most recent Meeting and press conference Now because the FED is the world’s Largest Central Bank its heavy interest Rate increases have put pressure on all The other central banks to do the same That’s because when the FED raises Interest rates it causes money to flow Out of foreign economies and into the U.S economy that’s the simple Explanation The problem is that not all central Banks can keep up with the FED due to The massive amounts of debt in both the Public and private sectors of their Respective countries and regions Unfortunately a failure to do so means That money flows out of their economies Into the US dollar causing their Currencies to weaken Another problem meanwhile is that many Developing countries have large amounts Of dollar denominated debts which become More expensive when the FED raises rates

I talked about this in more detail in a Video on dollar strength which will be In the description for you anyways these Fears are what prompted the UN to call Out the fed and other big central banks To stop raising interest rates Unfortunately it doesn’t look like they Listened So with that bit of context in mind we Can turn to Jerome’s speech which begins As it always does with him waddling onto The podium with a big serious looking Binder probably with photocopies of his Last speech inside In all seriousness Jerome essentially Repeated what he said last time the FED Is strongly committed to Bringing Inflation back down to its two percent Target and it has the tools and resolve To achieve this mandate without price Stability the economy doesn’t work and The labor market will not be strong Without price stability that second Comment didn’t make much sense because The labor market in the United States is Still strong at least on paper a Supposedly strong labor market is why The FED has continued to raise interest Rates so aggressively its officials feel They have the wiggle room to do so In any case Jerome reiterated that the FED decided to raise interest rates by Another 0.75 and it will continue to Raise interest rates until the central

Bank is confident that inflation is Coming down Jerome added that the FED is actively Reducing the size of its balance sheet I.E selling the assets it holds for Reference the FED holds trillions of Dollars of U.S government debt when the FED sells this debt then the interest Rates on that debt go up this causes Interest rates to rise further since Interest rates on U.S government debt Are used as a reference for other types Of similar duration debt in the economy The FED started reducing the size of its Balance sheet in June and has sold 300 Billion dollars of U.S government debt Since then if you watched our video About Jerome’s testimony to U.S Politicians you’ll know that he admitted 500 billion dollars of selling is Equivalent to a rate hike of around 0.5 Percent so far this effect is yet to be Seen anyways Jerome went on to give a Short summary of economic conditions the Economy has slowed the housing market is Imploding the stock market is collapsing But unemployment is at a 50-year low in Other words the economy is actually fine Because the questionable employment Statistics say so Meanwhile the pce and core pce are way Above two percent specifically 6.2 and 5.1 percent respectively now although Inflation expectations of the American

Population haven’t gone up the FED can’t Be complacent that’s because history has Shown that inflation can come back if It’s not crushed like in the 1980s Now for those who don’t know inflation Expectations are as important if not More important than the actual inflation Rate that’s because if people expect Inflation to remain high they will act In ways that cause inflation to continue This is the main reason why the FED also Watches the CPI it’s what the people Watch It also begs the question of how much The U.S government is fudging Inflation-related figures but let’s not Go there all I will say is that if Inflation expectations get too high then Hyperinflation is the result put Differently hyperinflation is a Psychological and not an economic Phenomenon the more you know Now Jerome continued his summary of Economic conditions by saying he is Aware that it takes time for the fed’s Interest rate increases to have an Effect on the actual economy FYI the Consensus among economists is that it Takes around a year for interest rates To affect the economy Jerome acknowledged that at some point It will become appropriate to slow the Pace of increases but that point has yet To come

More importantly Jerome said that the Terminal rate aka the interest rate the FED is targeting has increased Significantly above what had been Announced in September Jerome also repeated something he said Many times and that’s that the FED is Taking quote forceful steps to bring Demand back in line with Supply this is A scary Prospect because it looks like Supply issues are the primary drivers of Inflation right now Bringing demand down means doing damage That’s why Jerome repeated another thing He said many times and that’s that Bringing inflation back down will Require a quote sustained period of Below Trend growth this includes a quote Softening of Labor conditions which the FED has yet to see in the official Statistics Jerome concluded his speech by repeating That history has shown that easing too Soon can create serious issues that the FED will fulfill its dual mandate that It understands higher interest rates are Affecting everyone but that it will Quote stay the course until the job is Done now before I break down what was Said during The Question period you Should know that the markets were Rallying up until this point that’s Because the FED statement announcing its Interest rate decision contained an

Additional sentence which suggested Rates would start coming down in a block Works episode about the fed’s press Conference macro analyst Jim Bianco Mentioned that the sentence was eerily Similar to something layl Brainard the Vice chair of the FED had said a few Months before Those unfamiliar lail is a dove meaning That she supports lower interest rates By contrast Jerome is a hawk who Supports higher interest rates now Jim’s Theory is that the Doves on the fed’s Board of directors are starting to Become concerned about the fed’s Aggressive rate hikes Jim believes the Dovish sentence in the FED statement was A compromised Jerome made with the doves What’s annoying is that we won’t know Whether this is the case until the Minutes of the fed’s November meeting Are released towards the end of this Month specifically Wednesday the 23rd of November obviously the contents of those Minutes will probably have a significant Impact on the markets Anywho when it came to the question Period the first to go was a reporter From the financial times they asked Jerome what inflation data the FED needs To see before it starts to slow its pace Of rate hikes note that a slowing of Pace doesn’t mean that the FED will stop Just that the increments will be smaller

Jerome said that the FED wants to see Multiple months of inflation coming down Before slowing the pace of rate hikes But that’s not all the FED also wants to See positive interest rates across the Yield curve In plain English it wants to see Interest rates that are higher than Inflation specifically core pce Logically this means that all interest Rates in the economy must be above 5.1 Percent this is a pretty big ask Considering most interest rates are Currently around four percent but it’s Important to remember that inflation is Likely to come down this means that Positive interest rates could be around The corner the second question came from A reporter at Reuters and they asked Jerome how big the fed’s rate hike will Be after its next meeting in December Jerome responded by explaining the FED Looks at three things how fast to raise Rates how high to raise rates and how Long to keep them there Jerome continued By saying that the FED agreed to raise Interest rates quickly and is now Working to figure out how high to raise Them he revealed that the FED will start Discussing this at its next meeting but It will be a while before it starts Discussing how long to keep rates Restrictive the Reuters reporter Followed up by asking why the FED felt

It necessary to signal that it will Start discussing when to stop raising Rates Jerome tacitly admitted that the Doves at the FED are starting to get Nervous but that he doesn’t feel that Way at all and since he’s the chairman What he says goes looks like Jim is on To something now the third question came From a reporter at the Wall Street Journal who asked whether interest rates Across the yield Curve will need to be Higher than core pce Jerome confirmed This to be the case and added that there Must be a significant spread I.E Difference between real yields and core Pce Fourth question came from a reporter at The New York Times and they asked Jerome Whether there’s any evidence that Inflation expectations are becoming Entrenched Jerome said this isn’t the case for Long-term inflation expectations but Shorter term inflation expectations do Concern him then Jerome said something Interesting and that’s that there’s no Scientific way of measuring when Inflation expectations become entrenched This is interesting because it’s Believed that the fed’s slow response to Inflation was due to Jerome trusting the Academics around him instead of his own Intuition now the fifth question came From a reporter at the Washington Post

They asked Jerome about how long it Takes for monetary policy to affect the Economy and which sectors start to feel The squeeze and when Jerome’s response was surprising because He said that the economy reacts much Sooner than assumed this is something That was brought up by former fed Trader Joseph Wang during that aforementioned Blockworks episode Joseph believes that Jerome understands just how Financialized the economy has become and Because investors are always pricing in The future the economy reacts faster as A result even so Jerome said that the FED would rather raise interest rates Too much than not enough that’s because It’s easier to come back from over Tightening than from not tightening Enough the cost of inflation Expectations becoming entrenched is also Much higher than the recession this Tightening is likely to cause Now the Washington Post reporter Followed up by asking Jerome about the Additional sentence in the FED statement Jerome slammed investors for thinking That slower rate hikes means lowering Interest rates and said that won’t be Happening anytime soon The sixth question came from a reporter At axios and they asked Jerome about the Housing market after rambling about the Labor market for a bit Jerome asked

Whether he had missed anything the Reporter had asked to which the reporter Responded the housing market tell me About the housing market I’m Paraphrasing of course All Jerome had to say was that the FED Needs to bring the demand for housing Back in line with Supply if you watched Our recent video about the housing Market you’ll know that the FED is doing A damn good job of that so far The seventh question came from a Reporter at Politico and they asked Jerome what employment statistics the FED is watching Jerome fired off a long List including unemployment the supply Of labor the labor participation rate And other such statistics The stat that caught my ear was wage Growth that’s because it’s believed that Higher wages contribute to inflation Right now wages are increasing at a rate Of you guessed it five percent per year At least in the United States I reckon You can’t blame people for wanting to Keep up with inflation It sounds like some economists do though Now the eighth question came from a Reporter at CNBC who asked Jerome about The un’s warning to central banks that I Talked about earlier after acknowledging That the rest of the world is having a Rough time with the fed’s rate hikes Jerome said quote but in the United

States we have a strong economy Jerome went on to say that price Stability in the United States was the Most important thing for the fed and That bringing inflation down will quote Pay dividends for decades in sum the FED Doesn’t give a damn about the developing Countries that are struggling under Dollar debts inflation must be crushed The CNBC reporter followed up by asking Jerome whether there is a risk that Inflation will remain high given that It’s being driven primarily by Supply-side forces that the FED cannot Affect Jerome acknowledged that there Are supply side issues but argued that Inflation is demand driven in the USA This brings me back to one of Jim’s Theories which is that inflation will Remain much higher than most people Expect due to a structural change in the Economy in short supply chains and Manufacturing are moving back onshore in Many countries and this transition will Create a long period of inflation more On that later The ninth question came from a reporter At Bloomberg who asked whether the FED Is still focused on the inversion in Yields between three-month government Debt and 10-year government debt that’s Because the three-month yield and the 10-year yield were close to inverting at The time of shooting they have you see

Under normal economic conditions longer Types of debt offer higher interest Rates mostly due to the opportunity cost Of lending that capital for so long as Such when interest rates on shorter term Debts are higher than those on longer Term debts it’s a sign that the economy Is in bad shape I.E recession Not surprisingly Jerome was unconcerned And just said that the FED is watching Other indicators too The tenth question came from a reporter At the Associated Press who asked Jerome Whether he was concerned about the Housing market Jerome said he is aware Of how bad the housing market is getting Hit but rents must come down it looks Like that’ll be the last Domino to fall On the housing front The AP reporter followed up by asking Jerome whether the Fed was happy about The market rallied that resulted from The additional sentence in the FED Statement Jerome’s response to this Question went viral and I think you can Guess why Jerome started by reiterating that the Terminal rate will be much higher than Initially projected then he said there Is quote no evidence that inflation is Coming down and even added that quote we Are exactly where we were one year ago In terms of crushing inflation the Markets instantly nosedived now the 11th

Question came from a reporter at Fox News who asked Jerome whether fiscal Policy I.E government spending is Affecting the fed’s ability to fight Inflation Jerome admitted that fiscal Policy was making it harder to fight Inflation at first but seemed to suggest It actually might be helping now That’s because all the unprecedented Stimulus during the pandemic has Resulted in record levels of savings for Individuals and cash balances for Institutions while this wealth is still Concentrated in the upper echelons of The economy it presents a cushion Against Rising interest rates Nonetheless the Fox news reporter Followed up by asking Jerome whether all The hundreds of billions that have yet To be pumped into the U.S economy will Affect the FED going forward Jerome Danced around the question which was Honestly a good political move given the Polarized political climate in the USA The final question came from a reporter At Marketplace who asked Jerome whether The window for a soft Landing has Narrowed put simply is it still possible For the FED to raise interest rates Without causing a recession Jerome said yes but admitted that this Is becoming less likely by the day when The reporter asked why that is Jerome Explained that inflation hasn’t come

Down nearly as quickly as the Fed was Hoping this means that the FED will have To be more restrictive with its monetary Policy and that increases the Possibility of a recession you can learn All about what that would mean for the Economy using the link in the Description So this brings me to the big question And that’s whether inflation will stay Much higher than investors are currently Pricing in this ultimately depends on Whether you believe the global economy Is going back to the way that it was or That it is undergoing a paradigm shift That will cause lots of inflation to Clarify Jim Bianco isn’t the only macro Analyst Who falls into the latter camp If all the macro podcasts I’ve been Listening to lately are any indication Analysts are divided down the middle on Whether the economy will change you’d Think that everyone and everything will Fall back into their old habits however It’s clear to see that a multi-polar World is forming the United States the European Union and parts of Latin America and Asia seem to be at one pole And China India Russia Saudi Arabia and Other parts of Latin America and Asia Seem to be at the other Pole if you Watch my video about China’s influence In Africa you’ll know that many Countries on that continent are being

Drawn towards the second pole too if This is the case then inflation could Skyrocket at the first pole if say trade Between the U.S and China starts to slow Down this seems to be more likely than Ever as the United States Europe and Other Western Powers have announced Ambitious plans to bring the Manufacturing of microchips and electric Batteries on shore Something tells me that these products Will be more expensive than their Chinese counterparts now consider a Scenario where individuals and Institutions in the United States and Europe are restricted or banned from Importing such products from China did I Mention that the U.S recently banned the Export of semiconductors to China the Same response from the CCP would be Inflation rate that said individuals and Institutions at both poles will be very Reluctant to cut their lucrative Economic ties because of some Geopolitical power struggle between Their countries case in point many of These restrictions have loopholes Including say the sanctions on Russian Oil and gas still relations could Deteriorate to the point that loopholes Are no longer possible There’s no question that the risk of This happening is higher than ever and It looks like this risk is only

Scheduled to rise the Silver Lining is That inflation should come down after The initial adjustment period is over When that will be nobody knows but the Inflation would definitely last longer Than a few months that means it could be A long time before the FED starts to Drop interest rates in fact some believe That the FED may be forced to change its Two percent Target to accommodate a Higher level of inflation I suppose we’ll have to wait and see but I must say it’s Times Like These that I Am still thankful for cryptocurrency And that’s all for today’s video about The fed’s recent press conference if you Found it informative smash that like Button if you want to make sure you Don’t miss the next one subscribe to the Channel and ping that notification Bell If you want more content like this head On over to coin Bureau Clips if you’re Looking for longer form crypto content Check out the coin Bureau podcast if You’re addicted to social media follow Me on Twitter tiktok and Instagram if You want to keep up with the crypto Market join my telegram if you want to Know what cryptos I hold as my portfolio Subscribe to My Weekly Newsletter and if You want to support what we do head on Over to the coin Bureau merch store and Get some crypto swag that suits you Links to all these resources and more

Are down in the description thank you All so much for watching and I will see You next time till then stay cool stay Safe and stay crypto [Music]