Market CRASH?? MORE Inflation? Jackson Hole & What It Means!!

Foreign Central Bankers have spoken again now This time the venue was Jackson Hole and If that name sounds familiar that's Because Jerome Powell's speech there Last year caused stocks and crypto to Crash this year's speech was similarly Concerning but it paled in comparison to The speech given by Christine Lagarde of The European Central Bank this speech Was not televised and went mostly Unnoticed as a result that's why today We're going to tell you about what went Down explain what both speeches suggest Could happen next and tell y'all how This could affect the markets so Saddle Up And let's ride Okay let's begin with a bit of Background the Jackson Hole Symposium is An annual conference for Central Bankers Hosted by the Kansas City branch of the Federal Reserve in Jackson Hole Wyoming It's generally considered to be a rather Boring and uneventful Gathering except For when it isn't for example the 2021 Symposium was where Fed chair Jerome Powell famously said that inflation was Quote transitory to put things into Perspective inflation in the United States was already at five percent by That time if you watched our video on The Symposium last year you might recall Our theory for why Jerome said this was

Because he was determined to get Re-nominated for the post of Fed chair By President Biden our evidence for this Theory was that Jerome changed his tone The moment he was renominated in November 2021 This is when he started saying that the FED might need to raise interest rates And it marked the beginning of the crash In both stocks and crypto which Accelerated in 2022 One of the catalysts for this Acceleration was what Jerome said during His speech at last year's Jackson Hole Symposium to refresh your memory Jerome's speech last year was super Short he basically promised that the FED Would do an unusually large rate hike at Its September meeting and quoted Paul Volcker for context volca is a former Fed chair who's famous for crushing Inflation by cranking up interest rates Into the double digits Now in retrospect the predictions we Made in our summary of last year's Symposium were surprisingly spot on We predicted that fiscal policy AKA Government spending would force the FED To raise interest rates higher than Anyone expected that's essentially What's been happening over the last year We also predicted that the months Following the Symposium would offer an Incredible opportunity to buy the dip

For most coins and tokens well lo and Behold the crypto Market tanked because Of the implosion of FTX and Alameda Research in November now obviously we Didn't think that would be the factor we Believed that the factor would be Related to another spike in inflation Caused by high energy costs around the World because of a cold winter in Europe As it turns out last winter was Abnormally warm in Europe it's possible That this prediction could still play Out though as well as another more about That later anyways Jerome's speech at This year's Jackson Hole Symposium was Interesting to say the least He started by saying that this year's Speech was longer but that the Underlying message is the same as last Year's speech logically this suggests That the FED is still far from being Finished with its rate hikes Jerome Continued by saying that the FED is Committed to Bringing inflation back Down to two percent and that inflation Is still not at this target as a result The FED will keep interest rates high For as long as it takes to bring Inflation back down to two percent and Will raise interest rates even more if Necessary He then explained that the reason why Inflation is high boils down to Restriction in the supply of goods and

Services due to pandemic restrictions And the massive growth in demand due to All the stimulus he said that it will Take some time for supply and demand to Come back into balance Notably Jerome said that this process Still has a quote long way to go even With the quote more favorable recent Readings in other words the recent Decline in inflation we've seen is not Enough to satisfy the FED Jerome went on To quote the most recent CPI core CPI Pce and core pce readings after doing so He reiterated that the FED needs to see More data before it can declare victory Over inflation He also emphasized the fact that the FED Doesn't know where inflation will settle And went on to remind everyone that the FED is watching core CPI the most when It comes to inflation readings He then explained that more than half of Core CPI consists of so-called Non-housing services and cautioned that This portion of the core CPI basket has Effectively been moving sideways it's Not coming down For what it's worth the goods and Housing Services components of core CPI Have come down and of course the only Way to bring down this non-housing Services component of core CPI is for Unemployment to increase the problem is That the economy is not cooling as

Expected at least according to Jerome in Fact even housing seems to be picking up And that could mean more inflation Jerome finished his speech by stressing That two percent Remains the fed's Inflation Target this was perhaps a nod To an article posted by The Wall Street Journal a few days previously which Speculated that the FED would open the Door to the possibility of raising its Inflation Target to something higher at Jackson Hole Jerome also said that it's Not currently possible to assess where The current neutral interest rate is This is consistent with his earlier Comment about not knowing where Inflation could settle now for some Reason all the analysts seem to be Focused on that neutral rate comment When it's not even the juiciest one from Our perspective the juiciest part of Jerome's speech is the fact that the FED Doesn't find all the recent inflation Data convincing enough Now this doesn't necessarily mean that The FED will raise interest rates again In the Autumn but it does mean that the FED won't be bringing rates back down Anytime soon This ties into our predictions for what The FED could do in the coming months And how this could affect the markets Our main prediction is that the FED Could accelerate its balance sheet

Runoff in lieu of more rate hikes this Is because of what happened last Autumn And the comments from Jerome's speech This year For Reference last September the FED Started shrinking its balance sheet to The tune of 95 billion dollars per month This has the Practical effect of raising Interest rates particularly longer term Interest rates This effect was dampened by the banking Crisis in March when the Fed was forced To stimulate a bit again Since March however the fed's balance Sheet has been falling again and this Has been contributing to the recent rise In longer-term interest rates From a technical perspective it looks Like longer term interest rates are About to rise even higher and Accelerated balance sheet shrinkage Could be the catalyst there is some Evidence for this in Jerome's comments He specified that the FED had reduced Its balance sheet significantly over the Last year and that there would be quote Further drags in the pipeline This could be a reference to the FED Planning on accelerating its balance Sheet runoff in the near future as we've Seen over the last few weeks a rise in Longer term interest rates tends to push Markets down this is probably because Raising longer-term interest rates does

More damage to the actual economy one Example is an increase in mortgage rates Which recently hit their highest point In over 20 years The caveat is that raising long-term Interest rates also does damage to the US government in case you missed the Memo Uncle Sam is more than 30 trillion Dollars in debt increasing the interest Rate on this debt puts pressure on the Government and this can lead to issues In all kinds of asset markets One example here is the Commercial Banking sector which could face Significant unrealized losses if Longer-term interest rates continue to Rise because it causes bond prices to Fall this could create a risk of another Banking crisis which could force the FED To stimulate bringing it back to square One you can learn more about the banking Crisis in the description Now even if the FED doesn't start Accelerating its balance sheet runoff Market forces could still Force Longer-term interest rates to rise and Bond prices to fall as explained by Macro analyst Michael Cal the yield Curve in most developed countries is Positive the United States is one of the Only exceptions Without getting too technical the yield Curve shows you the interest rates on Different durations of debt normally

Shorter term debt is supposed to offer a Lower interest rate while longer-term Debt offers a higher interest rate in The U.S the opposite has been the case For over a year a yield curve inversion Michael believes that market forces Could push longer-term interest rates in The U.S to rise so that the yield curve Goes back to normal if this happens then It could translate to longer-term Interest rates of six percent or more Which would wreck stocks and crypto Funnily enough the technicals support This idea anyhow that is just the U.S Side of the Central Bank equation If you watched our video about what the Central Bankers are planning you'll know That the fed the European Central Bank Or ECB the bank of England and the bank Of Japan appear to be coordinating their Respective monetary policies especially The ECB and the boj what's fascinating Is that Jerome Christine and recently Appointed boj Governor kazuo ureda were All spotted by the Press at Jackson Hole Walking out together to look at the Magnificent landscape it's safe to Assume that they also discussed monetary Policy amongst themselves at some point Too Unfortunately these discussions if they Occurred at all happened behind closed Doors the same is true of the speech Given by Christine and the panel

Discussion that kazuo participated in Fortunately the former was released as a Transcript by the ECB and the latter was Reported on by the Press Make no mistake the two are closely Related now for those unfamiliar it's Believed that the ECB is only able to Raise interest rates so long as the boj Continues to stimulate that's because It's incentivizing Japanese investors to Buy up foreign bonds including European Bonds which keeps long-term rates low With that in mind kazuo's comments about Inflation not being high enough for the Boj to stop stimulating could be nothing More than an excuse to give Christine More space to keep raising interest Rates this is something that's Desperately needed given that inflation In the EU is still extremely high This is even though the economies of Many European countries appear to be Coming apart at the seams in particular Germany's This has put the ECB in a very difficult Position from a monetary policy Standpoint and it means that they must Be increasingly careful about how they Communicate with the public Before I unpack Christine's speech it's Worth quickly unpacking a short Interview she did with Bloomberg at Jackson Hole she explained just how much Work went into the speech and

Underscored the three themes that it Focused on the labor market the energy Market and geopolitical tensions what Was eye-opening was that Christine said The ECB can no longer rely on economic Modeling because of these inherently Unpredictable factors She made it clear that the ECB is Likewise committed to Bringing inflation Back down to two percent but is Seriously concerned about the headwinds To achieving that goal which reminds me The theme of this year's Jackson Hole Symposium was quote structural shifts in The global economy put differently the Economy is changing Now this theme was barely detectable in The speech by Jerome and the comments Made by kazuo but it was front and Center in Christine's speech we'll leave A link to Christine's speech in the Description if you're interested it is Well worth a read now Christine's speech Starts by pointing out that Unprecedented factors such as pandemic Restrictions and the Ukraine war have Caused inflation around the world to Spike over the last few years In response central banks have been Raising interest rates but so far the Fight against inflation hasn't been won Christine then warns quote these shifts Could also have profound longer-term Implications there are plausible

Scenarios where we could see a Fundamental change in the nature of Global economic interactions in other Words we may be entering an age of Shifts in economic relationships and Breaks in established regularities for Policy makers with a stability mandate This poses a significant Challenge end Quote Translation we could be entering an Environment of structurally higher Inflation globally and central banks Raising interest rates may not be enough To bring it down that's because it's Going to be primarily driven by Supply-side factors which central banks Can't control not demand side factors Which they can control Christine then went into detail about The three factors she mentioned in her Bloomberg interview labor energy and Geopolitics not surprisingly she Believes that the shortage of skilled Labor in Europe can be solved with AI But seems to be concerned that it could Result in more jobs not fewer this Bizarre statement is not all that Surprising considering that the EU Believes that it can have quote economic Growth decoupled from resource use Believe it or not but this is the Ideology that underlies the eu's recent ESG regulations more about those in the Description I digress

Regarding energy Christine tacitly Scolded OPEC for limiting oil production Before proclaiming that there's a Massive shift towards renewable energy Underway As a not so fun fact the ECB itself Admits that this transition will cause Significant inflation so much so that it Even coined a term for it green Inflation As for geopolitics meanwhile Christine Noted that the number of trade Restrictions has increased tenfold over The last decade and the aforementioned Events over the last few years have Accelerated this trend she highlighted The fact that these three factors have Collectively been pushing supply-side Inflation up as a result quote we are Likely to experience more shocks Emanating from the supply side itself And again this is something central Banks can't control Christine predicts That quote we are likely to see stronger Price pressures in markets like Commodities especially for the metals And minerals that are crucial for green Technologies note that most of these Metals and minerals are processed in China given these circumstances quote The task of central banks will be to Keep inflation expectations firmly Anchored at our Target while these Relative price changes play out

Translation central banks will raise Interest rates aggressively in response To supply driven inflation this will Likely result in stagflation With all that said the most eye-opening Part of Christine's speech was quote we Must and we will keep inflation at two Percent over the medium term but in Order to achieve our goals we need Flexibility in our analysis Put simply the ECB is likely to increase Its two percent inflation Target in the Longer term looks like the Wall Street Journal was right after all they just Got the Central Bank in question wrong Now this relates to our predictions About what the ECB could do in the Coming months and how this could affect The markets I'll start by acknowledging That the ecb's monetary policy typically Doesn't have that much of a direct Effect on markets however it can Sometimes have significant indirect Effects This pertains to our first prediction Which is the the EU could experience the Cold winter that we predicted last year It goes without saying that nobody can Predict the weather but Europe typically Experiences colder Winters during El Nino years years when the Pacific Ocean Is abnormally warm as you might have Heard we are in an El Nino year as Reported by the financial times quote

There is not enough storage for all of Europe's gas demand and risks such as Colder temperatures and Global Supply Disruptions may leave Europe again Looking for alternative sources of gas As it did last year what you're looking At are the effects of Europe buying up Said natural gas from said alternative Sources it resulted in a doubling of gas Prices it also caused the prices of Other energy Commodities to spike Because the countries that were outbid By the EU on natural gas had to bid for Other energy sources instead Consider that this is what happened to Energy Commodities during a mild winter In Europe if there's a cold winter or Even just a couple of cold snaps Europe Could start buying up lots of energy Commodities this would cause Energy Prices to spike even more which could Bring inflation up around the world in Turn central banks in both the EU and Other jurisdictions facing this energy Driven inflation would have to raise Interest rates in response in order to Keep inflation expectations anchored as Christine said in her speech this would Cause the prices of most assets to fall As consumers and companies get squeezed Our second prediction is technically Christine's and that's that there will Be persistently High inflation in Certain Commodities due to geopolitical

Tensions this could result in a similar Dynamic to inflation around energy Commodities with the EU pushing up Prices globally as it outbids other Countries the difference is that this Inflation won't be seasonal it will be Truly persistent it could also have a Different impact on the markets Depending on how the EU and ECB decide To handle this inflation sure the ECB Could raise interest rates but that Would do nothing to address the Underlying Supply shortage if the EU is Serious about going green then the only Solution would be to align Geopolitically with China and the other Countries of the global South that Produce and process the rare earth Metals and minerals possibly even Russia Now this seems impossible but anything Is justifiable in the name of ideology In all seriousness European leaders like Francis Emmanuel macron have already Stated that they don't want the EU to Side with the us if there's a conflict With China similar statements have been Made by other key European officials Including Christine herself obviously The U.S wouldn't be happy with this If the EU was to align with China and The global South for the sake of its Green energy transition then it would Surely result in significant economic Pushback from the US this would have the

Practical effect of further slowing Supply chains and increasing costs Resulting in more inflation and higher Interest rates That's why our third prediction is that The EU will likely abandon its Ideological dreams this is guaranteed if The continent experiences a winter cold Enough to cause energy shortages Ideologues will quickly be voted out and Replaced with those who want to return To Reliable forms of energy With a bit of luck this will bring Inflation back down but transitioning Away from the renewable energy Transition May itself cause additional Inflation not only that but many of the Populist parties rising in Europe are Reportedly being supported by China Which foreshadows issues between the U.S And the EU in some then it seems there Are many factors that could cause a Resurgence in inflation over the coming Months These factors are Global in nature but Will likely be driven by poorly Positioned jurisdictions like the EU Central banks like the ECB will have no Choice but to raise rates and markets May fall as a result So the same as last year but different Well let's hope this means another Opportunity to buy the dip And that's all for today's video if you

Found it informative let me know by Smashing that like button if you want to Make sure you get more informative Content subscribe to the channel and Ping that notification Bell and if you Want to help inform others take a second To share this video with them If you're trying to protect yourself Against inflation by stacking sets make Sure you're accumulating using Affordable exchanges and storing your Coins with secure wallets the coin Bureau deals page has the best of both Worlds up to forty thousand dollars of Bonuses on exchanges and the biggest Discounts on the best hardware wallets The link will be down in the description Thank you all for watching and I'll see You next time till then goodbye


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