Today, the FED raised rates to their highest level since 2008 and signaled that more are to come. Needless to say, this will have huge ramifications and at Chairman Powell's press conference today, he said and I quote the expectation that rates will need to stay restricted for longer will hurt the chance for a soft Landing The soft Landing that everybody was hoping for is getting less and less likely unless this is your definition of a soft Landing Hey, at least you can tell it was an operational plane at some point in this video today. I Want to break down for you what the FED did and more importantly what they said is going to happen moving forward and what their policy trajectory is looking like. I Believe that the FED said loud and clear that if you are in any sort of asset class and especially the stock market, you will see significant, significant more reductions in value, significant more selling off and I will explain to you why and the receipts people say all the time Charlie You need you need to focus on the optimistic points being more of a glass is half full kind of guy.

Well, guess what folks Powell Took the glass and he threw it on the damn floor and now it shattered into a million little pieces. And if you walk across the floor Barefoot you're going to get massively cut. So my goal with these videos is to say hey, if you're going to walk across the floor, at least at least put on some sandals First, let's get violently to work time stamps down below and make sure to hit that subscribe button if you want to keep up to date with what is going on in this market. Shite chill because there's going to be a lot more coming.

So let's start from the bottom here. in my opinion, Chair Powell may be strongest statement he's made yet in this entire inflationary cycle, and that's not actually saying a lot, but he did make a hugely strong statement that we're actually standing up to inflation and we're not airing on the side of caution anymore. We're going full fledged Attack Mode Full-fledged Hawk Angry Angry Hawk Before this, his press conferences were kind of a circus where people would go and ask him questions and you can kind of tell that behind the scenes he still thought that inflation would come down on its own. He just wanted to do the bare minimum, so he would err on the side of being too dovish so that he doesn't over correct.

This time around, he's pretty much signaling hey, we're not going to err on the side of being too dovish. we're going to err on the side of being too hawkish. That way we know that we're stamping inflation out and markets really did not know how to immediately take that. It's bad news for valuation, certainly, but it's also Clarity and real commitment to solving this damn issue.

It was a very, very volatile session with the announcement immediately tanking the market and then Jerome Powell's press conference that came after the announcement caused a run back into the market and then some of his words caused to run out and then a new relief rally and then eventually markets settled on this actually being a pretty negative thing for valuations and I totally agree. there was nothing positive for equities in this announcement. So what happened? Well, we've been talking about how Fed Futures were forecasting a 75 basis point hike for today's meeting, and the FED has indeed decided to go with that today, but that wasn't a point of contention. Really, what markets care about is what's going to happen moving forward.

And the FED signaled more hawkishly today than most expected. Here's the new Dot Plot That shows where Fomc participants now see Target rates being at by each year end. So in this past summer during that massive bear Market rally, markets were very, very bullish and rallying stocks. Expecting the future of monetary policy to look something like this, you hit the high threes or low fours in Federal Funds rates by the end of 2022.

but then the FED pivots and rates drop into 2023 very very early on 2024, and you quickly get back to a long-term rate at 250, if not lower. In other words, things go straight down after front loading hikes in 2022. So basically everything is painful now. But in 2023, Boom.

Straight down markets go up and that's why people are buying stocks in the summer. But Fomc participants in their report released today now expect a completely different scenario. They expect rates to top out at 4 to 450 at the end of the year, which is higher than markets had expected even for this year, and then go up even more or even more into the end of 2023 between 450 and 5. with an official forecast meeting at 4, 6 by year end 2023, 4.6 percent.

and then only after that do rates start trailing back down ever so slightly into 2024, 2025, and then over the long run they end somewhere around 250. it's not clear what they designate as the long run maybe 2026, 2027. So instead of a front load of raid hikes and relief starting in 2023, there's a very strong consensus at the FED that rates will go up more and stay up in 2023, rather than pivot and go back down. which means a whole whole other year that markets did not see coming of a massive Central Bank roadblock for the economy and pretty much anything in the financial.

Market There's no pivot coming according to Fomc participants, and that's a big deal. a whole new year without relief, a whole new year of restrictive policy, and you have a pretty widespread consensus on rates for 2022 and 2023, with very few outliers. But what's freaky here is the consensus starts breaking into 2024, and it breaks in a way that looks more hawkish. You have a median that is expecting a cut in rates somewhere just under four percent, which isn't much of a cut at all.

But also you have a sizable amount of participants expecting rates to barely budge downward at all, and the few participants expecting strong cuts are very much outliers. so this is very hawkish. So right now the FED is forecasting that rate hikes are going to continue going up, and most importantly, they're going to stay up for a year plus, and then by year end 2024, participants aren't even really sure or in agreement at all if rates are going to go meaningfully back down. Which means we could have years years of restrictive policy today.

Jerome Powell Said that the level that we entered into today in terms of Target rate. that is what he considers the beginning of restrictive policy. Zone This Dot lot suggests minimum two more years of extremely restrictive policy and some years after that of still restrictive policy above where the current rate is, which again is a complete shift from the idea that all of the pain we would experience is in 2022 and then in 2023, rates would go back down very, very quickly. And as I would note alongside this very, very hawkish trajectory that the FED is laying out Fomc participants at least according to what Powell said today, they still believe that inflation is well anchored and expectations are well anchored Heading into 2023, Households and businesses still think inflation's going to go down.

If it doesn't go down, this trajectory is going to be a lot more hawkish. The 4.6 percent Peak that they're projecting is going to look like Child's Play compared to what happens if all of a sudden if all of a sudden energy goes back up. if all of a sudden Putin decides that he wants to do something more aggressive, or if all of a sudden OPEC doesn't want to be as much of an ally as they already aren't. Right now, the FED is making this forecast, but they still think that inflation is going to meaningfully go down.

If they're wrong, it has to be made more aggressive and the FED has acknowledged that. So this thought plot. if you want to understand why markets were upset, the Dot Plot kind of suggests that we're going to get really, really hawkish as a best case scenario. Next point.

So I watched the FED press conference and Powell answered several questions which made me believe that it's the Fed's expectation that asset prices will fall significantly more. not only will fall, but need to fall significantly more. I went ahead and I made some Charlie notes of course. so Stephen Wiseman over at CNBC summed it up very nicely.

Powell out hawked the Hawks Powell started by indicating that the expectation that rates will need to stay restricted for longer will hurt the chance for a soft landing. And of course, the harder The Landing the more equities and asset prices have to fall. He said rates are already having an effect on interest-sensitive spending such as housing and of course as stock market. Investments As rates go up, there's less incentive to buy equities.

but he and the rest of the Flomc committee forecasted rates going up significantly more. Which means what? which means what significantly more corresponding dropping Hal Was asked about the housing market specifically. He said house prices have gotten far out of balance and said housing market quote may have to go through a correction. A correction is 20 down.

When the FED says something may have to go through a correction, they aren't messing around. You can imagine the impact that you would see to the mass amount of Wall Street funds that have accrued leverage positions on real estate or individual investors or new homeowners that bought at the top. Some new banks are actually offering zero down home loans right now at the top of the market, which I think is very predatory. But the point is, when Jerome Powell says that we could see a correction that's 20 20 down, housing prices drop slower than stocks, but rarely do stocks bottom before housing even meaningfully corrects.

and right now, you're just barely starting to see prices drop in the housing market. He then talked about the labor market. He said there's only modest evidence that the labor Market has cooled in light of the high inflation that we're seeing. We think that we'll need to bring the Federal funds rate to a restrictive level and keep it there for some time.

So we talked about this earlier. Hit: The FED is saying we are going into very restrictive territory for a very long time here. He's saying hey, unemployment is so low that we can have a lot of Americans lose their jobs and be on the street before we even change trajectory. which again, obviously they don't want people to lose their jobs.

but that's what they're doing with these policies, right? many, many Americans will lose their jobs to pay for the fiscal and monetary policy decisions of the last couple of years, and the FED will ensure, will, ensure and basically guarantee that that's going to happen. And the longer that we are stuck at these restrictive levels and head into even more restrictive levels, the more that assets on a broad scale are going to lose their value and be decimated. But there is this one statement that quite frankly stands: Above All The Rest Powell was asked about the amount of pain he is expecting us to experience and he said basically I don't know I don't know the amount of payment we will experience I don't know how long it will last, but it is going to be based on the timeline to hit our two percent inflation goal. This is a very, very hawkish and dare I say dire statement.

He didn't say oh, the amount of payment we're experience is going to be based on the timeline where we start seeing a few months of downtrending inflation. No, he said it's going to be based on the timeline to hit two percent. As an inflation goal, we may see a two or three month consecutive downtrend in inflation sometime in the next couple of quarters, but we're nowhere near a two percent a two percent inflation rate. We are on a completely different planet.

If this is a two percent inflation rate, we're on a planet that's like way the hell over there you could be Buzz Light You're traveling at light speed and you still wouldn't get there anytime soon. So if you think about the statement very very carefully, it quite frankly spells out a Fed that is signaling it will be at war with inflation for quite some time and will not will not stop until inflation, and by extension, all asset prices have been bludgeoned significantly today. more than ever, the FED admitted that they don't know when inflation is going to come down. they don't know how long they're going to go into restrictive mode, but they are more than willing to put us in restrictive mode for as long as long as it takes.

Now will the FED end up pivoting again halfway through 2023? If we're in this massive massive recession and unemployment is ticking up insanely, Yes. I Think they will pivot, but right now they are setting the expectation that we mean business and as long as they're setting this expectation I Don't think there's much good news for the stock market I Don't think there's much good news for Real Estate Sure, you get those bear Market Rallies in the stock market. You get people going and covering short positions. You get people doing this or that.

but at the end of the day, momentum trading aside. I Think the overall trajectory is going to be down until the FED actually says hey, we recognize inflation is going down, We are convinced it's going down, and we are going to start pivoting on policy rate hikes, are going to start stopping, and we're going to start going back down earlier than this Dot Plot suggests. Anyways, that caps off the video. Make sure to get your up to 15 free stuff with MooMoo down below if you want to learn how to trade rather violently with our step-by-step lessons, private chat, daily morning briefings as well as our full price Target List I Will put a link to Zipreal to you below.

Have a good one folks and I will see you in the next video.