What Will The FED Do NEXT!? Press Conference Tells ALL!!

Quote the banking system is sound and Resilient this is what fed chairman Jerome Powell said after giving markets The middle finger with another 25 basis Point rate hike in the middle of a Banking crisis yep the FED seems to be Dead set on reaching its two percent Inflation Target and it doesn't seem to Care about how many bodies it leaves Along the way figuratively speaking of Course so today I'm going to summarize What Jerome said at the fed's most Recent press conference and tell you Exactly what it could mean for the Markets Let's start with a quick recap the FED Has been raising interest rates since Last March but markets have been slowly Sliding since November 2021 when the FED First announced its rate hiking plans This is because the markets are Forward-looking today's prices React to What will happen in the future by Contrast it takes around a year for the Actual economy to react to the fed's Rate hikes this is because it takes time For existing debts to become more Expensive and for the issuance of new Loans to slow down This means that the actual economy is Only just starting to be affected by the Fed's rate hikes so far we've seen four Banks go down and it's possible that More may have gone by the time you see

This video if you've been keeping up With our coverage of the banking crisis You'll know the reason banks are under Stress is because of a mismatch between Assets and liabilities that is customer Deposits In short Banks make money by investing Or lending out customer deposits this is Fine so long as the assets they're Acquiring and the loans they're issuing Are worth the same or more however Rising interest rates have caused the Value of both to fall meaning many banks Don't have the money to honor Withdrawals now believe it or not but The FED is happy with this scenario Because it means that banks are becoming More careful with which assets they buy And which loans they issue this Essentially reduces the amount of money In the markets and in the economy this In turn lowers inflation which is what The FED wants now obviously the FED Doesn't want a full-blown banking crisis Because then it would have to lower Interest rates and start stimulating Again this would cause inflation to rise To unsustainable levels the Silver Lining is that it would cause all assets To Skyrocket especially high risk assets Like crypto and Tech this is ultimately Why markets have been rallying since the Start of the year they've been betting On the FED to lower interest rates and

Start stimulating in response to a Crisis caused by high interest rates the Current banking crisis seems to be a Good candidate and price action has been Predictably volatile The depositor bailouts of Silicon Valley Bank or svb and signature cause the Fed's balance sheet to expand in other Words the Fed was forced to print money This caused a rally however the recent Acquisition of First Republic Bank by J.P Morgan did not result in any money Printing this caused a crash how the Markets react to any additional bank Failures fundamentally depends on Whether it results in the feds expanding Its balance sheet or not It also depends on where the markets Think interest rates will go the banking Crisis has the markets betting on Cuts But so far the FED has continued to Raise rates This brings me to the fed's most recent Press conference which took place on the 3rd of May for context fed press Conferences come after the FED announces Its interest rate decision this happens Once every six weeks or so if you missed Our summary of The Last press conference The link will be in the description Now the press conference began with fed Chairman Jerome Powell waddling up to The podium with his big white binder of Prepared answers to prepared questions

I couldn't help but notice that he Accidentally bumped the mic before he Started to speak some would say that's a Sign of nervousness In any case Jerome started by addressing The elephant in the room the banking Crisis he said that conditions in the Banking sector have improved since March That the banking system is sound and Resilient that the FED is monitoring the Situation and that it recently released A report about it now this statement Came as a shock because First Republic Bank had gone under just a few days Before and the stocks of a few Regional Banks were in free fall speaking of Which if you're wondering what happened To First Republic and why the banking Crisis could be close to over the link Is in the description Then after addressing the banking crisis Jerome pivoted to monetary policy he Said the FED is strongly focused on Bringing inflation back down to two Percent he reiterated that the FED had Decided to raise rates by 25 basis Points and said that the FED will Continue to reduce the size of its Balance sheet on that note you should Know that the fed's balance sheet has in Fact been contracting again the Practical effect of this is supposed to Be analogous to another rate hike but It's not clear how much or when these

Effects are felt regardless it's Something to be on the lookout for going Forward now concerning the economy Jerome said that GDP growth has been Modest that housing has been weak but That the labor market is still tight and That unemployment is only at 3.5 percent For reference the fed's unemployment Target is four percent and its inflation Target is two percent meaning the these Two make up its mandate Jerome then pointed out that while Unemployment is low inflation remains High he went on to cite the personal Consumption expenditures index or pce The fed's preferred inflation measure Which has come down He also cited core pce which continues To stay high this core pce is what needs To come down Jerome then concluded by saying that We'll take time for interest rates to Affect the economy specifically Inflation he confirmed that there will Be tighter credit conditions as a Consequence of the banking crisis and Said it will further lower inflation He also stated that the FED will raise Rates further if necessary Now once Jerome was done the question Period began the first question came From a reporter at the New York Times They asked Jerome whether the FED will Pause in June and whether it's

Forecasting a recession Jerome said that the rate hike decision Will depend on incoming data regarding The recession Jerome said that it's not His base case He said that the economy will continue To grow despite the rate hikes but Acknowledged that the other fed Governors don't see it that way he said He couldn't speak to their predictions And to wait for the minutes I.E summary Of the meeting note that the minutes are Released three weeks after the FED Meeting rate decision and press Conference the second question came from A reporter at the Wall Street Journal They asked Jerome how the debt ceiling Issue will affect the Fed Jerome basically said that it's not his Or the fed's job it's congress's job he Urged politicians to raise the debt Ceiling but claimed that it would not Affect the fed's decisions more about The debt ceiling issue in the Description I digress The third question came from a reporter At CNBC they asked Jerome why the FED Didn't act sooner on svb given that they Were briefed on the bank's risks in February Jerome said that he didn't Remember that presentation very well and Said that the FED had already been Investigating a non-answer Now what's interesting is that the FED

Doesn't typically mention banks by name In these kinds of reports and briefings This was pointed out by macro analyst Jim Bianco who said it's possible that This briefing was leaked to investors His evidence for this is that svb stock Started to crash the day after the Briefing this begs the question of Whether svb was explicitly targeted we May never know the answer Speculation aside the fourth question Came from a reporter at Politico they Asked Jerome whether consolidation in The banking sector increases Financial Stability risks a reference to JP Morgan's acquisition of First Republic Jerome said Bank consolidation has been Happening for decades however he didn't Answer the question about financial Stability Now logically the answer is yes as a System becomes more centralized it Becomes more unstable ironically the Regulatory response to financial Instability around the world has been to Introduce even more centralization Anyways the fifth question came from a Reporter at the financial times they Asked Jerome whether tightening credit Conditions still count as another rate Hike Jerome said it's hard to say and Admitted that it complicates the fed's Decision on interest rates in theory he

Said it counts as a rate hike this could Mean there will be no rate hike at the Next meeting but Jerome mentioned in a Follow-up response that it's just Something else they'll factor in and This ties into the sixth question which Came from a reporter at Reuters they Asked Jerome whether the fed's current Interest rate of 5 to 5.25 percent was Sufficiently restrictive Jerome said It's too soon to say but reminded Everyone that this is the level where Most fed members believed the terminal Rate would be The Reuters reporter followed up by Asking how much Bank lending had Contracted Jerome revealed that the FED Will be releasing a report on bank Lending on Monday the 8th of May you can Bet that the contents of that report Will cause a lot of Market volatility The seventh question came from a Reporter at the Wall Street Journal They asked Jerome why the FED is still Raising rates if it sees a recession on The horizon Jerome said that the FED must balance The risk of doing too much and crashing The economy or doing too little and Letting inflation run wild The Wall Street Journal reporter followed up by Asking how much data the FED needs to Make its decision on interest rates Specifically between meetings in his

Response Jerome revealed that the FED Will need to see quote a few months of Low inflation Data before it starts to Ease interest rate policy call me crazy But I'm pretty sure this is how long the FED plans on pausing for take note The eighth question came from a reporter At Fox Business they asked Jerome Whether the FED will pump the brakes When inflation comes down to its Projected three percent Target at the End of the year Jerome said that the FED Won't stop until inflation is backed Down at two percent and said it will not Be a smooth process that is an Understatement given the circumstances The Fox Business reporter followed up by Asking whether the FED will start to pay Closer attention to the employment part Of its dual mandate as time goes on Jerome said yes but the time for that is Not now he repeated that the labor Market is strong and inflation is too High tighter policy is required the Ninth question came from a reporter at Bloomberg they asked Jerome why he Thinks the U.S won't enter a recession Jerome said it's because this time is Different the deadliest words in Investing he said that the labor market Will remain strong as the economy slows Technically not a recession after a Confusing question about profit margins From a reporter at the Associated Press

And an equally confusing answer from Jerome another Bloomberg reporter asked Jerome what data the FED is looking at He said they're looking at what you'd Expect inflation employment Etc but also Credit conditions the Bloomberg reporter Followed up with a question about rate Cuts which Jerome had initially Forgotten to answer no coincidence there I'm sure Jerome said that if the fed's Inflation projections play out they will Not cut rates but if core inflation Suddenly starts to come down they will Cut The 12th question came from a reporter At axios They asked Jerome whether the reverse Repo facility was contributing to the Banking crisis given that it offers Money market funds High interest rates And depositors are fleeing to money Market funds for these yields Jerome Said no but that's ridiculous Jerome Also said that bank deposit outflows Have slowed which is not ridiculous this Does seem to be the case you can find Out why by checking out our first Republic video I referred to earlier Now the 13th question came from a Reporter at CNBC they asked Jerome what It would mean for Americans if the U.S Government defaulted on its debt Jerome Rambled a bit and then said something Funny and that's that it would damage

The US's reputation because that is the Most important thing The 14th question came from a reporter At NPR they asked Jerome about the fed's Recent report about the banking crisis And how Vice chair for supervision Michael Barr determined that happened Because of amendments to Dodd-Frank Jerome seemed to disagree and argued it Was Tech related now for those Unfamiliar the Dodd-Frank Act introduced A series of regulations after the 2008 Financial crisis if you've watched any Of our videos about Michael Barr you'll Know he co-wrote Dodd-Frank you'll also Know he was critical of the amendments To the ACT which reduced the fed's Oversight of smaller Banks But if you watched our video about the Hearings following the banking crisis You'll know that this oversight would Have made no difference because the FED Wasn't even stress testing banks for the Scenario that played out You'll also know that Michael himself Seems to have failed in his oversight This relates to the 15th question which Came from a reporter at market news they Asked Jerome whether we were at the Beginning or the end of the banking Crisis Jerome said that the fall of First Republic marked the end of the Crisis those may end up being his famous Last words

This relates to the 16th question which Came from a reporter at MarketWatch they Asked Jerome whether he had reflected on His own actions during this crisis Jerome deflected and said that Dodd-Frank puts the vice chair of Supervision in charge of all this stuff Implying it's Michael Barr's fault The 17th question came from a reporter At Barons they asked Jerome whether the FED discussed pausing at its most recent Meeting Jerome confirmed that they did Discuss pausing but not anytime soon he Underscored the fact that there was one Hundred percent support for the 25 basis Point hike Now this is more significant than you Think because fed officials have the Ability to dissent I.E oppose the fed's Decision on interest rates historically Dissent has been common when the FED Went to one extreme or the other Now the final question came from a Reporter at Marketplace they asked Jerome what lessons the FED had learned From the banking crisis Jerome said they learned that bank runs Happen a lot quicker than they used to And said that there needs to be Additional supervision and regulation to Address this This is also more significant than you Might think because it implies that the FED will impose de facto Capital

Controls on bank accounts this means That the next time there's a banking Crisis the FED will prevent you from Withdrawing Now this kind of functionality is core To Central Bank digital currencies or Cbdcs say did you know that the FED is Planning to release fed now a fast Payment system that's analogous to a Cbdc system in July no probably nothing Anyway more about cbdc's in the Description So now for the big question what does This mean for the markets well the Answer depends on whether the FED Manages to follow its forward guidance If the Fed succeeds in keeping interest Rates High the markets will suffer If The Fed fails or even deviates slightly From its stated path the markets will Rally As I mentioned earlier the rally we've Seen since the start of the year has its Roots in the belief that the FED will Blink and engage in monetary Accommodation that will be beneficial For the markets this hasn't happened yet And the fact that the FED is unfazed by The banking crisis suggests it won't Happen soon That said history suggests that Something will happen that forces the FED to Pivot the questions then become What and when

The what is probably a credit crisis of Some kind the when is therefore sometime Later this year because credit Conditions have only just started to Tighten among Banks If you watched our video about Commercial real estate you'll know that The sector has been hit hard by higher Rates and will start to fall apart if it Can't access new credit The thing is that stress in the Commercial real estate sector has Already been priced in by the markets Remember forward looking As such the credit catalyst is likely Something that the markets aren't paying Attention to this could be stress in the Shadow banking sector because of the Commercial real estate crash per our Related video it appears that Pension Funds and insurance companies have lots Of commercial real estate Investments Still this is also something that's Probably been priced in by the markets So from where I'm standing the only Thing that hasn't been priced in is some Kind of credit crisis somewhere overseas It's easy to forget that there's more to The world than the United States and Most of the world's debt is denominated In US dollars If you think about it though the Scenario that's the least priced in is That there will be no credit crisis at

All that there will be no Catalyst that Forces the FED to Pivot this outcome Would be the worst for the market Because it means the FED would keep Interest rates High until core inflation Hits that two percent Target Now consider a scenario where core Inflation gets stuck above the fed's two Percent Target which forces the FED to Keep interest rates higher for longer Than even Jerome expected meanwhile the Markets continue to chop sideways and The economy continues to chug along as Mega Banks buy up their fallen Competitors this would be a truly Unprecedented outcome and it's nobody's Base case not even mine Actually it is one person's base case And that's Jerome I reckon it's only a Matter of time before we find out Whether he's putting his money where his Mouth is knowing the fed's ponchon for Insider trading If he is we're in trouble And that's all for today's video If it Tickled your fancy tap that like button If you want to make sure you don't miss Any of our coverage of the fed and the Markets subscribe to the channel and Ping that notification Bell better yet Take a second to share this video with Others so they're in the loop too and if You happen to be into crypto check out The coin Bureau deals page it's got

Massive discounts on crypto hardware and Thousands of dollars of trading Incentives on the top crypto exchanges The link will be down in the description Thank you all for watching and I'll see You next time till then cheerio [Music]