FOMC Meeting: Things Have Changed – What It Means!

Last week the Federal Reserve published The minutes that is summary of its most Recent meeting the minutes revealed that Most fed officials want to slow the pace Of interest rate hikes going forward the News caused markets to rally on the Possibility that the FED will pivot the Problem is that slowing the pace of rate Hikes is not the same thing as lowering Rates themselves and the headlines don't Tell the full story that's why today I'm Going to take a closer look at the fed's Most recent minutes summarize what they Say in simple terms and tell you exactly What it could mean for the markets in The coming months Okay let's start with a bit of Background as most of you will know the Federal Reserve is the Central Bank of The United States what most of you may Not know is that the FED itself consists Of 12 Regional banks that are scattered Across the United States Each of which Has its own president as most of you Will know the FED is governed by seven Governors which include fed chairman Jerome Powell what some of you may not Also know is that the central bank's Monetary policy is decided by the Federal Open markets committee or fomc The fomc consists of the fed's seven Governors the president of the New York Fed and four of the other presidents of The fed's other Regional Banks

The regional fed presidents who sit on The fomc change every year save of Course for the president of the New York Fed who has a permanent seat In theory each member of the fomc casts A vote supporting or opposing the Committee's decision on whether or not To raise or lower interest rates and the Final vote determines the rate hike In practice however the FED chairman in This case Jerome apparently has the Final say In addition to Jerome the fomc currently Consists of the following Personnel fed Governors lail Brainard Michael Barr Michelle Bowman Lisa Cook Philip Jefferson and Christopher Waller New York fed President John Williams Boston Fed president Susan Collins St Louis fed President James Bullard Kansas City President Esther George and Cleveland Fed president Loretta J Mester I'll Quickly note that Michael Barr actually Wrote the law that created the position Of Vice chair for supervision which he Now holds Michael seems to be intent on Using the laws he wrote in the aftermath Of 2008 to crack down on crypto more About that using the link in the Description Now all 12 fomc officials were present At the fed's last meeting this is in Addition to around 50 other academics And economists who work for the FED

Including members of the fed's other Regional Banks The fomc's last meeting took place on The first and second of November to Clarify the minutes of these meetings Are not released until around three Weeks after the meeting in question Takes place this is presumably to give The markets guidance about interest Rates between fed meetings which occur Around every six weeks Obviously what investors look for in the Fed's minutes is evidence of the central Bank's plans regarding interest rates Every single word is scrutinized to see If the fomc is being hawkish are you Planning on raising interest rates or Dovish I.E planning on lowering them As almost all of you will know raising Interest rates tends to cause markets to Crash whereas lowering them tends to Cause markets to Rally because markets Are forward-looking assets tend to react Immediately to the fed's minutes even Though the rate hike or rate cut hasn't Actually happened yet So with that background under your belt Let's see what the fomc had to say The first part of the fed's meeting was A quote ethics discussion wherein fed Chairman Jerome Powell reminded everyone Present to be on their best behavior in Other words no sharing of Insider Information no insider trading and make

Sure to report all your Investments Nudge nudge wink wink With that bit of business done the Second part of the meeting was about Rate hikes fomc officials discussed how They're planning to raise interest rates Higher than they had planned in September something that Jerome had told The public in the fed's subsequent press Conference We actually summarized your own's press Conference too that will also be in the Description now one thing that Jerome Didn't tell the public during his press Conference was that most fomc officials See a 50 basis point hike as being Appropriate at the fed's next meeting For context the FED has been Aggressively raising rates at 75 basis Points a pop for the last few months This basically confirms what Jerome Denied which is that the FED is planning On slowing the pace of rate hikes as I Mentioned in the introduction this Caused markets to Rally across the board Except for crypto because it was busy Getting wrecked by the FTX Alameda Situation the fomc also mentioned the Blow up in UK government bonds in September and cautioned that the early Warning signs of a similar event are Starting to emerge in the U.S namely low Liquidity The fomc also touched on how other

Currencies are collapsing against the US Dollar but didn't have much to say on The matter What's interesting is that the fomc Reveals that the Federal Reserve and Other central banks are actively losing Money due to higher interest rates Fortunately for the central banks they Don't technically need to be profitable Even though the FED is technically a Private company the more you know Now the third part of the fed's meeting Was about the economy the fomc officials Discussed the surprisingly positive GDP Print for Q3 in the United States the Continually tight labor market and the Increase in the personal consumption Expenditures index or pce the fed's Favorite inflation gauge Oddly enough the FED went on to discuss How labor market conditions are looking For different minority groups and seem To blame most of the economic issues We're facing on the war in Ukraine China's zero covert policy and Tighter Financial conditions as a result of Higher interest rates The fomc also touched on the rising Inflation in other countries caused Primarily by disruptions to energy Supplies they noted that foreign central Banks have raised interest rates to try And fight this inflation but have slowed Their rate hikes as they realize there's

Only so much demand they can destroy The fourth part of the fed's meeting was About financial conditions there's a lot To cover here so I'll just give you the Highlights First the fomc seemingly took issue with The recovery in the stock market that Started in mid-october this would make Sense as it's essentially the Market's Challenging the Fed Second investors have been selling off Foreign assets and deploying that dry Powder into U.S assets mainly U.S Government debt this makes sense given That U.S government debt is providing Increasingly higher interest rates and Is also considered to be the safest Asset in the eyes of institutional Investors This phenomenon of money flowing into The United States is actually part of The so-called dollar milkshake theory Proposed by an increasingly popular Macro analyst named Brent Johnson the Tldr is that most of the world's money Will flow into the us as foreign Countries and currencies collapse You'd think that this would be Incredibly bullish for the US dollar and U.S assets and it will be for a while The thing is that the dollar milkshake Theory ends with the US dollar and U.S Assets collapsing too note that this Process will take many years and

Possibly decades to play out assuming Brent's theory is true Now the third thing that caught my eye In the fomc's financial overview was the Rapidly Rising interest rates on credit Card debt in the United States This is concerning because credit card Debt in the United States recently hit An all-time high of over 930 billion Dollars I reckon one trillion is just Weeks away This relates to the fourth takeaway and That's that the housing market continues To slide on the back of rising interest Rates and that banks are becoming less Eager to lend to Consumers this is Essentially true of auto loans and Credit card related loans which is Understandable given these statistic I Just mentioned Regarding Financial stability stress Tests conducted in conjunction with the Largest U.S banks suggest that they Would be resilient in the event of a Severe economic downturn However the fomc couldn't say the same For hedge funds and other entities in The financial sector due to their high Levels of Leverage This ties into the fifth part of the Fed's meeting which was about its Economic Outlook if I understand Correctly the fomc is projecting that Output of the U.S economy will be quote

Below potential until 2025 and that Unemployment will simultaneously stay Above four percent until that time This might have something to do with the Fact that the fomc raised its inflation Projections for the coming quarters Logically this means that the FED will Have to continue raising interest rates Or at least keep them higher for longer To fight this inflation resulting in the Aforementioned economic conditions For what it's worth the fomc expects Inflation to come back down to two Percent as measured by the core pce in 2025. This is expected given that what the Fomc is effectively forecasting is a Long recession that will last at least Two years and recessions tend to reduce Inflation As a cherry on top the fomc cautioned That their Baseline projections are Quote skewed to the downside put simply They know that their economic Projections are likely to get worse not Better as more economic data comes in This makes sense given that an energy Crisis could happen over the winter more About that in the description anyways The sixth part of the fed's meeting was Again about current economic conditions The fomc again blames Russia's invasion Of Ukraine as being a primary driver of Inflation I'll just remind you that

Central banks printed trillions upon Trillions of dollars in response to the Pandemic in early 2020. most of the Inflation related to Russia's invasion Of Ukraine also has to do with sanctions That don't seem to be working but let's Not go there Funnily enough the fomc says that Another decline in Real GDP would be Helpful in bringing inflation back down As a fun fact Bank of America seems to Have predicted the sudden GDP spike in Q3 this year the rest of its projection Says that real GDP will again go Negative starting next year take note The fomc also discussed the status of Household balance sheets believe it or Not but there's still record levels of Savings in the US economy thanks to all The pandemic stimulus the catch is that Most of these savings are concentrated With wealthier individuals and Institutions there's a surprise On the lower end individuals and Institutions are starting to report Financial stress I reckon the record Levels of credit card debt say it all Even so Jerome mentioned at the fed's Most recent press conference that the Higher overall savings should cushion The U.S economy from a severe recession Makes you wonder whether it was all Planned more about that in the Description

Now after discussing the collective Effects the rising interest rates of Central banks are having on the global Economy the fomc focused on the Supposedly tight labor market in the United States I say supposedly because There's lots of debate about how Accurate the unemployment statistics are Case in point tech companies have Literally laid off over 100 000 people over the last few months and Are planning to lay off hundreds of Thousands more going forward This might just be a case of media bias But it really looks like people are Starting to lose their jobs across the Board this is implied by the fomc in the Minutes as they note the supply of labor Coming in line with the demand for labor They also note that most of the demand For labor is coming from low-skilled Low-paying jobs that recently fired Six-figure salaried software developers Probably won't be doing anytime soon What sucks is that the people working These low-skilled low-paying jobs are Being squeezed the most by inflation the Element that's been hitting most people The hardest is the cost of accommodation I.E rents What really sucks is the fomc projects Rents will be one of the last inflation Dominoes to fall Now when it comes to inflation

Expectations The fomc observed that Long-term inflation expectations remain Quote well anchored as Jerome loves to Say however they cautioned that if Long-term inflation expectations start To rise again then it could make their Fight against inflation that much Fiercer what's fascinating is that the Fomc seems to have gotten into a small Argument over how long it takes for the Fed's rate hikes to affect the economy The section of the minutes breaking down This exchange is one of the lengthiest By far which is why I suspect there was Lots of back and forth there for those Who don't know Jerome seems to believe That the fed's rate hikes have a near Immediate impact on the economy his Reasoning is that the economy has become So financialized that it doesn't take More than a few months for the effects Of rate hikes to be felt by contrast the Academics on the fomc argue that it Takes much longer for rate hikes to Impact the economy this is because History suggests that it takes up to 18 Months for the effects of raid hikes to Be felt Jerome seems to have pushed back By pointing out that this historical Data is shaky at best the fomc quote Generally noted that their economic Projections are uncertain and they Believe that inflation is more likely to Increase than decrease in the short to

Medium term some members once again Repeated that this is all Russia and China's fault good thing Jerome knows What's up In terms of U.S treasuries the fomc once Again acknowledged that markets for U.S Government debt are lacking liquidity But remain quote orderly if you're Wondering why liquidity is important That's because High liquidity means that You can sell a large amount of an asset Without moving its price now I couldn't Help but notice that some members of the Fomc quote noted the risks posed by Non-bank financial institutions amid the Rapid Global tightening of monetary Policy and the potential for hidden Leverage in these institutions to Amplify shocks I see you Michael Barr The fomc went on to agree on raising Interest rates by another 75 basis Points and patted themselves on the back For raising rates so aggressively they Agreed that the labor market is tight at Least on paper and that means they can Continue raising interest rates while Claiming the economy is fine After repeating the Mantra that the FED Is committed to Bringing inflation back Down to its two percent Target the fomc Reiterated that they want to slow the Pace of rate hikes this is because they Want to see how much the already high Interest rates will affect the economy

And don't want to risk breaking Something Now the last part of the fed's meeting Was about the fomc's monetary policy Decisions this part of the minute mostly Repeats everything from the previous Sections I couldn't help but notice that the Wording is almost identical to what Jerome said during his press conferences Copy paste is a powerful tool indeed In all seriousness the fomc agreed that It must make it clear to the public that It will continue to monitor incoming Data when it comes to Future rate hikes It seems that this is not being Underscored enough because what's Currently being priced in by investors Is that the FED will pause and then Pivot in any case the fomc also agreed To continue selling assets off the Central bank's balance sheet if you Watched our video about Jerome Powell's Testimonies to politicians you'll know He tacitly admitted that this balance Sheet runoff will eventually lead to Higher interest rates also something Nobody is noticing Surprisingly all members of the fomc Voted in favor of the 75 basis point Rate hike and the other ongoing actions Being taken by the FED such as the Balance sheet runoff this is surprising Because it suggests that even the more

Dovish members of the fomc realize that Inflation will stick around for a while This brings me to the big question and That's what all this means for the Markets in the coming months in short it Could really go either way from where I'm standing the FED has made it clear That it will adjust interest rates in Response to inflation and employment Statistics in case you haven't noticed Things aren't looking too good on the Inflation front large amounts of Stimulus supply chain issues caused by Pandemic restrictions and yes the war in Ukraine and China's zero covert policies All look like they're going to keep Inflation High the most inflationary Factor however seems to be the Reassuring of Supply chains the Disruptions to supply chains caused by All the above has pushed many countries To start bringing manufacturing back Within their borders especially the Manufacturing of microchips If you watched our recent video about Goldman sachs's analysis of the fed's Two percent Target you'll know it's Possible that we will be entering a Prolonged period of higher inflation as A result this begs the question of Whether the FED would accept a three or Four percent inflation rate and the Answer currently isn't clear On the employment side things are

Looking kind of sketchy I am by no means An expert in employment statistics but I've been hearing in many macro podcasts That these stats are calculated in Questionable ways the same is true of Inflation statistics but we all knew That already This begs the question of just how much The books can be cooked to convince the American public that the job market is Doing just fine or rather how hard the Fomc can squint at the numbers until They see what they want I reckon it'll Be hard to keep up the illusion when the Average person's own Lying Eyes start to Notice that everyone around them is Losing their job I'm sure the fact Checkers will come in With full force on that one but so long As free speech on Twitter exists the Truth will find its way out thanks Elon In some then it's going to be a very Uncertain few months for both the fed And therefore the markets assuming the FED follows through on slowing the pace Of rate hikes and pausing sometime early Next year we could finally see some Recovery rallies in stocks Cryptocurrencies and other assets that Said I have a bad feeling that we're Going to see a bearish catalyst that Takes all assets much lower than they Currently are a catalyst that will shake Retail investors to the core and cause

Institutional investors to run screaming Into the arms of the Fed Let's hope I'm wrong about that one