How a Fed Cut will Send Rates Soaring Higher Instead
Summary
TLDRJoe Brown, a former stock broker, explains that the Federal Reserve's control over interest rates is limited to overnight rates for bank cash, not long-term debt rates. He argues that cutting these rates could paradoxically lead to soaring long-term debt rates due to inflationary pressures and market reactions. Brown also discusses the inverted yield curve's implications for a looming recession and the long-term debt cycle's impact on interest rates and inflation. He invites viewers to a live Master Class on August 15th to learn about asymmetric trades, a strategy used by top financiers for significant returns.
Takeaways
- 🏦 The Federal Reserve only controls the federal funds rate, which is the interest rate on cash held by banks overnight at the Fed.
- 💡 Joe Brown, a former stock broker, suggests that cutting interest rates by the Federal Reserve could paradoxically lead to an increase in long-term debt interest rates.
- 🔍 The Federal Reserve's influence on the bond market can affect government borrowing costs, but it does not directly control private market interest rates.
- 📉 Lowering the federal funds rate by the Fed could incentivize financial institutions to lend money elsewhere, potentially reigniting inflation.
- 🛑 An inverted yield curve, where short-term rates are higher than long-term rates, typically signals a coming recession and is currently present.
- 📈 The script implies that the current economic cycle is entering a phase where both inflation and interest rates are trending upwards.
- 💸 If the Federal Reserve cuts rates, it signals to the market that they are done fighting inflation, which could lead to an increase in long-term bond yields as investors demand higher returns.
- 📊 The price of bonds and their yield are inversely correlated; as bond prices fall, yields rise, compensating investors for increased risk and inflation.
- 🌐 The script suggests that the Fed's short-term actions do not change the long-term cycle, which is currently in a 'higher for longer' stage for interest rates.
- 🚀 Joe Brown is hosting a live Master Class to teach about asymmetric trades, a strategy used by top financiers to profit from significant market opportunities.
- 📅 The Master Class is scheduled for August 15th at 7:00 p.m. Eastern Time, and registration is encouraged to secure a spot due to limited availability.
Q & A
What is the main interest rate controlled by the Federal Reserve?
-The Federal Reserve primarily controls the federal funds rate, which is the interest rate at which banks lend cash to each other overnight at the Federal Reserve.
Why does the Federal Reserve not control mortgage rates or other long-term debt rates?
-The Federal Reserve does not control mortgage rates or long-term debt rates because these rates are determined by the private market and are influenced by various factors, including the perceived risk and inflation expectations.
What is the effect of the Federal Reserve changing the federal funds rate?
-Changing the federal funds rate can incentivize financial institutions to either keep their cash at the Fed for risk-free returns or to lend it out to other institutions or individuals at higher interest rates, affecting the broader economy.
Why would lowering the federal funds rate by the Federal Reserve potentially lead to higher long-term debt rates?
-Lowering the federal funds rate could signal to long-term bond investors that the Fed is done fighting inflation, leading them to demand higher interest rates on long-term bonds to compensate for the increased risk and loss of purchasing power due to inflation.
How does the speaker, Joe Brown, describe the relationship between bond prices and interest rates?
-Joe Brown explains that bond prices and interest rates are inversely correlated. As bond prices fall, interest rates (or yields) rise, and vice versa.
What is an asymmetric trade and why is it significant in the context of this video?
-An asymmetric trade is a financial strategy that offers the potential for high returns with limited risk. It is significant in this video as Joe Brown plans to share this strategy in a live Master Class, which he claims can be used to profit from major geopolitical events and current economic conditions.
Why might the Federal Reserve's action to cut interest rates lead to an increase in inflation?
-Cutting interest rates can lead to an increase in inflation because it encourages banks to lend more money, which increases the money supply in the economy. This can put upward pressure on prices if demand outpaces supply.
What is the current state of the yield curve, and what does it typically signal?
-The yield curve is currently inverted, which is abnormal and typically signals a coming recession. It means that short-term interest rates are higher than long-term rates, which is not typical in a healthy economy.
How does the speaker suggest that the Federal Reserve's actions could affect the yield curve?
-The speaker suggests that if the Federal Reserve cuts interest rates, it would directly affect the short end of the yield curve by pushing it down, while the rest of the market's reaction could push long-term rates higher, potentially normalizing the yield curve and signaling a recession.
What is the long-term debt cycle that the speaker refers to, and how does it relate to current economic conditions?
-The long-term debt cycle refers to a pattern of rising and falling interest rates and inflation over decades. The speaker suggests that we are currently in a phase where both interest rates and inflation are headed higher, which is part of a long-term cycle that has been playing out over the past century.
What is the significance of the upcoming live Master Class mentioned by Joe Brown?
-The live Master Class is significant as it is an opportunity for viewers to learn about asymmetric trades, a financial strategy that Joe Brown claims can yield impressive returns. The class will cover techniques to spot such trades and profit from major geopolitical events.
Outlines
📉 Federal Reserve's Interest Rate Control and Economic Impact
In this paragraph, Joe Brown, a former stock broker, explains the misconception about the Federal Reserve's control over interest rates. He clarifies that the Fed only controls the federal funds rate, which is the interest rate on overnight loans between banks. Brown argues that cutting this rate could lead to an increase in long-term debt interest rates, contrary to popular belief. He suggests that the Fed's actions incentivize banks to keep their cash rather than invest it productively, which could exacerbate inflation. The potential lowering of rates signals to the market that the Fed is done fighting inflation, which might lead to higher inflation expectations and a subsequent rise in long-term interest rates.
📈 The Dynamics of Long-Term Bond Interest Rates and Inflation
This paragraph delves into the intricacies of long-term bond interest rates and how they are affected by inflation and the Federal Reserve's policies. Brown explains that lenders demand higher interest rates on long-term bonds to compensate for the risk and opportunity cost, as well as the loss of purchasing power due to inflation. He warns that if the Fed cuts rates, it could signal the end of the fight against inflation, leading bond investors to demand higher yields, which inversely correlates with bond prices. This could result in a fall in long-term bond prices and a spike in yields, potentially leading to an economic recession. Brown also discusses the inverted yield curve, which is an abnormal market condition often signaling a coming recession, and suggests that the Fed's short-term rate cuts could contribute to a normalization of the yield curve, thereby triggering a recession.
🚀 Asymmetric Trading Strategies for Profiting from Economic Shifts
In the final paragraph, Brown shifts focus to a live Master Class he is hosting, where he plans to reveal the secrets of asymmetric trading strategies. These strategies have been used by renowned financial figures to profit from significant market opportunities. Brown promises to share his own experiences and techniques for identifying and capitalizing on asymmetric trades, particularly in the context of major geopolitical events. He emphasizes the potential for substantial returns in the coming months and invites viewers to sign up for the event to learn how to position themselves for these opportunities. The Master Class is presented as a free opportunity, but with limited spaces, encouraging interested parties to secure their spot promptly.
Mindmap
Keywords
💡Federal Reserve
💡Interest Rates
💡Long-term Debt
💡Inflation
💡Yield Curve
💡Fed Funds Rate
💡Asymmetric Trade
💡Opportunity Cost
💡Purchasing Power
💡Recession
💡Risk Compensation
Highlights
The Federal Reserve does not control long-term debt interest rates, contrary to common belief.
Joe Brown, a former stock broker, shares financial strategies outside mainstream advice.
The Federal Reserve only controls the interest rates on cash held by banks overnight.
Intervention in bond markets can influence government borrowing costs.
High Federal Reserve interest rates incentivize banks to keep cash idle rather than invest it productively.
Lowering interest rates by the Federal Reserve could increase inflation by putting more cash into circulation.
An inverted yield curve typically signals an upcoming recession and occurs before the curve normalizes.
Long-term bond investors demand higher interest rates to compensate for inflation and risk.
The relationship between bond prices and interest rates is inversely correlated.
Cutting interest rates by the Federal Reserve could signal the end of the fight against inflation.
Lenders of long-term bonds may increase rates in response to Federal Reserve's policy changes.
The current yield curve is inverted, which is abnormal and signals a coming recession.
The long-term debt cycle has turned a corner with both inflation and interest rates on the rise.
Federal Reserve's short-term rate cuts do not change the long-term cycle of higher inflation and interest rates.
Joe Brown will host a live Master Class on August 15th to reveal the asymmetric trade strategy.
Asymmetric trades can offer significant returns and are used by top financial minds.
The Master Class will teach how to spot and profit from asymmetric trades in response to major events.
Registration for the Master Class is open and free, but space is limited.
Transcripts
what if I told you that the Federal
Reserve cutting interest rates could
very well result in the interest rates
of long-term debt soaring much higher
not only is this possible but I think
it's actually the most likely outcome
here and to understand why we have to
start by looking at which interest rates
the Federal Reserve actually controls
those of you who don't know me my name
is Joe Brown I'm a former stock broker
who spent years teaching the top 1% how
to manage their wealth after making
enough money to leave the corporate
world behind now I focus on teaching
anybody and everybody with ears to hear
Financial strategies that exist outside
of mainstream things that you'd never
hear from a financial adviser if you're
interested in working with me stick
around I'll tell you more about that at
the end of the video most people have no
idea what interest rate the Federal
Reserve controls in fact you talk to
your average home buyer or real estate
agent the number one thing that they've
been talking about for about two years
now is just wait for the Federal Reserve
to lower interest rates so you can get a
lower mortgage here's the thing the
Federal Reserve does not control
mortgage r rates they don't control any
interest rates on debt that is 30 years
out let alone 20 10 15 5 years out even
one year out they don't even control or
directly influence any interest rates on
any debt set by the private Market
whatsoever they control one thing and
one thing only which is interest rates
on cash held by banks at the Federal
Reserve overnight that's it now there's
obviously some Nuance here because
there're intervention in bond markets
does have an influence on interest rates
for the government's borrowing costs for
instance during 2020 when the Federal
Reserve was buying up trillions of
dollars of government debt obviously
that pushed down interest rates on all
of the government debt that they were
buying which allowed the government to
borrow from the FED at very cheap
interest rates but exerting a force and
setting an interest rate are two very
different things and the only interest
interest rate as of right now as long as
we don't have yield curve control the
only interest rate that the Federal
Reserve actually controls is the Fed
funds rate and the other Associated
overnight rates held at the Fed so right
now the federal funds rate is about
5.3% which is a great amount of money
for anybody like a bank who has just a
few billion in cash laying around that
they need something to do it that's
risk- free they shove it over to the fed
and get paid a risk-free 5.3 to
5.35% so what is the effect of the
Federal Reserve changing the one
interest rate that they do control this
fed funds rate well many times it will
incentivize those financial institutions
to go do something else with their cash
that's right right now by keeping
interest rates High the Federal Reserve
is directly incentivizing financial
institutions to not do anything
productive with their cash they're
keeping their cash or some of you will
say point out that's is reserves with
the Fed so that it's not out in the
economy doing anything productive the
way that banks are incentivized to do
this is to get paid billions upon
billions and billions of risk-free
dollars just to make sure you can't get
a cheap mortgage how do you like that so
obviously if the Federal Reserve takes
this interest rate from
5.3% let's just go extreme all the way
down to 1% all the financial
institutions will say man well we don't
want to get 1% anymore so we're going to
take all of this and go do something
else with it we're going to loan it out
to somebody else instead who's going to
pay us a better rate and those loans are
going to be made primarily to other
institutions or individuals who are
going to be going out and using it in
the real economy a lot of it will also
be lent to the government who then
spends it and that money again
circulates into the real economy but
this is where the plan starts to break
down because as you can see here there's
a bunch of reserves locked up out of
circulation If the Fed lowers interest
rates at least some of that money will
start recirculating through the economy
again which will obviously have an
upwards pressure on prices reigniting
inflation not to mention the fact that
if the Federal Reserve Cuts interest
rates they are telling the world they
are done fighting inflation and
inflation has not been defeated yet
remember with inflation we're talking
about the rate of price increases we're
not talking about the absolute level of
prices so you can kiss goodbye those
2019 prices that some people were still
hoping would come back around someday
prices will never get get back down to
that level ever again unless we see a
deflation of the money supply unless we
see a contraction of the money supply in
other words a deflationary death spiral
which we probably will not see therefore
prices will continue to go up the FED
just wants to make sure they're not
going up at a pace that people notice
and that's the big problem here because
if they lower rates they're signaling an
end to their fight against inflation
before people stop noticing it so why is
that a problem well it has to do with
the long-term bonds that we were talking
about earlier when you lend money to
somebody for 10 years 20 years 30 years
you want a reasonable expectation that
you're going to get that money back now
something might happen and you might not
get that money back and so you're going
to charge an interest rate for that risk
by the way you could be doing something
else with that money so you're also
going to charge an interest rate to be
compensated for the opportunity cost of
everything else you could be doing with
that money now when you factor into the
equation the fact that prices are also
going up during that time you have to
charge an even higher interest rate so
that you're compensated for your loss of
purchasing power along the way because
if you lend 10 grand right now and you
get 10 grand back in 10 years but prices
have gone up and the stuff you used to
be able to buy a 10 grand now cost 15
grand you've lost a bunch of money in
real purchasing power terms even though
you got your original 10 grand back so
you're going to be compensated for your
risk you're going to be compensated for
your opportunity cost and you're going
to be compensated for the fact that
prices are rising so what do you think
the lenders of long-term bonds will do
from the Federal Reserve throwing up
their hands and saying we're done
fighting inflation they're going to
demand a higher interest rate 30 second
crash course here on the way that bonds
work for anybody who's not familiar
price of the bond and the interest rate
on the bond is inversely correlated if I
lend you $100 and get $101 back my yield
the interest rate is 1% but if I lend
you $100 I'm like well shoot I need that
$100 back now I'm going to sell that
contract to somebody else so that that
you owe them money instead of you owing
me money and let's say I can't get full
price for it so I sell it for 99 well
you still owe that person
$11 so their yield is 2% the price of
the bond went from $100 to $99 but the
yield or the interest rate went from 1%
to 2% prices and yields are inversely
correlated so when long-term Bond
lenders long-term Bond investors look at
the fed and see you're no longer
fighting inflation and they want to be
compensated for that increased loss of
purchasing power along the way they're
going to demand a higher interest rate
which is the same thing as saying
long-term bond prices fall and they fall
because those long-term Bond investors
sell those bonds off because they're not
worth as much anymore so debt that
matures in 5 10 20 30 years crashes
while the interest rate or the yield
spikes now if you're tracking with this
you're probably in your mind visualizing
something like this which is the yield
curve currently the yield curve is
inverted which means the debt at the
short end of the curve that matures in
maybe a couple of weeks or a couple of
months is at the highest interest rate
and the longer you go out in time the
lower the interest rate gets this is
abnormal and rarely if ever happens in a
free market and always signals a coming
recession but what most people are
unaware about the inverted yield curve
here is that the recession normally
happens after the yield curve normalizes
or in other words it uninverted
once you see the yield curve go back to
normal the countdown to the recession
begins so by the Federal Reserve cutting
interest rates they're affecting
directly only the short end of the yield
curve pushing it back down at the same
time the impact on the rest of the
market will push interest rates higher
which means the yield curve un inverts
goes back to normal triggering a
recession in case you're brand new to
the channel I've made a ton of videos
about this but we are in a long-term
debt cycle here that so far has been
about 40 years for every phase of the
cycle from 1940 through 1980 both
interest rates and inflation were Rising
for about 40 years they peaked out in
about 1980 after the big boom of the 70s
going out with a bang there from dinking
from gold and for the next 40 years from
there interest rates and inflation both
fell for 40 years they bottomed out in
2020 we have turned that corner again
with inflation and interest rates both
headed higher for the new phase of the
long-term debt cycle and this right here
that we're seeing play out is part of
that flywheel that will keep interest
rates and inflation headed higher for
the long term the Federal Reserve
lowering interest rates right now is
pushing cash out into the economy the
FED is surrendering their fight against
inflation this is going to drive prices
higher when prices go high interest
rates on all other debt goes higher to
compensate and the only way to stop that
spiral is for the FED to step in and buy
some of those bonds that are getting
sold off which again only increases the
amount of money going into circulation
driving up prices making the problem
worse these short-term moves by the FED
to cut interest rates are not indicative
of the long-term cycle changing there's
volatility on the way but we are in a
higher for longer stage and if you're
looking for a way to profit from the
situation I want you to save a date
coming up very soon here on your
calendar August 15th 700 p.m. eastern
time this coming Thursday I'm hosting a
live Master Class where I'm going to be
covering one of the best kept secrets in
all of Finance the asymmetric trade
these types of Trades have been used by
the brightest Minds in all of Finance
people like The Big Short investor
Michael bur Black Swan author Nim TB
billionaire hedge fund manager Bill
akman and plenty of others I've
personally been using this strategy in
my own account over the past year to
take home some very impressive returns
and I plan on sharing everything I know
with you at this event the next three
months will present massive
opportunities for asymmetric trades and
if you want to profit from that you've
got to be getting into position for it
now I'm going to show you an easy and
simple to follow protocol that I use for
spotting these asymmetric trades it's a
system that I've used to take home
massive gains in my own account and that
you can use to spot asymmetric trades
for yourself I'm going to share with you
the exact techniques that I've been
using with a small group of beta testers
spot some of their own asymmetric trades
over the last few months I'm going to
show you how you can use these trades to
profit from major geopolitical events
this event is completely free but spaces
are limited in fact last time I hosted
one of these master classes we had more
people register for the event than could
actually fit on the zoom call so if
you're interested in attending sign up
now save the date and make sure you show
up early sign up click on the link in
the description below put in your email
and I'll see you there as always thanks
so much for watching have a great day
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