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The Federal Reserve gave us one hell of a meeting today and there is so much to parse out of this. Are we going into a recession or not? How bad is what's actually happening? And what's Powell doing about it? Is he going to be too late? I'm going to tell you everything in this video. Spoiler alert, he's going to be too late and it's creating a little bit of a problem in markets.
Let's talk about this quick note. I want to show you from the alpha report this morning. Mind you, I also sent out a buy alert during the dip of the Fed meeting. Everybody who's a course member of the Meet Kevin Alpha Report got an alert through our app. It's really great. But look at what we wrote this morning.
This is a sneak peek into how I do with my alpha reports. So, it's not like some fancy document. It's I'm typing it with y'all, right? But it's it's it's real. It's my opinion. And so, this morning, this is exactly what we said. This is what we predicted. Powell 65% chance he comes in on neutral. I said, "We don't really think a 25 move does anything to bonds.
Expect flat and slightly up on yields as Powell talks about the balance of risks, data dependent, and being meeting by meeting." Mind you, he did all of that. Uh, we will also unpric this six cuts by March idea, especially on the back of retail sales, Atlanta Fed GDP. In my take, we're going to see yields up after Powell today, maybe to 4.15 on the 10-year.
That could give hit real estate stocks a little bit and give us a bit of a dip by today. Something that we wrote this morning and boy, here's what we got from the Federal Reserve. So, I'm going to give you what happened. All right, so if you want that, you just go to meet me Kevin.com membership. So, here's what happened.
We got a 25 basis point cut. We only had one descent. We were expecting Bowman and Waller to join in descents. Nope. Everybody ostracized but I have to give credit. He didn't go dirty on the summary of economic projections. He could have gone dirty on the summary of economic projections and really tried to sandbag the SEP, but he didn't.
He didn't screw up the ranges of the SEP. He stayed broadly in line with everybody. And this Fed is unified that unemployment is going to stay in the mid4s. Now they gave us a forecast that we are going to get three rate cuts this year with 25 basis points of cuts next year and 25 points thereafter.
This means yields are going up a little bit because markets have to unpric this idea that oh maybe we'll get a 50 or maybe we'll get six cuts by March. Some banks are calling for six cuts by March. Crazy. But anyway, I want you to see this. We only added 2.25% uh or we only had 2.2 25 cuts priced in.
So initially when we saw three cuts getting priced bringing that rate down to 36 at the end of the year that brings us down from four then to 375 then to 35 which is a range of 35 to 375. That's why it says 36. It's technically like 365 but anyway that's why we initially had this oh my gosh this is a dovish summary of economic projections.
We thought okay we've got a little bit of a revision up in growth. We were expecting a revision up in growth. They went to 16. I was thinking 17. I thought they would have shown more of a revision up in the unemployment rate. They don't actually think the unemployment rate is going to move up that much.
The Fed is very unified here. You don't have many crazy outliers. And even though you've got in here, the dots show a lot of unity with I mean that's probably over here, but again, everybody's just going to look at him as the Trumpian chill and it doesn't really matter. What matters more than all of this, mind you, is what Powell said.
Because initially this sounded dovish, right? We get this summary of economic projections and markets are like, "Oh, this is great. We're going to get more rate cuts." But wait a minute. Then Powell gave us a dose of reality. Then Powell told us, "Wait, guys. We've got serious problems and the labor market is getting worse than we thought." Now, I'm going to explain all of that, but I want you to know that his reaction to the labor market is getting worse was, "But we're going to stick with 25 basis point cuts and we're just not really going to do anything about it." That does create a little bit of nervousness, but it puts you in that neutral direction.
That's why I said neutral power, which to me is bullish for our indices and we're probably going to get to 600 on the cues by the end of the month. That's also one of our alpha report price targets for the end of the month. I shouldn't give away all the alpha, but that's our take. It aligns with the neutral point of view in the report that we issued this morning.
Now, what we have to know are the details of what Powell gave us. This is in my opinion the crazy part. To understand these details, you have to know there are two things that you could pay attention to to know if what Powell is saying about labor actually gets a lot worse. And you could get this in the Meet Kevin app, by the way, if you wanted.
All this is listed out in the Meet Kevin app. You could change the colors. You don't have to use this green color. But anyway, I'm going to read it off right here. So, what changes the labor market if labor force participation normalizes? Because it's been shrinking lately. It's been falling. It's been a little pee shrinkage.
Nobody wants that shrinkage. If labor for force participation rises again, the unemployment rate will skyrocket to 5% very rapidly and every single member of the Federal Reserve will be wrong and they will have to cut substantially faster and Jerome Powell will earn his name too late. Okay, scenario number one, labor force participation increases.
None of the Fed members are talking about it. None of them. That's a red flag. Okay. Then if layoffs increase, this is the second obviously the unemployment rate via the beaver cur the beverage curve will skyrocket to 5% and beyond very rapidly again indicating that the Federal Reserve will be too late.
So we got 25. Is that enough to help the market? No. Even well not not the stock market. Is that enough to help the jobs market? No. It's not going to make any lick of a difference to the jobs market. Now, why does that matter? It matters because of what Jerome Powell just said about the jobs market.
I'm going to break that down. Now, you know what the risks are. Now, you know why, you know, the the yields market is moving the way it is. You also know why we bought the dip. We also know we bought the Fed dip, right? We also know why the stocks, you know, stocks are moving up right now. But there's an underlying serious issue here.
And Jerome Powell gave us multiple warnings. We're going to talk about that. I do want to quickly shout something out. And this is something that a lot of you have been asking about. And I'm so excited about this because you know how I spend like 30 grand a year to get those EPS forecasts for companies and it's insane like how much money this company charges.
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Okay, so here are the bad ones. First, Powell told us that the QCEW revisions, oh, we expected that. The big 900,000 in job revisions, oh, we expected that. That is a sign that Powell is being more neutral. His neutrality isn't good here. It's his neutrality, in my opinion, will end up leading him to be too late.
He's not scared enough. Now, why do we think he's not scared enough? Well, we don't think he's scared enough because what he ends up saying, he says that even though right now the labor market is weakening and we're removing the word solid from the labor market is solid and we are below break even, we are only getting a 25 basis point cut.
That's why bond yields are up because we're only getting 25 which is the bond market telling you the Fed is going too slow. The bond market is screaming Fed, you're making a mistake. That's what the bond market is telling you. I want you to understand those those phrases are huge. He says the downside risk to unemployment have risen.
Disinflation continues in services which is good on inflation. It appears we are under the break even rate with hiring softening. Labor demand is less dynamic and softer. All bad. Tariffs are showing up, but the the the full effects remain to be seen. And we hope that they're going to be one-time and shortlived effects.
Weird way he says that. The problem with that is he's basically telling you, "Hey guys, we're good on inflation. we're going to mostly have transitory inflation over time. Of course, he's not using that word, but we're going to mostly have transitory inflation over time. So, he's not worried about inflation.
Then, he's telling you that we're under the break even rate of employment at 29,000 jobs over the last 3 months. And then he's only giving us 25. He actually goes as far as saying that even though Moran voted for a 50 basis point cut, he says this is a riskmanagement cut. There was not widespread support for a 50 basis point cut.
Now what's different, the reason we went for 25 and why we're going for three 25s this year is because last meeting we were at 150,000 jobs per month. Now we're at 29,000 jobs per month. This suggests the labor market is quote really cooling and it's time to take that into account. Damn it, Powell. If it's time to take into account that the labor market is really cooling and that we're below the break even rate of the labor market, then wake your ass up and give us bigger cuts.
This ain't enough and you're going to end up being too late. That's why we're seeing those bond deals tick up a bit, which was part of our neutral expectation. I expected this morning when I wrote this in the alpha report. I expected this morning I I told course members I'm like look he's just going to go meeting by meeting data dependent balance of risks he said all three of those things why well because why is he going to make a big forecast now you know Atlanta Fed GDP is at 3.6% 6%.
You've got retail spending, which is great. Although he mentioned that you got to be careful with retail spending because it's really just the higher income consumers, right? They're the ones who keep spending. The rich get richer. Everybody else who's trying to work for a living is suffering. You got people like Elon Musk bragging about how hard he's working to earn his trillion dollar pay package.
Oh, poor Elon Musk has to take a redeye at 11:30 at night from San Francisco or San Jose all the way to Austin, Texas, and it's a red eye. He makes it seem like he's sitting in a Spirit Airlines plane like this. You know, that's what he's making it seem like. I have short shorts on, so suck it. You get short shorts today.
This is what, guys? I had to take a red eye. I'm working so hard for my trillion dollars, bro. He's in the back of a Gulfream jet sipping on champagne and in a bed. He's got a bedroom in the back of his jet and he's trying to make you feel like he's working hard. Well, you should be doing this if you want a trillion dollars.
I don't know how I got into that rant, but the point is that there is real pain in this damn economy. And Jerome Powell is telling you, "Yeah, shit's kind of hitting the fan, boys and girls. We're below break even. Labor is weakening. You know, it's no longer a solid labor market. And there's meaningful downside risk.
That's these are quotes. I wrote these down as quotes. There is meaningful downside risk, which is quote now a reality. Yet, we only get 25. Again, we expected in the alpha report this morning that we were only going to get 25. We expected that yields were going to go. That's fine. That was my 65% base case.
I did have a neutral scenario which I called alternate number one but this didn't happen you know right here I said very concern like the dovish scenario would have been you know we're cutting more we're going to you know maybe we're even doing some QE we want to get back to a stimulus pow that's what would be great for TLT we want this Powell because it minimizes the risk of a jobs recession we want this but we did not get that we we also didn't expect we were going to get that and we didn't think we were going to get a hike either again 65% chance neutral we So, you've got a Powell who's basically like, "Yeah, you know, we know the labor market's going to shit." But, you know, we uh we expected that.
He literally said those words. Hey, man. Like, these revisions uh they're so large. These QCWs, yeah, you know, they were actually spot on our expectations. We expected that. I like Powell. Bigger cut then. Damn it. Uh then he gets asked about black unemployment, minority unemployment, which fact check here, black unemployment has shot up 1 and a.5% to 7.5%.
You know what Bloomberg calls that? They call that quote unquote. That's rare outside of recessions. It is a leading indicator of a recession. This is why Powell needs to wake up. But, you know, he's like, "Oh, you know, but households are still in good shape. Uh, you know, we we could always uh basically what he's implying is, hey, like if things really hit the fan, we could always cut faster, but we don't need to do that right now." So, yes, Powell is doing a really good job right now of earning his keep as being Mr.
Too late. This is this is not a surprise. We have the 10-year Treasury yield up modestly, 3.4 basis points to 4.06 broadly expected. Okay, we have markets that are recovering and I think we can get this slow schllogger up because we don't really have negative catalysts until when you should know this October 1st and October 3rd.
So with all that said, thank you for watching the Fed summary video. Make sure you check out our sponsor. Scan that QR code or just go to meet Kevin.com/pro and use coupon code meet Kevin to get those EPS projections and more. Try it out. Uh check out the Meet Kevin membership if you want. & about House Hack,
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