URGENT: Federal Reserve Cancels Recession, Prices Fall, Massive Pivot Ahead

URGENT: Federal Reserve Cancels Recession, Prices Fall, Massive Pivot Ahead

what’s up you guys it’s Graham here and
you absolutely have to pay attention to
what just happened as of a few hours ago
the Federal Reserve has decided to once
again pause any rate cuts for the
foreseeable future except this time
investors are pricing in the likelihood
of something that no one saw coming
another rate hike that’s right after
Rising inflation falling stock prices
and international tensions the market
now believes there’s a 20% chance that
the Federal Reserve will be forced to
raise rates again in the next 12 months
to help lower inflation and as we just
saw from today’s meeting they could
immediately flip so given the recent
changes combined with delayed Mass
layoffs uncertainty for housing prices
stock market Jitters and the strong
likelihood that something is going to
break let’s discuss exactly what drone
Powell just said the realistic impact
this is going to have on you and what
you could actually do about it to come
out ahead on today’s episode of
groceries are now the hottest new
spending category of 2024 although
before we start as usual if you
appreciate all the work I put in to try
to get this video out within a few hours
of the Federal Reserve meeting do me a
favor and hit the like button or
subscribe that’s all I ask for it helps
out the entire Channel tremendously and
is a thank you for doing that I’ll do my
best to respond to as many comments as I
can so thanks so much and also big thank
you to policy genius for sponsoring
today’s video but more on that later all
right so first in terms of getting to
the bottom of what’s actually going on
and why we’re even here today let’s
discuss inflation this is simply the
rate in which products and services
increase in value over time it’s
typically measured either month over
month or year over year and in really
broad terms the federal reserve’s entire
goal is just to get inflation to return
to their 2% Target without completely
destroying the economy in the process
and as far as how they’re doing with
this the honest answer is not as good as
they’d like that’s because inflation
recently came in a lot higher than
expected at 3 1.2% and this means
inflation isn’t just not going away it’s
actually beginning to accelerate in
certain categories as you could see
Prices rose 1.1% after climbing 2.3% in
February shelter cost Rose 4% up 5.7%
from a year ago egg prices increased by
almost 1% and medical care services
surged by 6% all of this is slightly
concerning since month-over-month
inflation has only been increasing since
October of 2023 and this means it’s been
on an upward trajectory for nearly half
a year but separate from that though we
also have what’s known as core CPI which
purposely excludes more vol categories
like food and energy since those could
be seasonal and when this is taken into
consideration as you could see inflation
stay the exact same as in there’s been
absolutely zero progress month over
month all of this suggests that
inflation is becoming very sticky in the
3% range and unless the Federal Reserve
is able to see a meaningful decline to
their 2% Target the thinking is that
they’d be unable to lower rates as much
as people would like in fact I mentioned
this quite a few times before but this
is something that Michael bur previously
warned warned us about he said that in
the past inflation appears in spikes it
resolves fools people and then it comes
back with a chart showing that since the
1940s inflation never just occurred once
and then disappeared even the White
House did an analysis on inflation post
World War I and they concluded that in
almost every case inflation took several
years to normalize from the peak and it
never flatlined with higher interest
rates alone although before we discuss
what Dr own pal just warned us about and
how this is likely to affect you let’s
break break down what’s happening
throughout the markets because there’s
quite a lot to talk about especially
when it comes to stocks look it’s no
surprise this entire year has been a
roller coaster for stocks like initially
the S&P 500 gained almost 10% in the
promise of multiple rate Cuts but once
it became clear that investors were
starting to get ahead of themselves
prices fell throughout some of the worst
days since 2023 including a day where
metastock lost 15% after earnings now
obviously some of the day-to-day
volatility is completely normal
especially when we’ve already hit
multiple all-time highs this year but in
terms of where the market is currently
trading according to one indicator it’s
really expensive for instance Warren
Buffett developed his way of identifying
how well the stock market is priced and
as he said it’s probably the best single
measure of where stock valuations stand
at any given moment so how does it work
well CNN points out this strategy
measures the size of the US Stock Market
against the size of the economy by
taking the total value of all publicly
traded companies and dividing that by
the last quarterly estimate for GDP this
ratio then signals if investors are
getting a little bit too greedy or if
stocks are trading below what they’re
fundamentally worth with this gauge a
reading of 100% is said to be fair at
70% stocks are a bargain price and if
it’s near the 200% Mark investors are
playing with fire and I think you could
see where I’m going with this as at the
time I’m filming this video the current
Buffett indicator stands at
193% suggesting that the stock market is
trading Beyond what the economy is able
to handle and signaling that potentially
there could be some rough times ahead
after all the last time it was above
this amount was back in late 2021 before
the market fell 20% this is also one of
the first times ever that the stock
market has been trading this much higher
relative to GDP and this basically means
that all a company has to do is mention
the words Ai and their stock seems to
Surge 5% after hours which probably
isn’t healthy however In fairness the
buffet indicator is said to be somewhat
flawed it doesn’t take into account how
current interest rates affect a
company’s valuation but that hasn’t
stopped the economist John hosman from
saying that my impression is that
investors are presently enjoying the
double top of the most extreme
speculative bubble in US Financial
history he’s also previously pointed out
that non-financial stocks are currently
trading at levels that we have not seen
since 1929 and 2001 because of that he
believes that these levels indicate that
the S&P 500 is likely to return around
-5% annualized over the next 12 years in
addition to that CNN also mentioned that
the former treasury secretary Larry
Summers Fred over the markets last week
and said that I certainly think we’re at
least at the foothills of bubbles while
a separate wealth advisor warned us of
something similar saying that every
single indicator seems to tell us we’re
in a historic historic bubble but
critics of the Doom and Gloom say that
in the past bubbles are the result of
hype but these days AI is not just hype
because it’s being deployed at an
alarmingly fast rate like just take a
look at Wendy’s they’re testing another
brand new AI menu and if you take a look
at it it’s actually quite impressive can
I have a chocolate frosty which size for
the chocolate frosty medium can I get
you anything else today no thank you
please pull up to the next window
anyways proof that markets are settling
into new valuations senior investment
analyst of Charles Schwab pointed out
that about 23% of the S&P 500 companies
made a new 52- we High last week and the
equal weighted S&P 500 is up by nearly
25% since its October 2023 love plus
even a black rock strategist said that
the equity Market rally we’ve seen so
far has been driven by earnings growth
if the earnings growth wasn’t taking
place I may have been more open to
acknowledging the bubble concept of
course in terms of whose right is yet to
be seen but one thing is for sure in
2024 dumb money is getting a lot more
confidence and when that confidence
reaches an equilibrium with smart money
that generally means the market moves
upwards in the near future since Bulls
see any dip as an opportunity to buy
back in although there is another Market
that’s beginning to take some of the
spotlight away from stocks and that
would be real estate although before we
go on that I get it times like this
could be stressful there is a lot of
uncertainty in the markets and just like
the lack of rate Cuts there is nothing
in life that’s guaranteed except for
death and taxes after all I like to
think of myself as being fairly
optimistic but there are some things in
life that are just outside of your
control like I recently made a will and
even though that’s something I never
wanted to think about it’s something
that’s smart to have the same thing also
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thanks so much and now let’s get back to
the video all right so in terms of
what’s happening with the Federal
Reserve before we go into J Pal’s latest
comments let’s talk about the topic that
you’ve been waiting for and that would
be housing prices on a broad scale the
mortgage giant Fanny May found that
single family home prices increased a
whopping 7.4% year-over-year with 1.7%
of that coming in just the last 3 months
why well the easy answer is that there’s
still a severe lack of inventory as
existing homeowners refus to let go of
their record low mortgage rates so as a
result new home sales are surging in
fact it said that the supply of new
homes for purchase Rose to 477,000 in
the month the highest since 2008 and the
good news for buyers is that those homes
are actually selling for 1.9% less than
a year ago as the market begins to
somewhat normalize of course in terms of
what’s Happening Nationwide look no
further than redin who compiles a very
comprehensive list on precisely what’s
going on throughout every single market
and this last month is very interesting
as they say even though home prices are
higher year-over-year the rate at which
they’re increasing is beginning to slow
down due to higher mortgage rates on top
of that home prices actually fell in
nine of the 50 largest metros with San
Jose seeing a 1% decline from a month
earlier although In fairness San Jose
was also one of the areas that went up
the most year-over-year at
17.5% so falling a is still kind of like
a drop in the bucket now separate from
that Zillow also has a lot to say in
their monthly housing report and in
terms of where they think the market is
headed they’re forecasting a 1.9% growth
over 2024 which is slower than long-term
Norms but a welcome slowdown for
first-time home buyers in this case
their reasoning for more growth is the
fact that the higher mortgage rates go
the less likely existing homeowners are
to sell and coincidently as a result the
higher prices tend to be that of course
is squeezing a lot of people out of the
housing market and is somewhat feeding
into this article which found that
nearly half of all baby boomers couldn’t
afford their current homes if they were
to buy them today in this homeowners
were asked if you were looking for a
home to purchase do you think you’d be
able to afford a home like yours in your
neighborhood and almost 40% of
respondents said they probably or
definitely couldn’t especially since
most of them had bought their home at
least 5 to 10 years ago this is all
causing quite the double-edged sword
because even though existing homeowners
have benefited from rising property
values they can’t access that money
without giving them their mortgage rate
or selling and they can’t afford to buy
a new property without their payments
dramatically increasing now to make
matters even more complicated Rising
insurance claims combined with higher
replacement costs is causing some
insurance companies to straight up leave
certain areas because they’re no longer
profitable like California in this case
several large insurance companies
including State Farm are no longer
issuing policies and leaving a lot of
people at risk of paying new premiums
they can’t even afford why well certain
locations are more prone to natural
disasters than others this could include
floods fire damage and earthquakes so
when materials are going up labor is
more expensive and the risk of disaster
increases premiums have to go up to
compensate for that level of risk and
when that risk is just too high to take
on those companies leave and that’s a
massive problem in this case seven of
the 12 largest Insurance Groups in
California have either paused or
restricted new homeowner policies in the
last year which basically means
inflation could be on the rise again
although lastly before breaking down
what jome Powell just said in his
conference a few hours ago let’s talk
about one final topic that’s beginning
to gain a lot more attention and that
would be Bitcoin even though its prices
stayed relatively flat after the long
awaited having were fewer Bitcoins are
mind Hong Kong just recently approved
their own Bitcoin ETF which has
officially begun trading yesterday on
April 30th in terms of how big this
could potentially be the United States
Bitcoin ETF saw inflows of $56 billion
in just the first 3 months and Hong Kong
has the potential to add another 1
billion which is small in comparison but
it could lead to a lot more Bitcoin ETFs
being created around the world now even
though this might seem overall bullish
for the future of prices keep in mind
that inflows to bitcoin ETFs have
recently begun slowing down with black
rocks fund recently seeing a0 day for
the first time since its Inception or in
other words just as many people are
selling as they were buying it’s also
warned that we might see both
diminishing returns and a shallower
total drawdown effect over time which is
natural result of the growing Market
size and scale of capital flows required
to move it basically to summarize this
all this means is that the higher the
price goes the more money it takes to
move the price even higher and when that
happens it’s probably going to rise at a
slower Pace unless we see a large influx
of cheap money to boost it up and in
terms of what your own poell is here to
say about it here is what you came for
like I mentioned earlier as of a few
hours ago the Federal Reserve has
decided to once again not lower rates
for the foreseeable future which means
this is now the eighth month in a row
that they’ve decided to hold steady
without making any changes and
objectively since then inflation has
really done nothing but trade sideways
between 3.7 to 3.8% in addition to that
one of the largest changes that came out
today by far is the fact that they’re
slowing down their quantitative
tightening by $35 billion a month and if
that sounds confusing here’s a super
quick explanation throughout the
pandemic the Federal Reserve purchased
trillions of dollars worth of treasuries
and mortgage back Securities as a way to
to ensure the markets are functioning
normally but as a result they’re left
with this massive portfolio that has to
go somewhere so in June 2022 they
decided to reduce the size of their
balance sheet by simply not reinvesting
the proceeds or essentially if one of
their loans matures they just take that
money and poof it’s gone it’s gone it’s
all gone in this case the Federal
Reserve was reducing their balance sheet
by a total of 90 billion a month but
beginning in June they’ll only be
reducing their balance sheet by $60
billion a month basically just slowing
down how fast they get rid of their
portfolio in addition to keeping
interest rates the exact same in terms
of what Drome Powell had to say about
this he mentioned that right now given
the strength of the labor market and the
progress on inflation so far it’s
appropriate to allow restrictive policy
further time to work he also reiterated
that inflation is stickier than expected
and they’re still committed to Bringing
inflation down to their 2% Target but
it’s going to take some time and they’re
still making all of their decisions on a
month-to-month basis depending on the
data without ruling anything out in
terms of how long this could take though
let’s be real drum Powell’s not going to
tell us he would be an idiot to tie
himself down to a specific rate at a
specific time because as we’ve all seen
anything can happen however other
analysts have speculated that the
chances of a Fed interest rate cut this
year is slimed to none and that an
interest rate hike is possible the chief
Economist at Deutsche Bank also now
expects only one rate cut this year in
December followed by Modest rate Cuts in
2025 Beyond next year he expects the FED
to cut rates just below 4% % by the end
of 2026 even looking back throughout
history we could see that we’re
currently in the second longest pause
ever in history only beaten by the 2006
and 7 time frame which went 15 months
without a single change or basically at
this meeting it’s clear that the most
likely scenario is that there’s no
change is being made whatsoever until
inflation begins to subside which
hopefully is at the end of the year and
if it doesn’t or conditions worsen
there’s always the chance of another
rate hike I know it’s not the ideal
scenario but the Federal Reserve is
going to remain data dependent and
they’ll do whatever it takes to bring
inflation down without completely
crippling the economy however long term
it’s currently anticipated the Federal
Reserve may end up stabilizing rates
around the 4% range which is currently
only 1.25% lower than it is today and
that’s mostly boosted up by a very
strong economy strong labor market and a
stock market that doesn’t seem to care
that much that rates are this high so as
far as what I have to say about
everything I think it’s a bit of a mess
on the one hand GDP recently slowed down
to a 1.6% annualized rate which was much
lower than expected and that’s not a
surprise given how two out of three
Americans are more worried about running
out of money than they are dying which
is absurd of course in terms of why
these numbers came in so much lower it
was largely due to a lack of government
spending combined with some businesses
beginning to scale back but if inflation
continues to accelerate then it’s
unlikely we’re going to see any rate
Cuts anytime soon that’s because it was
reported on April 25th that price
pressures heated up by the most in a
year with a measure of inflation in the
economy increasing at a 3.1% rate after
rising at a 1.9% Pace in the October
through December quarter in this case
the category in question is called pce
or personal consumer expenditures and
it’s mainly driven Higher by two
categories that we talked about earlier
insurance and housing this all suggests
that a rate cut might not happen until
the end of the year at the very soonest
and there’s also a chance that a rate
cut might not happen at all unless
something dramatically changes
personally I’ve been saying this the
entire time or really for the last year
and a half that I don’t think the
Federal Reserve is going to lower
interest rates unless we see inflation
coming in below 2% or unless something
breaks within the economy and lowering
interest rates is a way to keep
stability I mean just think about it why
would they lower interest rates unless
they absolutely have to for them
lowering interest rates is almost like
the safety net to our economy and it
should not be used as a way to boost
stock prices make people happy or
influence election results I know it’s
kind of unpopular to say but I tend to
believe that they’re going to keep
interest rates as high as the economy
will allow and then will’ll only lower
it when they’ve either accomplished
their mission or absolutely have to and
there’s no other choice but to lower
rates after all just imagine what would
happen if interest rates were at 0% and
then we have an event that requires them
to stimulate the economy even more what
would they do print more money go
negative I just can’t see that happening
in our lifetimes but then again I’m just
a guy on YouTube I I know absolutely
nothing and I’d love to hear your
thoughts Down Below in the comment
section I’ll do my best to read and
respond to as many as I can so thank you
so much for watching as a reminder make
sure to hit the like button and
subscribe if you haven’t done it already
thank you so much and until next time

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THE LATEST INFLATION REPORT:
Inflation increased to 3.5%, year over year, driven higher by several categories: Energy prices rose 1.1%, Shelter costs rose 0.4%, egg prices increased by 0.9%, and medical care services surged 0.6%. Core CPI also appears nearly unchanged from a year earlier.

THE STOCK MARKET:
Warren Buffett’s measure of the stock market suggests that prices are expensive. With this gauge, a reading of “100% is said to be fair, at 70%, stocks are a bargain price, and if it’s near the 200% mark – investors are playing with fire.” As of the time I’ve filmed the video, the Buffett Indicator is trading at 193%.

However, in fairness – the Buffett Indicator is said to be somewhat flawed since it doesn’t take into account how interest rates could change a company’s valuation. Critics of the “doom and gloom” say that – in the past, bubbles were something hype, and this isn’t hype because AI is being deployed at an alarmingly fast pace. Plus, even a Blackrock Strategist said “The equity market rally that we’ve seen so far has been driven by earnings growth – If this earnings growth wasn’t taking place, I may have been more open to acknowledging the bubble concept.”

THE HOUSING MARKET:
Fannie Mae found that single-family home prices have increased a whopping 7.4% year-over-year, with 1.7% of that coming in just these last 3 months. It’s said that “the supply of new homes for purchase rose to 477,000 in the month, the highest since 2008” – and, the good news for buyers is that those new constructions are actually selling for 1.9% less than a year ago as the market begins to somewhat “normalize.”

Zillow’s forecast “calls for 1.9% growth over 2024 – slower than long-term norms but a welcome slowdown for first-time buyers.” In this case, the main reason for even more growth is still the very real lack of inventory – and, the higher rates go – the less likely existing sellers are to move, which – coincidently, causes prices to rise.
https://www.zillow.com/research/home-value-sales-forecast-33822/

POWELL RATE CUT:
The Federal Reserve decided NOT to lower rates, which means this is now the 8th month in a row that they’ve decided to hold steady. In terms of what Jerome Powell said about this, he mentioned that “Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work.”

They’ve also decided to slow the pace of Quantitative Tightening by purchasing more treasuries beginning in June 1st. In this case, instead of letting $60 Billion Per Month “Expire,” they’re only letting $25 Billion Expire and then reinvesting the difference.

After today’s meeting, the most likely scenario is that Jerome Powell makes no changes until inflation begins to subside, which – is hopefully by the end of the year. If it doesn’t – or, conditions worsen – another rate hike might be in order.

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