Here’s What’s Going DOWN at The FED!! Jerome’s Latest Speech

Last week Federal Reserve chairman Jerome Powell spoke at the Brookings Institution an American think tank that Seems to have some very close Connections to the fed and to the crypto Industry what Jerome said was perceived As positive by the markets and this Resulted in a small pump Upon closer examination however Jerome's Comments suggest that more dips could be Coming That's why today I'm going to summarize What Jerome said tell you what it means For the market in simple terms and why The worst May yet be to come for stocks Cryptocurrencies and other assets Foreign Jerome's appearance at the Brookings Institution began with an introduction By Glenn Hutchins who Bears more than a Passing resemblance to Ned Flanders well I mean they've never been seen in the Same room together as far as I know In all seriousness Glenn is the co-chair Of the Brookings institution and sits on The board of directors for digital Currency group one of the largest Companies in crypto very interesting In any case Glenn gave a quick history Of Jerome's relationship with the fed The short of it is that Jerome was Appointed to the fed's Board of Governors by former U.S president Barack Obama in 2012 and was appointed as

Chairman of the fed by former U.S President Donald Trump in 2018. after That intro it was Jerome's turn to take The mic He started with a speech that's like the Ones he gives at the fed's press Conferences every six weeks the Difference is that this speech was a lot Shorter and it was about the fed's Progress on bringing down inflation Rather than its reasoning for raising Rates Jerome started by saying that inflation Is still way too high and cited the Personal consumption expenditures price Index or pce the fed's favored inflation Measure Jerome said that the Fed was Expecting a six percent pce for the Month of October the next day the latest Pce was released and it was six percent No Insider information there I'm sure Now if you've been keeping up with the Pce or even just keeping up with the Coin Bureau you'll know that inflation Has been slowly but surely coming down At least on paper this should mean that The FED will stop raising rates or even Start to lower them but Jerome said that It's still too soon to do this That's because we've seen months of Inflation coming down only to have it Spike back up again Jerome points to the Fact that even though headline pce has Come down core pce has been moving

Sideways core pce excludes food and Energy for anyone wondering Jerome went on to admit that forecasts Of inflation suggest it will come down Over the next year the problem is that These very same forecasts were saying That inflation would come down this year This is when Jerome said that the FED is Looking for quote changes to macro Economic conditions this is significant Because it appears that most of the Inflation we're experiencing right now Is mainly due to issues on the supply Side not the demand side this includes Things like energy shortages due to the War in Ukraine and supply chain Disruptions due to pandemic restrictions In China and elsewhere obviously the FED Can't control these supply side issues All the FED can do is destroy Demand by Raising interest rates The fact that Jerome implied that the FED will only start easing once supply Side issues improve is a tacit admission That the central bank can only do so Much to fight inflation Unfortunately the FED is trying to Regain its credibility as an institution And Jerome is trying to leave a legacy As the man who tamed inflation to that End the Fed will continue to destroy Demand by raising rates until they come In line with Supply something that will Slow the economy as per Jerome's own

Admission What's especially unfortunate is that This slowing of the economy has yet to Occur from the fed's perspective That's because GDP in the United States Has yet to see a convincing decline In Jerome's mind this means there hasn't Been a convincing decline in inflation Yet either this is where things got Interesting because Jerome broke down The three types of inflation that the FED is watching closely to my knowledge This is the first time the FED has Revealed these details The three types of inflation are core Goods inflation Housing Services and Services excluding housing Jerome Explained that core Goods inflation has Been coming down quickly this is to be Expected given that the pandemic caused A massive surge in Goods related Inflation that's simply because people Couldn't spend on Services during the Pandemic so some of that money went on Goods instead the rest of that money Went into Investments which includes Housing Services although housing Related inflation continues to rise Jerome and the FED are forecasting a Massive decline in both the cost of Housing and the cost of rents sometime Later next year due to contract renewals This leaves Services excluding housing Which Jerome revealed as being the most

Important to the FED in its inflation Forecasts regular Services inflation Hasn't shown clear signs of coming down Yet this makes sense given that all the Money that went on Goods during the Pandemic is Shifting back to services Not surprisingly not many people are Keen to work in the services sector After being fired and rehired between Lockdowns this is likely contributing to The labor shortage occurring in the United States and elsewhere this Supposed labor shortage is also Something the FED is watching closely That's because a low supply of labor Plus a high demand for labor equals an Increase in wages Jerome said the FED seized Rising wages As a significant contributor to Inflation which sucks for job Seekers If you're wondering just how short the US is on labor Jerome listed off a few Juicy statistics just for you the latest Stats suggest that the U.S is short Around 3.5 million people Research by the FED found that more than 2 million people retired during the Pandemic the remaining 1 to 1.5 million Shortage is due to a shrinking Population of working age folks Something we covered in another video That will be in the description Now Jerome seemed to say that the labor Shortage is also partially due to social

Benefits that many people continue to Receive from the U.S government to that End he subtly suggested that the current Administration stop creating the Incentive for those folks to stay at Home and not work Jerome finished his speech by saying That three things need to happen before The FED can safely say that inflation is Coming down first economic activity must Slow AKA GDP has to come down Second the housing market needs to crash More and third unemployment needs to go Up way up To that End the Fed will continue to Raise interest rates though it will Start to slow the pace of rate hikes as Soon as December This is because the FED is aware that it Takes time for its monetary policies to Affect the actual economy specifically Between one and two years depending on Who you ask Even so Jerome emphasized that the pace Of rate hikes isn't nearly as important As how high the FED will need to Actually raise rates and how long it Will need to keep them at that level he Said that history suggests it will have To keep rates high for a very long time So it will do exactly that This was all somehow perceived as Positive by investors because the Markets rallied in response

Anyways after Jerome's speech came the Question period And I immediately Recognized the moderator That's because it's the same chap who Interviewed Michael Barr the fed's vice Chair for supervision who coincidentally Created the position at the FED that he Now holds nothing to see here If you watched our video about Michael's Appearance at the Brookings institution You'll know that this moderator David Wessel seems to be super political he Made this apparent with his first Question and that's whether it's okay For wages to keep going up after all It's the corporations that should pay Jerome basically said it's a good thing When wages for workers go up but it Becomes a bad thing when this wage Growth is significantly above the Baseline level of inflation which is Between one and two percent He also stressed that raising wages Won't fix the issue as it will just lead To more inflation which erodes wages David then went on to ask Jerome about The Phillips curve now for those Unfamiliar the Phillips curve is an Economic model which assumes that Inflation and unemployment have an Inverse relationship if inflation goes Up then unemployment will go down and Vice versa many central banks use the Philips curve as part of their inflation

Forecasts but Jerome essentially said That the FED is starting to question Just how well the Philips curve works This is because it's unclear what the Natural rate of unemployment should be Relative to inflation for context the FED targets a two percent inflation rate And a four percent unemployment rate as Part of its dual mandate lower interest Rates cause inflation to rise but Unemployment to fall while raising Interest rates causes inflation to fall But unemployment to rise hence the Phillips curve This is why Jerome's comment about the Natural rate of unemployment being Unclear is so significant it suggests That the FED is starting to consider a World where unemployment is much higher Or much lower than four percent the FED Seems to be questioning its two percent Inflation Target too more on that in a Moment Now this inspired David to ask whether Jobs data is an indicator the FED is the Most focused on and Jerome said yes this Is why the markets dropped so severely When the October jobs report came in way Above expectations just last Friday it's Sent a sign to the FED that it needs to Keep raising interest rates aggressively David followed up with a good question And that's whether the U.S economy is Entering a period where labor will be in

Short supply he referred to comments by Fed Vice chair lail Brainard who Recently expressed her concerns about The effects of de-globalization on the U.S labor force in short Jerome answered He's not sure he also said that the FED Has a two percent inflation Target quote For now which again suggests that this Is something the FED is starting to Question As a matter of fact many institutions Are already starting to prepare for the Possibility of persistently High Inflation you can learn more about what That could mean for your portfolio using The link in the description David then shifted Focus to inflation Forecasts and asked Jerome whether he's Skeptical of them as a fun fact it's Believed that Jerome is angry with the Academics at the FED who insisted that Inflation would be transitory in 2021 Since that time Jerome has been trusting His brain instead of their models case In point Jerome responded by saying that Inflation is effectively impossible to Forecast due to supply side issues the Same kind that killed the fed's Transitory narrative in 2021 still Jerome acknowledged that raising Interest rates much higher could get Risky which is why the FED will slow This prompted David to ask Jerome how The FED will know when its monetary

Policy has gotten too restrictive two Words credit spreads Jerome said the FED Will know it's time to pump the brakes When the difference in interest rates on Different types of debt in the economy Becomes too large David then pivoted to another important Topic that's often overlooked and that's The fed's balance sheet for reference The FED has been actively selling assets From its balance sheet since June this Is likely contributing to a rising rates David asked when the FED will stop Shrinking its balance sheet Jerome's Response was revealing because he said The FED will quote stop at a place That's safe this suggests that the FED Won't be selling off nearly as many Assets as investors are currently Expecting I'm surprised this wasn't Picked up by the mainstream media at Least not from what I've seen all the Mainstream media has been focused on When it comes to the FED is the prospect Of a so-called soft Landing which is Where the FED raises interest rates Without crashing the economy funnily Enough a soft Landing was the focus of David's next set of questions Jerome Said that the landing will be quote Soft-ish with the labor market getting Wrecked but not going into a recession Now this is surprising given that Jerome Said the path to a soft Landing had

Narrowed during the fed's last press Conference David pressed Jerome on this And Jerome said it hasn't really Narrowed David then asked Jerome about the fed's Economic modeling from 2020. I'm Honestly not exactly sure what David was Referring to here but based on the Exchange between the two it was about The aforementioned two percent inflation Target and four percent unemployment Target set by the FED jerem said the FED Would be reviewing these Targets in five Years time but seemed to hint that this Could happen sooner due to The Peculiar Economic and political situation the World finds itself in Jerome seemed to Admit that the FED had never expected to See inflation at these levels and with That David opened the floor to the Audience and I couldn't help but notice That most of the people asking questions Were also the ones asking questions During Michael Barr's Brookings Appearance the first question was about Risk management regarding interest rates At this point in the hiking cycle Jerome Said that the FED will raise rate slower But hold them higher This will ensure tight Financial Conditions without crashing the economy At least he hopes so The second question was about the Long-term downtrend in labor force

Participation in the United States Jerome argued that labor force Participation was technically flat Between 2013 and 2020 but it dropped off Significantly at the start of the Pandemic and will probably not return to Previous levels The third question was about the FED Potentially adjusting its four percent Unemployment Target given that it was Discussing this before Jerome confirmed That yes the FED will be discussing this Again David asked whether it would do This before Jerome's term is over in 2025. Jerome said yes The fourth question was about whether The FED is concerned about the effects Its rate hikes are having on other Countries Jerome insisted that this is Something the FED is monitoring Carefully and boldly proclaimed that the Best thing the FED can do for the global Economy is to tame inflation in the USA The fifth question was about whether the Labor market is truly as tight as the FED claims it to be given that wages Aren't going up in real terms for all Workers Jerome's response was slightly Off Target as he repeated that people Asking for raises in line with inflation Would lead to more inflation the sixth Question was why the FED isn't being Even more aggressive with its rate hikes Jerome said that the FED has already

Been moving quickly and moving any Faster would have crashed the economy From now on the FED is going to move Slowly but keep rates higher for longer As discussed earlier The seventh question was more of an Accusation with the individual asking Jerome whether the Fed was neglecting The maximum employment portion of its Dual mandate Jerome responded with a Firm no and said that maximum employment Is only possible with stable prices According to his framework now the Eighth question was a good one and That's if a slowing Chinese economy Would impact the U.S economy and whether This impact would be inflationary or Deflationary Jerome seemed irritated by the question And responded by saying that China's Zero covert policy has been inflationary Now Jerome's irritation makes sense Considering that the FED is trying to Fight this inflation it's also evidence To the idea that China's pandemic Policies don't have all that much to do With public health but let's not go There well if you insist on going there There'll be a link in the description Now the ninth and final question was About the housing market specifically if Raising interest rates could Paradoxically cause housing costs to Rise since they disincentivized

Construction Jerome who is normally not Political proclaimed that bad Regulations are ultimately to blame Based Jerome And with that the event was over David Asked everyone to remain seated so that Jerome could leave safely something I Don't recall hearing at the end of Michael's event Given that Jerome had dropped a joke Earlier about not revealing how he Commutes to the fed this suggests that Some people out there aren't too happy With our boy Jay Powell so this brings Me to the big question and that's what Jerome's comments mean for stocks Cryptocurrencies and other assets Well contrary to what the initial pump Had many investors believe Jerome's Comments are extremely and I mean Extremely bearish for all assets Especially risk assets that's because Jerome made it abundantly clear that the FED is going to keep raising rates and Keep them high until the economy starts To crash He seems to be praying that something in The financial system doesn't break Before this happens and it looks like Fortune is in his favor If you've been keeping up with our Recent fed updates then you'll know that The United States has been very Resilient to Rising interest rates this

Is due to all the liquidity that is Money that's still sloshing around be it In the savings of wealthy individuals or The balance sheets of well-capitalized Institutions While the average person is getting Squeezed by inflation and Rising Interest rates the higher ups have Enough cash on hand to cover the cost of More expensive debts and larger everyday Expenses the harsh reality is that Institutions like the FED don't really Care about what's happening to everyone Else to ensure that the discontent of The average person doesn't evolve into a Full-scale revolution you can expect to See a lot more stimulus from governments Directed towards the lower levels of Society this is already happening in Many European countries where people are Being crushed by energy costs when the United States inevitably enters a deep Recession I expect the U.S government to Start rolling out similar stimulus Programs it's possible that this will be Done using digital dollars and it's Almost guaranteed that this will be done With Central Bank digital currencies in Other countries Assuming that inflation stays higher for Longer as some analysts are expecting we Could enter an unprecedented period of Economic pain especially if the FED Keeps rates High more and more

Individuals and institutions will have To adopt their government's dystopian Digital currencies to survive Now the Silver Lining to this scenario Is that if it does play out then it will Eventually lead to a mass Exodus from The Current financial system into Cryptocurrencies the governments and Central banks are aware of this which is Why they've been moving quickly to crack Down on the crypto industry before it's Too late fortunately for folks who are Fans of Financial Freedom cryptocurrency Is practically impossible to ban the Only way to prevent access to it is to Control access to the internet using Digital IDs which is something the European Union and others are planning On doing in some then 2023 looks like It's somehow going to be a lot worse Than 2022 and it's quite possible that 2024 will be a continuation of this Trend however in every crisis there is Opportunity if you pay attention and Play your cards right you could come out The other side of this with a lot more Wealth and knowledge You can start by checking out our recent Video about how much lower crypto could Go and when the bear Market bottom could Be that will be down in the description [Music]

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