저자: Kevin · 외국인
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FOMC(3/18) 결과: 금리 동결, SEP는 금리·GDP 전망 무난했으나 파월이 SEP 신뢰도를 깎음. 노동시장 안정 문구 삭제, 금리인상 논의 언급으로 시장 하락. 헤드라인 인플레 기대(5년 BEI) 상승, 근원 상품물가 반등으로 금리인하 지연 예상. 파월은 워시 인준 전까지 잔류 시사. 중동(이란) 에너지 충격 불확실성 강조. 장기적으로 AI 생산성 디플레는 있을 수 있으나 현재는 인플레 요인으로 봄.
다듬은 글
Jerome Powell just gave us his press conference. Rates remain unchanged and he gave us a beautiful, delicious summary of economic projections that didn't imply rate hikes, that implied GDP growth, and that implied a stable unemployment rate. And then Jerome Powell had to come out during the meeting and say, "Never mind that.
We actually almost skipped doing a summary of economic projections because we literally have no idea. And instead, we talked about rate hikes." Yeah, boy oh boy, we got a lot to break down in this one because our expectations got turned on their head of what we thought. First, let's start with that summary of economic projections.
What we were looking for in the summary of economic projections was a projection of under 3.6 for the Fed funds rate. We got that. We got no movement here in the median. 3.6 3.6 3.6 3.5 Perfect. Great. Then, they even wrote up GDP. They brought GDP up 1/10 this year, up 3/10 next year, up 2/10 next year.
This was a beautiful summary of economic projections. Everything about the summary was great. The No stagflation here, a little bit of inflation, not a lot though. They only moved up the projection from 2 and 1/2 to 2.7 over here on core or 2.4 to 2.7 on PCE. I thought markets would even be okay with going all the way up to 3% here because of the Iran shock.
Uh so, overall, the summary of economic projection seemed fantastic. This was really good. Now, one thing that was bearish was in the actual statement, they did mention that we Well, they removed the employment and the labor market has shown some signs of stabilization and they changed that to the The market is little changed.
That was a little bit disappointing to see. It wasn't part of the summary of economic projections, but it was part of their statement. Uh Waller ended up moving from cut to hold, and so we got 11 votes to hold and one vote uh that was Stephen Myron for a 25 basis point cut. So, so far Kevin Warsh only has one friend.
If of course he takes over you know, because there's always the chance that Jerome Powell stays, which he also implied that he might stay. More on that and the mechanics of that in just a moment, which means we would probably delay rate cuts even more. Okay, a lot to break down here. Uh I just have to get it out of the way.
Yes, we're doing a large price increase on the programs I'm building at buildingyourwealth.me [email protected]. You can write it off on your taxes, almost certainly. Talk to your CPA. But you get all nine courses, the Alpha Report, every private live stream, every trade alert, short-term trades, day trades, medium trades, long-term trades, and all of the courses on building your wealth.
You'd use that coupon code two big to rig. And the reason we came up with two big to rig is because of the employment report, which Jerome Powell told us about as well. Jerome Powell, we project predicted yesterday, would end up trying to average the January and February unemployment reports. If you go back 24 hours ago to my video, prepare for the Fed's rug pull, I said that we're not going to get a change in rates.
But Jerome Powell is probably going to average the January and February jobs reports, and then say the focus right now is on inflation, potentially even implying rate hikes in the future. And unfortunately, exactly that prediction is what happened. Jerome Powell bluntly said, "Well, January was a positive surprise.
February was a downside disappointment, but if you average them out, you're relatively close to zero, which is likely as as a result of deliberate immigration policy. And since the unemployment rate isn't moving, maybe that's okay." Now, that totally ignores the fact that the Bureau of Labor Statistics just happened in January and February, but only in the February report is when we got the revision, revised down the labor force participation rate by 4/10 of a percent in January, which they revised that in February.
And then they revised down February by another 1/10 of a percent, so that way they could tell the whole world, "Oh guys, uh labor force participation has barely changed." Sure, from your revision, but if you add together the revision and the adjustment you made for February, it actually changed a lot.
Labor force participation plummeted half a percent. So if labor force participation stayed stable, or if it goes back up again, the unemployment rate's going to skyrocket past 5%. Boom, like that. Jerome Powell didn't mention any of that. He just simply said, "Maybe break evens right around zero, and uh maybe that's just what is keeping the unemployment rate stable, and as a result, we need to focus on inflation." And that's where unfortunately the bad poopy doopy words came up.
The bad poopy doopy words were evaluated through what Powell calls the dual risk. Now, you don't want to hear dual risk when it comes to Powwie Wowie. The part about dual risk is when Jerome Powell was asked, "Hey, you know, what about the chance for rate hike?" And Jerome Powell says, "We definitely did have a conversation about rate hikes for the next meeting." He says that there is a two-sided risk to the rates possibility, and even though the majority of members did not see a hike as a base case, several members did see a hike as a base case, and it definitely did come up.
So unfortunately, even though we got bingo, uh you know, it's usually not uh I mean, it's I guess it's it's is toss as to whether or not we get bingo. But we did end up getting bingo this time, which I'm excited about. Uh We got bingo. I'm trying to get it to load up here. For some reason, it disappeared on me.
But, anyway, there we go. We got bingo right down the middle is where I got bingo right here. I had to erase no hikes implied because he ended up implying rate hikes were a possibility later in the meeting. So, I had to erase the X that I put through that. But, we got Windows laptop, purple tie, Powell on time.
Oh, wait. No Well, no hike, no cut. That's what we got. And then downside risk to employment is what we got here. No mention of private credit. Obviously, some basics over here, but no mention on the renovation either, some of those things. And did not use the word transitory. Worth mentioning that he used the word one time.
Like, if you took a shot every single time he used the word one time price effect, you'd be massively You'd probably be in the hospital today. But, anyway, rate hike talk did come up, which wasn't great. We didn't want to hear that, and that contributed to the market selling down. So, the the case the play today was if we got a good SEP and Powell didn't talk hikes, we could go up.
But, we got a good SEP, but Powell talked it down, and we got talk of hikes, which was bad. Now, some of the other things that we got. We got the Middle East creates uncertainty, and even though the economy is expanding right now and consumer spending remains resilient, fixed uh a fixed business fixed investment is up, and uh activity in the housing market is leap weak.
We do see lower immigration and lower labor force participation. So far though, job openings and layoffs are little changed. Labor market has stable has softened, I should say. They did not use the word stable this time. The last three Fed meetings, they've talked about a stabilizing labor market. Did not mention that at all this time.
Longer-term inflation expectations consistent with goal, but there has been a rise in shorter-term inflation expectations. This is another poopy doopy that you should be paying attention to. This chart right here is the 5-year break-even inflation chart. It's what we think inflation will be via the bond market in 5 years from now.
And what we can see is we just broke the high of the end of 2024 after Trump's election victory over here. This was sort of as we were prepping for tariffs and getting liberated. We just broke the high of those inflation expectations. We now have the highest 5-year break-even since the banking crisis of 2023 when we issued the banking bailout to you know, essentially the unlimited bailout of FDIC which you know, followed Silicon Valley Bank and a lot of people like Gavin Newsom and David Sachs basically begging the Biden administration to bail out Silicon Valley Bank, which of course did end up happen.
But anyway, these inflation expectations created a problem for Jerome Powell because he recognizes there's a risk that as much as we want to look through Middle East inflation because it should be a one-time effect, we have had now a series of shocks that have interrupted progress on inflation. Obviously first COVID, but then Russia-Ukraine, the supply chain effects that happened after that, then of course we got the Iran shock now, and of course even last summer we had Operation Midnight Hammer in the shorter term Iran shocks.
So, we've been through quite a series of repeated reasons to see inflation rising leading a lot of people to start doubting that inflation's ever actually going to get back down to target. Now, of course Jerome Powell believes that the world hasn't changed and inflation is going to trend down, but we need to start seeing progress.
Jerome Powell admits we didn't make progress over the last year. 1/2 to 3/4 of a percent of our inflation right now is due to tariffs. And you can only really look through the energy price we're seeing now if you start seeing core goods inflation come down from inflation. And so far, we are not yet seeing that, which means in order for us to get a rate cut, we need to see progress on core goods inflation, which we pulled up just the other day here.
I'll pull it up again right now. Nick T told us that core goods inflation is actually rising. Jerome Powell says, "The longer we do not see progress on core goods inflation, the longer we will not see a rate cut. And this is why Jerome Powell sticking around, some people say, might actually be a sign that, uh-oh, he really is going to keep rates higher for longer and not cut anytime soon." See, here we have Nick T pointing out core PCE currently on a 1-month annualized basis at 4.5% 3.7% 3-month annualized.
Much of this, unfortunately, due to a rise in core goods pricing. In fact, here's the chart on the 12-month goods inflation index on a core level, and you can see a rise in core goods inflation, not a decline. This is bad news. It's not good no- news. Jerome Powell basically said the only way we could get a rate cut is if we start seeing that line come down, and we're not seeing that.
Uh so, that's not good. Now, slow progress on inflation, how long? He has no idea. He says, "We have no conviction on the forecasts we're making. We're going to have to wait and see what happens with Iran because the energy shock that we're experiencing could end up being worse or it could be better." He refused to give any kind of outlook on like a price per barrel that would be a problem or whatever, but he does say that rates right now are at the higher end of neutral or slightly restrictive.
We're looking for that runoff off tariffs to show up in core goods, and until then, we're not going to cut rates. So, basically, you're expecting, you know, no rate cuts anytime soon. He also mentioned that a non-housing services has been moving sideways in terms of inflation. He says this is frustrating because the labor market is not showing any signs of inflationary pressure, but usually, labor market pressure increases inflation in non-housing services.
So, if there's no inflation in the labor market for real wages, which is what UBS talked about this morning being a problem for consumers, made a video on that you should watch it if you haven't yet. Uh but non-housing services should then be coming down, but they're not. So, in other words, Jerome Powell's like, "This is a problem.
This is very frustrating. We're not seeing progress on inflation." He's kind of a little bit giving up. Well, I shouldn't say he's giving up, but he's throwing in the towel a little bit going, "Yeah, man, we don't know what's going on, but we're not seeing the progress we're hoping to see." Now, in terms of staying at the Federal Reserve, he said that he will stay at the Federal Reserve until Kevin Warsh is confirmed.
This means that if Congress does not confirm Kevin Warsh, then Jerome Powell could remain Fed chair for a while longer. Currently, the last meeting Jerome Powell is expected to be present for is on April 29th. That is supposed to be, well, I mean, as chair. That is supposed to be Jerome Powell's last meeting as Fed chair.
However, if Warsh doesn't get confirmed because the DOJ extends the investigation into Powell through appeals, then Powell is going to stay uh basically until Warsh is confirmed, which, if Warsh doesn't get confirmed until the investigation and appeals are over, then Powell could end up staying Fed chair for potentially another year while the appeals process goes on.
So, he could be here for an absolute while. Now, markets started selling down on that because markets are optimistic that Kevin Warsh is going to come in and cut rates, even though Kevin Warsh basically has no friends at the Fed right now, except for Stephen Myron, and you've got other people who are talking about rate hikes.
Several, I should say. Now, the other thing is Jerome Powell tells us that whether or not he's going to stay on the board after he is no longer chair. His answer is he is going to stay on the board until the investigation is over. So, even if Kevin Warsh gets confirmed and the investigation is still going on, Powell is going to stay at the Fed.
So, he'll be a vote at the Fed, a voting member of the Fed. Now, if Warsh gets confirmed and the investigation is over, it's unclear what Powell's decision is going to be. He says he's going to do what's best for the institution, which is probably staying and sandbagging Kevin Warsh. Anyway, uh so, if you take all of this together, it none of this was very bullish.
It makes sense that the market was not happy on this. I was looking for Powell to tell us no implications for rate hikes and a positive SEP, and then the market can move. That's not what we got. We got a positive SEP, but then they killed the credibility of the SEP saying they wanted to skip this SEP, that they have no confidence in it at all essentially.
And on top of that, this idea that they were removing stability in the labor market from their commentary, and Powell might actually stay a lot longer than expected because of the investigation that's going on. Powell is basically sticking it to Trump going, "You want to investigate me? I guess you're stuck with me longer then.
Fine, bring it. I'll stay here for as long as you want. I'll stay here for as long as you investigate me." It's like a double middle finger to Trump. And markets didn't want to hear any of that. So, uh ultimately this leaves the board probably on hold for at least the next 6 months. He says the economy is still relatively strong, and one one reasons they wrote up GDP uh in the SEP is because of the productivity that they're expecting to come from artificial intelligence and think they're continuing to see from artificial intelligence.
Now, Kevin Warsh thinks he can cut rates because of deflation coming from artificial intelligence, and Powell even slammed this. He said that you have to be cautious about assuming there's going to be deflation from AI in the short term because right now CAPEX build-outs, just look at memory prices for example, are actually pushing up inflation on not just energy costs, labor costs for construction or electricians or whatever, memory chips, whatever.
You're actually seeing AI cause inflation right now. You're probably raising productivity in the neutral rate as a result. Short-term inflation plus productivity raises the neutral rate, which means higher rates, not lower rates. And maybe in the long term you'll see deflation or disinflation, but not now from artificial intelligence.
And that's why Jerome Powell is basically anchoring higher for longer. It's not what markets wanted to see, but it is what we got. Now, unfortunately, if you go look at the bond market, you can see the 10-year yield has shot up after this meeting to 4.255 again. We were down to 4.2 before the meeting, which does indicate a three basis point rise.
Uh if we look at the two-year Treasury, it's actually up 8.1 basis points, quite quite a bit more than the 10-year here. And then if you look at oil, uh we do now also have an indication of a fire at one of the uh oil fields in the UAE, which uh I'm sorry, Qatar says fire at Ras Laffan area has been brought under control, no injuries uh reported.
However, that was a destination that Iran suggested they would attack in retaliation for the um uh gas fields uh South Pars attack by uh Israel and the United States in coordination this morning. So all of this quite not good unfortunately. And so it is unsurprising that we lost the 600 line, which is nowhere near as strong as 607 or 595.
But there was no trade to make here. And the only trade to make would have been after we got the information from Powell. And the information we got from Powell was bearish. At the same time you see that there are there is talk that oh who was it? There's another crypto firm that is Kraken. Kraken is shelving their plans to go public probably because of the performance of Gemini.
Gemini is down 15% on the day down what are we at now? $6 divided by their IPO high. We're now down about 87% on Gemini the crypto firm. And Kraken says, you know what? Maybe we won't go public in the face of that. Tough time to go public unless of course you're a low float stock like Swarmmer. We did a big analysis on them this morning.
But broadly if you want some more of our detailed insights, make sure you're part of that alpha membership. We're having a big price increase tonight at 11:59 p.m. Look forward to seeing you there. Make sure you join go to meetkevin.com or houselog.com. Coupon works on both sides and then we'll be raising the price a lot.
And eventually we might be getting rid of the individual option to use the house hack AI as an individual. We might just be selling that to brokers in the future who could then assign it to their agents. Might be a lot of profitability potential for house hack. So we're really excited about that. But anyway, all that for a different video.
Appreciate y'all being here folks. In the meantime, I wish you the best out there. Goodbye and good luck. Why not advertise >&g.
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