Pivot or Pain?! Here’s What The Fed Will Do in 2023!!

Last week the Federal Reserve met for The final time this year this was a Particularly important meeting given That it included a summary of economic Projections along with an interest rate Forecast fed chairman Jerome Powell Revealed the fed's decision in his Subsequent press conference as always What Jerome said moved the markets this Time however it seems investors Understood the significance of what he Said so today I'm going to summarize the Fed's press conference explain what Jerome said in simple terms and tell you Exactly what it means for the crypto Market going into 2023 and Beyond Foreign Let's start with a quick bit of Background since March this year the fed And other central banks around the world Have been raising interest rates to Fight inflation in case you haven't Noticed this has caused basically every Asset class to crash as liquidity gets Sucked out of the financial system What's interesting is that it Technically takes around a year for Higher interest rates to affect the Actual economy The reason why an increase in interest Rates affects asset like Cryptocurrencies and stocks almost Instantly is because the markets are Forward-looking investors are always

Pricing in the future This is why press conferences and Comments by fed officials are so Significant They are fundamentally meant to give Investors expectations of what's to come For interest rates this so-called Forward guidance is one of the ways that The FED influences interest rates Especially longer term rates Naturally investors like it when their Expectations are met When outcomes are in line with or exceed Expectations this can and often does Result in a rally sometimes even if the Outcome is objectively bad Conversely when outcomes fail to meet Investor expectations then the markets Tend to crash this is simply because Investors hate uncertainty more than Anything else not surprisingly there's Been no shortage of uncertainty around The fed's future interest rate plans This has created lots of volatility in The markets both to the upside and to The downside in recent weeks Last week's price action is a great Example of this markets rallied leading Up to the fed's press conference and Spiked on the day before This is because of the release of the Consumer Price Index or CPI for November Which revealed that inflation is coming Down quicker than investors expected

Investors were hoping that this positive Data would translate to a pause or even Pivot by the FED but Jerome pulled off What some have been calling the Powell Rug pull instead in short Jerome said Interest rates will continue to increase Well into 2023 and will stay high Indefinitely until inflation truly comes Down Prior to the press conference investors Were expecting the FED to pause raising Interest rates some thought that it Could be as early as next year possibly As soon as the January meeting Once Jerome made it clear that this Wasn't happening the market started to Decline in response to the sudden Uncertainty As you'll soon see however this only Scratches the surface of the fed's most Recent forward Guidance the FED press Conference began with a short speech by Jerome himself and I'll quickly note That this particular conference seems to Have been much shorter than the previous Ones As far as I can tell this is because Jerome took fewer questions from the Press than usual I'll explain why a Little later Now Jerome began his speech by Acknowledging that inflation is hitting The average person hard He stressed that the FED is committed to

Bringing inflation back down to its two Percent Target and while the bulk of the Rate hikes have happened there is still More work to be done I.E more rate hikes To come Jerome then announced that the FED had Decided to raise interest rates by 0.5 Percent or 50 basis points This is what investors had been pricing In so the markets rallied in response Jerome continued by saying that more Rate hikes are coming and went on to Summarize the fed's economic projections For reference the FED releases a summary Of economic projections every second Time they meet the most important part Of these projections is something called The Dot Plot Now the Dot Plot shows you how high fed Officials think rates will go and how High they will stay in the coming years But of course the Dot Plot isn't where Jerome started his summary he started by Highlighting that the U.S economy has Slowed and that annual GDP growth will Probably be around 0.5 percent for this Year and the year after this is Significant because such low growth is Consistent with recessionary conditions However Jerome pointed out that the Labor market continues to be strong with Unemployment at a 50-year low an average Wage growth being much higher than the Fed's two percent Target now this

Relates to an economic theory called the Wage price spiral which states that Higher wages contribute to inflation Jerome then dropped another bombshell And that's that the FED expects Unemployment to spike to over 4.6 Percent next year to put things into Perspective the unemployment rate is Currently around 3.7 percent A one percent increase in unemployment In such a short time has historically Been associated with recessions Jerome went on to cite personal Consumption expenditures or pce data the Fed's favorite inflation measure along With the aforementioned CPI he Acknowledged that both appear to be Coming down but said that the FED needs To see quote substantially more evidence That inflation is declining Jerome also revealed that the FED sees Inflation risks as being skewed to the Upside he then started to repeat what he Was saying earlier in his speech and his Sudden shuffling of paper suggests that He had accidentally skipped back to the First page of his notes this is the Person steering the global economy folks Jerome then explained that the FED is Slowing its pace of rate hikes because It knows it takes time for them to Affect the actual economy He also discussed the fed's latest Dot Plot which revealed that most fed

Officials see interest rates at five Percent or higher in 2023 As I mentioned earlier this is Ultimately what caused markets to crash This is because interest rates being at Five percent or higher means that the FED will have to either hike higher During its next two meetings or hike for Longer in smaller increments neither Outcome was being priced in by investors Now Jerome ended his speech by Emphasizing that the FED will continue To raise interest rates to bring demand Back in line with Supply in order to Bring inflation back down He also warned that history proves that Lowering interest rates too soon can Result in a Resurgence of inflation a Not so subtle reference to the 1970s After Jerome's speech was done the Question period began and the first Question came from a reporter at CNBC They asked Jerome whether it was a Problem that the stock market has been Rallying over the last few months Despite the fed's rate hikes or rather Was rallying Jerome was careful in his response Because admitting that the FED wants Markets to crash would be a bad look So instead Jerome said that the FED Wants Financial conditions to reflect Rising rates and said that the FED is Not focused on short-term price but

Quote persistent long-term moves to the Downside The second question came from a reporter At the New York Times and they asked Jerome Point Blank whether the FED will Raise by 50 or 25 basis points during Its next meeting Jerome gave a lengthy response and the Tldr is that speed is no longer Important How long higher rates remain however is I'll also quickly note that the FED Expects housing and rental costs to Collapse later next year fingers crossed For those who have been squeezed Now the third question came from a Reporter at Reuters they rightfully Pointed out that the figures in the FED Summary of economic projections are Effectively forecasting a recession and Asked Jerome why fed officials used very Soft language to describe what is Guaranteed to be a very bad time Jerome responded by saying that GDP Growth will still be positive so it's Totally fine he also seemed to claim That the labor market will be fine too Because employers are having a hard time Finding employees From what I've seen the answer to this Question was met with lots of scrutiny By analysts Now the fourth question came from a Reporter at the Wall Street Journal and

They again asked your own Point Blank Whether the FED will raise by 25 basis Points during their next meeting This time Jerome tacitly confirmed which Makes me wonder whether he was playing Favorites with the Press The fifth question came from a reporter At the Washington Post and they asked Jerome why the FED is forecasting a Higher unemployment rate than in its Previous economic summary Jerome essentially said it's because the FED will raise interest rates higher and Leave them there for a long time The sixth question came from a reporter At the financial times and they asked Jerome whether the fed's five percent Interest rate estimate is because of the Fed's higher core inflation forecast for 2023. Jerome confirmed this is the case but Noted that both could change after the Fed's next economic summary for anyone Wondering the fed's next summary of Economic projections will be released at The end of March next year I'll leave a Link to the fed's calendar in the Description if you're interested now Back to the questions The seventh question came from a Journalist at Politico who was smart Enough to build on the previous question From the ft They asked Jerome whether the fed's

Higher core inflation forecast is coming From fears around the wage price spiral Jerome danced around the question which Sent a signal to investors that yes the FED is concerned about continued Increases in wage growth In other words the FED wants to crush The labor market now obviously admitting This would be even worse PR than Admitting that the FED wants to crash The markets on that note I'm pretty sure This is the reason why the fed's press Conference was shorter than usual Jerome And Co know that the only way to bring Inflation back down to the central Bank's two percent Target will be to Destroy the economy and he would rather Not be asked about this terrifying task In any case the eighth question came From a reporter at axios they started by Saying that investors are currently Expecting the FED to drop interest rates By the end of next year and ask Jerome Whether this was the case Jerome just said that rates will not be Cut back until inflation is headed back Down to two percent another kick to the Groin for investors of all kinds Painful images aside the ninth question Came from a reporter at Bloomberg and They asked Jerome whether China's Supposed reopening would be inflationary Or deflationary Jerome admitted that this is very hard

To know because it really could go both Ways on the one hand China reopening is Likely to increase demand for Commodities as manufacturing comes back Online namely demand for oil and gas Given that oil and gas are already in Short supply China would therefore cause More inflation in the United States and Elsewhere On the other hand China's reopening is Likely to improve Supply chains which Have been clogged up by the country's Pandemic policy chances are the outcome Will be somewhere in the middle but it's Safe to say it is in the interest of China and its allies to cause as much Inflation in the west as possible Anyways the tenth question came from a Reporter at the Associated Press and They asked Jerome what the FED thought About the previous day's CPI print for November Jerome reiterated that the decrease in Inflation is promising but said that the FED needs to see more evidence of Inflation coming down if you're Wondering what more evidence means Jerome's rambling response revealed that Yes the FED wants to see the labor Market slow significantly and wages come Down realizing what he was admitting Jerome insisted that the FED wants People to keep getting raises just not More than inflation now the 11th

Question came from another reporter at Bloomberg and they asked Jerome about The disconnect between the optimism he Was expressing on the podium and the Depressing statistics in the fed's Summary of economic projections Jerome Once again danced around the question Rambling about how interest rates are Starting to enter restrictive territory And it's unclear how long they will need To be kept there he also expressed his Frustration about the labor market not Cooling quicker further confirming the Fed's intentions The 12th question came from a reporter At NBC and they asked Jerome about Something he had said during previous Press conferences if you've been keeping Up with our summaries of the fed's press Conferences you might recall Jerome Repeatedly warning that there was lots Of economic pain to come The NBC reporter asked Jerome how much Pain there will be now that the FED is Planning on raising rates higher than When he had made those comments Jerome Gave a very political response and That's that there will be more pain If The Fed doesn't bring inflation back Down ASAP well I suppose he has a point The 13th question came from a reporter At Fox Business and they asked Jerome Whether the Fed was considering changing Its two percent inflation Target now

Although some media Outlets reported That the FED is considering this Jerome Definitively stated that the FED is not Considering it and is not thinking about It this is pretty odd given that Jerome Seemed to admit that the Fed was Considering changing its two percent Inflation Target during the fed's Previous press conference if you're Wondering what a higher inflation Target Could mean for the markets well then be Sure to check out our video about that Using the link in the description Anyhow the 14th question came from a Reporter at CNN and they asked Jerome Whether the FED factors inequality into Its economic risk calculations I mean The last thing you would want is for Some groups to be more resilient than Others during an economic downturn they Must all suffer equally in all Seriousness Jerome did his little dance Which suggests that this is actually not Something that the FED is factoring in But he claimed that it is after being Pressed by the CNN reporter for a second Time There's no question that Jerome is Actively trying to avoid these kinds of Questions Now the 15th question came from a Reporter at Marketplace they asked Jerome a doozy and that's what the FED Will do if the economy goes down the

Toilet but inflation remains High Jerome was visibly struggling and all he Could say is that he doesn't want to get Into hypotheticals yikes The 16th question came from a reporter At MarketWatch and they asked Jerome Whether the labor shortage could be Addressed by increasing immigration Jerome who typically avoids playing Politics said that yes logically more People means that the labor shortage Comes down Now I reckon that if the immigration is Illegal then it also brings wages back Down due to lower under the table pay Which is exactly what the FED wants to See but let's not go there The 17th question came from a reporter At Yahoo finance and they asked Jerome How deep of a recession the FED is Willing to accept given its 0.5 percent GDP forecasts Jerome claimed that this Is something the FED officials haven't Discussed but I suppose we'll find out When the fed's minutes are released more About the FED minutes in the description So the final question came from a Reporter at market news and they asked Jerome whether the FED wants interest Rates to be higher than core inflation Realizing that the reporter was really Asking when the FED will pivot Jerome Said that the FED will not cut rates Until it's confident that inflation is

Coming down And with that the press conference was Over and Jerome waddled off stage only To be seen again once treasury secretary Janet Yellen sees her shadow Let's hope that this doesn't happen Anytime soon and let's also hope that Bank of America CEO Brian Moynihan Doesn't become the next treasury Secretary You can find out why that would be a Disaster by watching our video about ESG Using the link in the description so This brings me to the big question and That's what the fed's press conference Means for the crypto Market Well if the FED follows through on its 2023 rate hikes then it's not going to Be good the crypto Market will continue To crash until the FED pauses and will Only start to Rally once the FED pivots If you watched our video about the Bullish crypto Catalyst that could end The bear Market you'll know that the FED Pausing interest rate hikes in the first Quarter of next year was one of them Well it looks like this bullish Catalyst Has been pushed back and that's a Problem because it's arguably the most Important one As I implied a few moments ago however There's no guarantee that the FED will Manage to raise interest rates all the Way up to five percent or more

This is because the higher that interest Rates go the higher the likelihood that Something in the financial system will Break An example of this is the breaking of The guilt Market here in the UK Something we also covered in another Video the short of it is that UK Government guilts that is bonds crashed In price which started to squeeze Pension funds which were trading that Government debt synthetically with Leverage The bank of England eventually had to Step in which was perceived by many to Be a de facto pivot it's quite possible That we will see a similar situation Arise in the United States or elsewhere Because of the fed's ongoing rate hikes Realistically speaking though it's more Likely to happen outside of the United States Some macro analysts believe that China Will be ground zero for the next crack In the financial system However it's not clear whether the CCP Will admit that something is going wrong It's also not clear whether the FED will Step in to save China given its Relationship with the United States Regardless so long as nothing in the Financial system breaks then the FED Will continue to raise interest rates Money will continue to flow out of the

Financial system to pay back ever more Pricey debts and less money will be Created due to more expensive credit Costs Crypto will continue to suffer as a Result The caveat is that if the FED is forced To Pivot because of a problem in the Financial system then crypto will rally Like crazy to my mind this seems more Likely than not given that powerful Individuals and institutions are Desperately trying to inflate away their Debts by any means necessary but that is A topic for another time Foreign