Powell Confirmed 100% Rate Cut! Not All Good News!

Summary

In a recent speech, Federal Reserve Chairman Jan Power signaled a policy change with a strong indication of interest rate cuts, leading to a market rally. However, the US dollar's depreciation poses a risk for investors heavily invested in USD. Power admitted past mistakes in assessing inflation as transitory and emphasized current inflation's path back to 2%. Despite geopolitical tensions and recession risks, the market anticipates further rate cuts, with the US presidential election outcomes adding to the uncertainty.

Takeaways

• 📉 The Federal Reserve has indicated a policy change towards cutting interest rates, which has led to a rise in both stock and bond markets.
• 🗣️ Federal Reserve Chairman Jan Power admitted the mistake of considering inflation during 2000-2002 as transitory, which has now proven to be persistent.
• 📉 The S&P 500 is nearing an all-time high, indicating a strong market reaction to the anticipated interest rate cut.
• 💵 The US dollar to Singapore dollar exchange rate has decreased, potentially offsetting gains for investors holding US dollar assets.
• 🌐 The market has become more volatile in recent years, with fluctuations sometimes occurring without clear reasons.
• 🔒 The Federal Reserve has anchored inflation expectations through consistent messaging, helping to control inflationary pressures.
• 🛑 Inflation was largely driven by pandemic-related distortions to demand and supply, but also significantly by monetary policy easing.
• 📈 Despite interest rate hikes, unemployment did not rise as expected due to supply chain disruptions and workforce re-entry post-pandemic.
• 🕊️ There is a possibility of a ceasefire between Hamas and Israel, which could reduce geopolitical tensions in the Middle East.
• ⚔️ The conflict between Russia and Ukraine has escalated, but it is not currently seen as a direct threat to the stock market.
• 🏆 The US presidential election outcome could significantly impact the stock market, with different candidates potentially leading to varying degrees of market volatility.

Q & A

What was the main announcement from the Federal Reserve chairman, Jan Power, at Jackson Hall?

Jan Power announced a policy change, strongly indicating that it's time for the Federal Reserve to cut interest rates.

How did the stock and bond markets react to the Federal Reserve's announcement?

The stock and bond markets reacted positively, with both stocks and bonds rising in value.

What was the Federal Reserve's previous stance on inflation during 2000 to 2002?

The Federal Reserve previously believed that inflation during that period would be transitory, meaning they thought it would be a short-term issue.

What mistake did the Federal Reserve admit to regarding their handling of inflation?

The Federal Reserve admitted they were wrong in their initial assessment that the pandemic-related factors causing a sudden rise in inflation would be transitory and not require a monetary policy response.

What was the Federal Reserve's policy response when they realized inflation was not transitory?

They quickly changed their policy, which led to a market crash but also provided an opportunity for investors to enter the market.

What did Jan Power indicate about the current state of inflation and the labor market?

Jan Power indicated that inflation is on a sustainable path back to 2% and the labor market conditions are less tight than before the pandemic, suggesting that it's time for policy to adjust.

How did the S&P 500 react to the interest rate cut announcement?

The S&P 500 rose significantly, nearing its all-time high, showing a strong market response to the anticipated interest rate cut.

What is the potential impact of the interest rate cut on the US dollar?

The interest rate cut could lead to a depreciation of the US dollar, which might offset some gains in the stock market for investors holding US dollar-denominated assets.

What is the current political tension mentioned in the Middle East?

There is ongoing political tension between Israel and its neighbors, with recent military actions and threats, although there are hopes for some form of ceasefire.

What is the current situation between Russia and Ukraine?

The conflict has escalated with Ukraine occupying a small area called Kirks and blowing up bridges to fortify their position, while Russia is taking actions to reclaim the land.

How might the upcoming US presidential election impact the stock market?

The outcome of the election could significantly impact the stock market, with different candidates potentially leading to varying degrees of market volatility or stability.

What is the outlook for interest rate cuts for the rest of the year?

Markets are predicting a 100% chance of an interest rate cut, with most expecting a 0.25% reduction, although a quarter anticipate a more significant 0.5% cut.

Outlines

00:00

📉 Federal Reserve's Policy Change and Market Reaction

The Federal Reserve Chairman, Jan Power, has signaled a significant policy change by indicating an imminent interest rate cut, which has led to a rally in stocks and bonds. The speech at Jackson Hall admitted past mistakes in assessing inflation as transitory and emphasized the need for a monetary policy response to anchor inflation expectations. The market's positive reaction is evident with the S&P 500 nearing an all-time high, while the NASDAQ and DOW Jones also show significant gains. However, the speaker warns of increased market volatility, which has been observed in recent years without clear catalysts.

05:02

💵 Impact of Interest Rate Cuts on Currencies and Business Costs

The script discusses the effects of interest rate adjustments on business operations and employment, noting that contrary to typical outcomes, the U.S. has not seen a significant increase in layoffs or business costs following rate hikes. The Federal Reserve's commitment to controlling inflation has anchored expectations, thus accelerating the decline in inflation rates. Additionally, the pandemic's impact on supply and demand is considered a significant factor in inflation, although the speaker partially disagrees, attributing a substantial part of the inflation spike to monetary policy easing. The discussion also touches on the 'hot money flow' phenomenon, where the expected interest rate cut leads to a depreciation of the U.S. dollar against the Singapore dollar, offsetting gains for investors.

10:04

🌍 Geopolitical Tensions and Their Market Implications

The speaker provides an outlook on geopolitical tensions, particularly in the Middle East between Israel and its neighbors, and the ongoing conflict between Russia and Ukraine. While the immediate military response from Iran has not materialized, creating a cautious optimism for potential ceasefires, the assassination of a military leader sparks further conflict. The speaker expresses relief for not sending a family member to Israel due to the instability. The escalation in Ukraine is seen as a challenge to Putin, but the speaker does not view it as an immediate threat to the stock market, hoping for diplomatic resolutions such as prisoner exchanges to de-escalate the situation.

15:05

📉 Market Outlook Amidst Political Uncertainty and Economic Data Revisions

The final paragraph outlines the speaker's market outlook, considering the unpredictability introduced by the U.S. presidential election. The recent downward revision of job creation figures by the labor department has elevated recession risks, influencing the Federal Reserve's decision to potentially cut interest rates. Market predictions lean towards a 100% chance of an interest rate cut, with most expecting a 0.25% reduction, and a smaller portion anticipating a 0.5% cut. The speaker also contemplates the depreciation of the U.S. dollar as a significant concern for U.S. dollar investors, suggesting the possibility of a further weakening of the currency. The outcome of the election is highlighted as a critical factor that could introduce more volatility or stability to the markets, depending on the victor.

Keywords

💡Federal Reserve

The Federal Reserve, often referred to as the Fed, is the central banking system of the United States. It plays a crucial role in the economy by influencing monetary policy, including interest rates. In the video, the Fed's decision to cut interest rates is a central theme, as it directly impacts financial markets and investor behavior.

💡Interest Rate Cut

An interest rate cut refers to a reduction in the rates at which banks lend money to each other or to consumers and businesses. In the context of the video, the Federal Reserve's indication of an impending interest rate cut is seen as 'good news' because it typically stimulates economic activity and boosts stock markets, as seen in the reaction of the S&P 500 and NASDAQ.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The video discusses the Federal Reserve's previous misjudgment of inflation being 'transitory' and the subsequent need for policy changes to combat persistent inflation, which is a key economic concern.

💡Transitory

In the script, 'transitory' is used to describe a situation that is short-lived or temporary. The Federal Reserve initially believed that the rise in inflation was transitory, meaning it would not last long, but it turned out to be more persistent, leading to a need for policy adjustments.

💡Stock Market

The stock market is a place where shares of publicly traded companies are issued and traded. The video highlights the stock market's reaction to the Federal Reserve's policy changes, particularly the expected interest rate cut, which typically leads to an increase in stock prices as borrowing costs for companies decrease.

💡Monetary Policy

Monetary policy refers to the actions of a central bank, like the Federal Reserve, intended to influence a country's currency supply and interest rates to achieve macroeconomic goals. The video discusses the Federal Reserve's monetary policy response to inflation and its impact on the economy and financial markets.

💡Volatility

Volatility in the context of the video refers to the unpredictability and rapid fluctuations in the stock market. The speaker notes that the stock market has become more volatile in recent years, with prices sometimes dropping or rising significantly for seemingly no apparent reason.

💡Exchange Rate

An exchange rate is the value of one country's currency in terms of another. The video discusses the depreciation of the US dollar against the Singapore dollar, which affects investors who hold US dollar-denominated assets and is a consequence of the expected interest rate cut.

💡Supply Chain Disruption

Supply chain disruption refers to the interruption or distortion of the normal flow of goods and services in a supply chain. The video mentions supply chain disruptions caused by the pandemic and their impact on inflation and unemployment rates.

💡Rational Expectations

Rational expectations is an economic concept where economic agents are assumed to make decisions based on the most information they can gather. In the video, the Federal Reserve's commitment to controlling inflation is said to have anchored rational expectations, influencing how inflation behaved.

💡Political Tension

Political tension in the video refers to the geopolitical conflicts and uncertainties that can affect financial markets. Examples given include the ongoing tensions in the Middle East and the war between Russia and Ukraine, which can influence investor sentiment and market stability.

💡Recession Risk

Recession risk is the likelihood of an economic downturn or recession, characterized by a decline in economic activity. The video discusses how recent data revisions have increased the risk of a recession, which is a concern for investors and policymakers alike.

💡U.S. Presidential Election

The U.S. Presidential Election is a key event that can significantly influence the stock market due to the potential for changes in policy direction. The video highlights the uncertainty surrounding the election outcome and its potential impact on market volatility and investor confidence.

Highlights

Federal Reserve Chairman Jan Power's speech at Jackson Hall signals a policy change.

Markets reacted positively to the announcement of an expected interest rate cut.

The Federal Reserve admits they were wrong about inflation being transitory during 2000-2002.

Jan Power acknowledges the mistake of underestimating the persistence of pandemic-related inflation.

Policy change is indicated to address the non-transitory nature of current inflation.

Stocks and bonds rallied following the Federal Reserve's indication of an interest rate cut.

S&P 500 is nearing an all-time high, showing market confidence in the policy change.

Volatility in the stock market has increased in recent years with no clear catalysts for fluctuations.

The Federal Reserve has anchored inflation expectations through consistent messaging.

Inflation was largely driven by pandemic-related distortions to demand and supply.

Unemployment did not rise as expected due to supply chain disruptions and workforce re-entry.

The US dollar to Singapore dollar exchange rate has depreciated, impacting US investors.

Singapore ringgit is expected to strengthen against a weakening US dollar.

Political tensions in the Middle East and their potential impact on the market are discussed.

The conflict between Russia and Ukraine and its implications for the stock market are analyzed.

Inflation is expected to remain down, but the risk of recession has been elevated.

The US presidential election's outcome is a significant uncertainty for the stock market.

Markets are predicting a 100% chance of an interest rate cut by the Federal Reserve.

The depreciation of the US dollar is a significant concern for investors.

Transcripts

ladies and gentlemen there's good news

from the Federal Reserve chairman uh

jome Power has just made a speech at

Jackson Hall and there are some good

news that come out the whole Market has

ried but there's a big butt okay there's

a big butt everybody should watch and

I'll give a landscape view of what is

going to happen uh moving forward and

let's take a view of what things are

happening shall we so title of my talk

is today is good news the Federal

Reserve is 100% going to cut the

interest rate but there's a big butt so

we have something bad to watch out for

let's watch on so these are our usual

disclaimers and let's go the Federal

Reserve chairman Jan power has given a

speech on Friday and is basically said

that the time has come for a policy

change now he strongly indicate that

it's time for the Federal Reserve to cut

interest rates and as a result the

stocks and bonds all ried now the other

things he covered as well I think it's

important for me to just highlight to

everybody some of these things so that

we understand the psychic behind the

Federal Reserve so that in future when

the Federal Reserve makes any policy

changes we at least can anticipate what

the their intentions are so in

retrospect jum power admitted that the

Federal Reserve was wrong that they

believe during the 2000 to 2002 time

that the inflation would be transitory

so do you remember the time when they

did a QE unlimited and spiked up the

money supply and cut interest rates um

there was a time where inflation start

to go go up and they thought that the

inflation would be a short-term thing in

short it's called transitory this is the

first time the Federal Reserve admit

their mistake and actually say that my

colleagues and I judg at the onset that

these pandemic related factors would not

be persistent task the sudden rise in

inflation was likely to pass through

fairly quickly without a need for

monetary policy response in short the

inflation will be transitory and

basically in short they turn out to be

wrong right so it became clear that

later in about end of

2021 to early 20 2022 it became clear

that high inflation was not transitory

and will require a strong policy respon

if inflation expectation were to remain

well anchored so that's where they

quickly did the change and that caused

the whole Market to crash those were

history and that gave us a very big

opportunity to enter the market and a

lot of you make money from it and

congratulations to you the second thing

he specifically highlighted was this is

time for policy change and the interest

rate Cuts is lightly so uh I quote him

my confidence has grown that inflation

is now on a sustainable path back to 2%

uh labor market condition is now less

tight than just before the pandemic in

two 20119 we do not seek or welcome

further Cooling in the labor market

which means they think it's okay ready

the time has come for policy to adjust

uh so I think that's very important okay

so it's very very very clear like clear

until cannot clear that a interest rate

cut is coming so how did the stock

market reacted so the S&P 500 the r

right we are nearing a all-time high

soon okay the previous alltime high for

S&P 5 was

5669 now is

5634 just a little bit you know away

from the all-time high so the S&P 500 is

going to break through alltime high some

of you say I go up so high so fast you

know I haven't gone in yet my son uh

during the uh the crash a few weeks ago

was preparing to fire shots you know I

fire enough shots but he was preparing a

fire shots and he was waiting for the

stock market to crash further and

further right uh lesson learned is that

really it's very difficult to predict a

stock market movements in the short term

but anyway so right now the stock market

for S&P fun is going to hit all-time

high congratulations to all the second

thing is that the NASDAQ and DOW Jones

have all went up as well all went up

significantly interestingly uh the

NASDAQ is still quite a shade away from

the alltime high but the S&P 500 is

going to break through alltime high very

very soon and I Thing Worth not Noti is

that TLT which is the the US Treasury

they are 20 years and above uh is also

uh you know climbing and climbing so I

think it's good Russo 2000 which

generally tracks the smaller cap stocks

also went up so overall the whole Market

is just R know this is a case where the

whole tight get lifted up and everything

that floats all floats up but however I

need to say this that in the recent 2

years I've noticed that the stock market

is a lot more volatile than it used to

be in the past and I should expect this

volatility to happen and some of this

volatility has no reason you know or

very little reason that caused this uh

to happen right a few days ago the stock

market just went down by 10% don't know

why and then the stock market then

recover very quickly so I think

volatility is something that we have got

get to get uh get used to uh in the

stock market I haven't reached a point

about the but butut but I think it's

important for me to cover one important

thing that the Federal Reserve uh

mentioned a lot of people ask you know

when the interest rate Rose you know

cost of running operation goes up cost

of running businesses goes up usually

the employment uh will tank in short

that people get more layoffs and things

like that but why didn't that really

happen uh in US right Jan power provided

two reason it's important for us to take

note of this and I'll explain why first

of all the Federal Reserve has anchored

inflation expectation so when the

inflation hit up high reaching uh high

of 99.1% you actually see the Federal

Reserve coming out and just saying the

same thing again and again and again and

again basically say that we will bring

down the inflation back to 2% or we will

not stop you know a very tough monetary

policy Now by saying that they actually

anchored everybody expectation that

inflation will come down now if they

have not done that then the whole world

will spiral into expecting inflation to

go uncontrolled but because they were

firm on their commitment and articulated

that again and again and again and again

everybody knows that they that inflation

will eventually come down and that

brought down inflation faster this is

what Economist call rational expectation

right is basically say that they

anticipating what will happen and they

reacted accordingly if not now it become

a self-fulfilling prophecy right the

inflation go and people expect it go up

higher and that drives up uh inflation

higher so so inflation is a is a a huge

psychology play second is that in this

time the inflation was largely driven by

pandemic related Distortion to demand

and Supply but at least that's what he

says I agree that part of it uh C part

of it is uh driven by supply and demand

caused by a pandemic right that probably

kick off the whole thing and when this

thing was being brought down you know

inflation went down but I disagree know

I I think that a lot of the inflation

was a monetary phenomena which basically

means that because the Federal Reserve

were aggressively easing monetary policy

which means that they are doing printing

of money lowering interest rate

artificially and things like that that

caused a huge part of the spike right uh

I think the economist Milton fredman is

a Nobel Prize winner his famous

quotation was you know inflation has

always been and will always be a monary

phenomena so I think that's absolutely

true in this time the last point is why

did unemployment did not go up when

interest rate uh was being a hike was

because there were a lot of supply chain

disruption uh for example you know there

were extensive lockdown in China due to

due to covid you know and a lot of

people left the workforce at the start

pandemic everybody came back and the

supply chain was restored so that

actually ease off some of this Supply

constraint and resulted you know in uh

in Unemployment uh not being affected as

much so in short you know this is a very

uh important phenomena what basically J

power say this is a oneoff phenomenal

generally when there's an increase in

interest rate of this phen phenomena it

will lead to uh some pain in

unemployment you know don't expect this

unusual phenomenal to happen again right

so I think let's bear that in mind so

this is where I reach my big butt okay

butt so everything is good news right

interest rate uh cut will lead to stock

market rise bond market rise whatsoever

all my portfolio in US dollar terms has

gone up but the US dollar to Sing dollar

exchange rate have gone down and gone

down quite a lot so the S&P 500 in one

day has gone up by about 1% uh plus and

then the US to syn Dollar has gone down

by 0 77% or 7.78% so it kind of actually

wash off all the gains right so why is

that so well when interest rate is

expected to cut what happens right when

the US increased interest rates a lot of

the Singapore dollar went over to US

dollar denominated uh savings and assets

so a lot of people sell Sing dollar and

buy the US dollar so that they can

deposit into US dollar deposit and earn

those High interest in future because we

know the interest rate is coming down

and it's already it's already down what

would happen is that they will start

selling or already start to sell Sing

dollar place the money back to US dollar

deposits so this phenomena is called a

hot money flow and that's really

happening and that's why this thing is

is happening so the US to Sing dollar

right now is 1.3 right 1.30 uh that's

why my portfolio even US dollar has gone

up significantly but in sing the aums

not that much on this note is probably

news worthy to remind everybody that

Singapore ring gate will also continue

to weaken uh because Singapore dollar is

packed to a basket of internationally

traded currency and US dollar is one of

them so it will go down pretty

significantly as well so the ring gate

will continue to strengthen plus the

fact that the Malaysian economy is doing

actually very well and that also helped

the ring gate to further strengthen as

well so depending whether you are highly

invested in Malaysia not your you're big

shopper in Malaysia uh then you gain

otherwise or lose otherwise so what's

the Outlook from here Mr Lou so let me

give you my view there's this Jo

political tension in Middle East between

Israel and his neighbors that has no end

to it right so number one is that

something good has happened is that you

know the Iranian uh response military

response that they promised didn't seem

to happen they didn't seem to want to

proceed with their threat with Israel

and that that's good I think they are

trying to see whether there could be

some ceasefire in a shortterm midterm or

longterm way between Hamas and Israel

and hopefully with that you know there

could be some uh traction of threat from

Iran to Israel Iran doesn't really want

to enter a war in Israel Israel also

doesn't really want to enter war in Iran

so I think there's a bit of positioning

each step like like two dogs barking but

you know but they don't really want to

bite okay so I think that's good just as

we are talking about it this thing

happened the Israelis assassinated some

hisbah military leader and as a result

hisbah you know were lining up to launch

an attack on Israel and Israel I think

launched a preemptive strike against

them and hisbah launch attack back it

just boom boom boom boom boom boom just

just happened over the last 24 hours and

there's no end to it you know the only

thing I want to say is that thank God we

didn't send our son to Israel we were we

were all prepared for him to go to

Israel if I send him to Israel I will

have no peace every day wondering what

will happen to him so very good you know

he stay in Singapore I think that's a

good thing the other J Jo political

tension is that the war between Russia

and Ukraine has now escalated and I

mentioned it before uh Ukraine has now

occupied a small area like called Kirks

the area is not very big probably the

size of Singapore okay compared to what

Russia has taken over from Ukraine is

really a small part versus a big part

right but it's a slap on Putin's face

right so the ukrainians have occupied a

small piece of land size of Singapore

also about 1,000 square kilometers and

then they blew up all the bridges that

connecting to kurs you know and they're

fortifying their position right so again

Russia is taking some action to want to

take back the occupied land but I don't

see this as a threat to the stock market

I hope that this thing will will help in

the bar trade to stop War but I don't

think that will happen I hope it does I

see exchange of prisoners happening

let's hope that they can have exchange

of land and you know call it to end but

you know something about war is that

they don't they they start easy and

don't end easy and another interesting

thing about Outlook is that I think

inflation is likely to remain down I

think all of us uh realize that already

but I also want to say that the

recession risk has been elevated in a

unusual turn of event the labor

department actually released that the

figures that they previously have

computed about jobs creation were wrong

it should be much lesser in fact 800

100,000 lesser so this actually

increased the risk of a recession and

the Federal Reserve knows that and they

I think a bit right so they a bit scared

and I think they will quickly react in a

September they will cut interest rate

but this basically nail it unless there

a huge spike in September in inflation I

don't think that will change uh their

trajectory that they're going to cut

interest rate so the Outlook is that the

markets are predicting that there will

be 100% cut interest rate but majority

of them right about 76% believe that

they they only cut by 0.25% there's a a

quarter of them would think that they'll

cut by .5% so I think this is what I

call Fat hope so if they cut by .5%

means that something bad has happened

which I don't see anything really bad

will happen so over the next one month

so I think uh this is where it is right

this is predicted until cannot predicted

already the question right now is

subsequent months for the rest of the

year how much more interest rate will

will be cut so actually the biggest

uncertainty now is the US presidential

election and the election has huge

impact to a stock market what we don't

know is number one who's going to win

number two if who wins will have what

impact on the stock market but this is

uh going to certainly going to have some

some impact right now there are a lot of

straw poles that being done and the

polls are leading towards a haris having

a slight age above above Trump uh I

wouldn't consider this as a conclusive

that this giv us a hint that Trump

certainly has gone down it used to be

leading but now it's coming down Harris

is actually making a very strong uh

entrance into the race and he's she's

highly supported by powerful Machinery

behind them there's a huge LW of funding

two presidents are behind her namely

Barack Obama and Bill Clinton have stood

up and and used fiery speeches to

support her she spoke very well a few

days ago and I think ried a lot of

positive response there two more months

ago we shall see what will happen things

can happen you know real time I think

that right now it's a really a NE to

neck fight you know if Trump was to win

there is a set of likely outcome Market

will become more volatile if Kamala

Harris were to win you know there's

likely some stability but you know it's

uh it's hard to say right now so in a

nutshell I think it's good news uh that

interest rates are cutting and the

Federal Reserve outright declared that

the big but is the depreciation of the

US dollar because those people like me

are heavily invested in US dollar I

think that is not Unthinkable that the

US dollar could weaken to

$125 so this would certainly offset some

of the gains $125 or what it is today

represents maybe a 4% decline or

something like that so it's something

that we don't like to see but you know

as long as the US Stock Market continue

to climb over time I think it's

something I can Stark so let me hear a

view and I'll see you in the de too

bye-bye