Prepare For Interest Rate Cuts: The Fed Pivot 2024

Summary

The video script discusses the Federal Reserve's anticipated interest rate cuts, with a 95.3% chance of no change at the upcoming July meeting and a 100% market expectation for a cut in September. It highlights the potential for renewed inflation, the impact on housing and labor markets, and the possible effects on Social Security recipients. The script questions the timing of rate cuts amid strong economic indicators and suggests the Fed's dual mandate of managing inflation and employment as a driving factor. It also speculates on the future of various interest rates and their implications for the economy.

Takeaways

• 📉 The next Federal Reserve meeting is expected to do nothing, with a 95.3% chance that they will not cut interest rates.
• 📈 Market expectations are for a 100% chance of an interest rate cut at the September 18th meeting, with an 88.7% chance of a 0.25% cut and an 11% chance of a 0.5% cut.
• 💡 The significance of a small 0.25% interest rate cut is that it marks the beginning of a series of cuts expected in 2025 and 2026.
• 💸 The Federal Reserve's projections include reverting back to an extreme level of money printing, which is expected to lead to easy money policies.
• 🤔 The question posed is why the Federal Reserve would cut interest rates when the economy appears strong, with positive GDP, high home prices, and a strong labor market.
• 🔥 The potential impact of aggressive interest rate cuts and money printing could reignite inflation, making current high costs of living even worse.
• 💼 The Federal Reserve has a dual mandate of managing inflation and maximum employment, which might explain their decision to cut rates despite economic strength.
• 📊 The Federal Reserve's projections for 2024 and 2025 include cutting interest rates from 5.5% to 4.25% and then to 3.25% by the end of 2026.
• 🏦 Interest rates on credit cards and auto loans may not see significant reductions even with Federal Reserve cuts, but mortgage rates could drop to the mid 5% range by Q1 of 2025.
• 📈 While easy money policies are generally positive for risk-on assets like the stock market, history shows that markets can also react negatively to Federal Reserve pivots.

Q & A

When is the next Federal Reserve meeting scheduled to conclude?

The next Federal Reserve meeting is scheduled to conclude on Wednesday, July 31st.

What is the market expectation for the upcoming Federal Reserve meeting in July?

The market expects that the Federal Reserve will do nothing at the upcoming meeting, with a 95.3% chance that they do not cut interest rates.

When is the Federal Reserve meeting after July, and what are the market expectations for interest rate cuts?

The Federal Reserve meeting after July takes place on September 18th. The market expectation is a 100% chance of an interest rate cut at this meeting or prior, with an 88.7% chance of a 0.25% cut and an 11% chance of a 0.5% cut.

What is the significance of the Federal Reserve cutting interest rates by a small margin, such as 0.25%?

The significance lies in the fact that this is just the start, indicating a trend of continued interest rate cuts in the following years, which could lead to an extreme level of money printing.

Why might the Federal Reserve consider cutting interest rates despite strong economic indicators?

The Federal Reserve might cut interest rates to address inflation stats that are adequately low according to their preferences and to support maximum employment, as the unemployment rate has been steadily ticking up.

What are the potential implications of the Federal Reserve's aggressive interest rate cuts and money printing on the economy?

The potential implications include reigniting inflation, increasing the cost of living, and possibly causing wages not to keep up with expenses.

How might the Federal Reserve's actions affect Social Security recipients?

If the Federal Reserve's easy money policy reignites inflation in Q4 of 2025, Social Security recipients may receive a lower cost of living adjustment (COLA) for the following year, based on Q3 inflation stats.

What is the Federal Reserve's projection for the FED funds interest rate over the next couple of years?

The Federal Reserve projects to cut the FED funds interest rate from 5.5% to 5.25% in 2024, then to 4.25% by the end of 2025, and further down to 3.25% by the end of 2026.

How might interest rates on credit cards, auto loans, and mortgages be affected by the Federal Reserve's actions?

Credit card interest rates might still remain high, averaging around 20%. Auto loan interest rates are more difficult to predict. Mortgage interest rates are expected to decrease, with the 30-year fixed rate potentially averaging in the mid 5% range to low 6% by the beginning of 2025.

What is the potential impact of the Federal Reserve's interest rate cuts on the stock market and risk-on assets?

Easy money is generally good for the stock market and risk-on assets; however, it's not guaranteed to drive up the markets, as historical precedent shows that markets can go down when the Federal Reserve pivots, often in response to financial disasters.

Outlines

00:00

📉 Market Expectations for Upcoming Fed Rate Cuts

The script discusses the anticipation of interest rate cuts by the Federal Reserve within the next two months, as per market expectations. It highlights the current probability of no rate cut at the upcoming meeting ending on July 31st, and the high certainty of a rate cut at the subsequent meeting on September 18th. The speaker emphasizes the significance of these cuts as a starting point for continued monetary easing in 2025 and 2026, as projected in the Fed's Summary of Economic Projections (SEP). The script questions the rationale behind cutting rates when economic indicators such as GDP, home prices, and the labor market appear strong, suggesting a potential risk of reigniting inflation and exacerbating affordability issues.

05:00

💼 Fed's Monetary Policy and Economic Implications

This paragraph delves into the Federal Reserve's dual mandate of managing inflation and achieving maximum employment, and how it plans to approach interest rate adjustments. The script mentions the Fed's preferred measure of inflation, the PCE core inflation rate, and how it influences their decision-making. It also addresses the gradual increase in unemployment rates and the Fed's projection to cut rates to 4.25% by the end of 2025 and further to 3.25% by 2026. The speaker speculates on the potential impact of these monetary policies on various interest rates, such as those for credit cards, auto loans, and mortgages, and their broader implications for the stock market and the cost of living. The paragraph concludes with a contemplation on the Fed's ability to meet its projections amidst potential economic challenges.

10:01

📉 Potential Market Reactions to Fed's Policy Changes

The final paragraph of the script focuses on the potential market reactions to the Federal Reserve's anticipated policy changes. It suggests that while easy money policies might generally be positive for risk-on assets, historical precedent indicates that market downturns can occur when the Fed pivots, often in response to financial crises. The speaker also speculates on the possibility of a worsening cost of living and invites the audience's thoughts on the matter. The script ends with a note on keeping the audience updated on the Fed's official decision and a sign-off thanking viewers for their support.

Keywords

💡Interest Rate Cuts

Interest rate cuts refer to the reduction in the target interest rates set by a central bank, such as the Federal Reserve, to stimulate the economy. In the video, the expectation is that the Federal Reserve will begin cutting interest rates in less than two months, which is a significant monetary policy shift. The script mentions a 95.3% chance that they will not cut rates at the upcoming meeting but a 100% chance of a cut by September, indicating market anticipation.

💡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 setting monetary policy, including interest rates, which influence the economy's direction. The script discusses the Fed's upcoming meetings and the market's expectations for interest rate adjustments, highlighting its pivotal role in economic management.

💡Market Expectations

Market expectations are the collective predictions of investors and analysts about future economic events, such as interest rate changes. The script outlines the market's near-certainty of an interest rate cut in September, demonstrating how these expectations can shape financial decisions and market behavior.

💡Quantitative Tightening

Quantitative tightening is the process where a central bank reduces the money supply by selling government bonds or other securities it holds, in contrast to quantitative easing, which involves buying securities to increase the money supply. The script suggests that the Federal Reserve may revert to 'extreme levels of money printing,' implying a reversal from quantitative tightening to a more expansionary monetary policy.

💡Projections

Projections in the context of the script refer to the Federal Reserve's forecasts for future interest rates and economic conditions. The video discusses the Fed's projections for reducing interest rates in 2025 and 2026, which are part of their strategic planning for managing inflation and employment.

💡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 script raises concerns about the potential for reigniting inflation with easy money policies, suggesting that the current inflation rate may not be adequately managed by the Federal Reserve's actions.

💡Easy Money

Easy money refers to a monetary policy where interest rates are kept low to encourage borrowing and spending, thereby stimulating economic growth. The script predicts that 'easy money is coming back,' indicating a shift towards a more accommodative monetary policy that could impact inflation and asset prices.

💡Cost of Living Adjustments (COLA)

Cost of Living Adjustments are increases in Social Security benefits designed to offset the eroding effect of inflation on purchasing power. The script warns that if inflation is reignited by easy money policies, Social Security recipients could face inadequate COLA adjustments, affecting their financial well-being.

💡Dual Mandate

The dual mandate of the Federal Reserve refers to its two primary goals: to maintain stable prices (manage inflation) and to promote maximum employment. The script suggests that despite the strong labor market, the Fed may cut rates to address a rising unemployment rate, fulfilling its dual mandate.

💡FED Funds Rate

The FED funds rate is the interest rate at which depository institutions lend balances to each other overnight. It is a key target of the Federal Reserve's monetary policy. The script discusses the Fed's projections for lowering this rate, which is central to understanding future monetary policy actions.

💡Risk On Assets

Risk-on assets are investments that are expected to perform well in a stable or growing economy, such as stocks. The script speculates that easy money could be beneficial for risk-on assets, but it also notes that market reactions to the Fed's policy pivots have historically been mixed.

Highlights

Market expectations for the Federal Reserve to begin interest rate cuts in less than two months.

95.3% chance of no interest rate cut at the upcoming Federal Reserve meeting on July 31st.

Market expectation of a 100% chance for an interest rate cut at the September 18th meeting.

88.7% chance of a 0.25% interest rate cut and an 11% chance of a 0.5% cut by the Federal Reserve.

The significance of the interest rate cut as a starting point for further cuts in 2025 and 2026.

Projections of the Federal Reserve reverting to an extreme level of money printing.

Question posed on why the Federal Reserve is cutting rates despite strong economic indicators.

GDP report showing a positive 2.8% growth in Q2, contradicting the need for rate cuts.

Record high home prices and strong labor market despite expectations of rate cuts.

Federal Reserve's dual mandate of managing inflation and maximum employment driving rate cut decisions.

Projection for the FED funds interest rate to be cut to 5.25% by the end of 2024.

Uncertainty on the Federal Reserve's method and timing for reducing interest rates in 2025.

Federal Reserve's projection to cut rates to 3.25% by the end of 2026.

Concerns over the impact of easy money on inflation and cost of living.

Potential negative effects on Social Security recipients due to changes in inflation stats.

Speculation on the impact of interest rate cuts on credit card, auto loans, and housing market interest rates.

Opinion on the potential for the stock market to not rise despite easy money policies.

Transcripts

now I want you to prepare for the

interest rate cuts to begin in less than

two months those are the market

expectations I want to show you what's

going on so next Federal Reserve meeting

concludes 2 days from now that's on

Wednesday July

31st at that meeting the Federal Reserve

is expected to do nothing there's a

95.3% chance that they do not cut

interest rates at this upcoming meeting

so prepare for nothing this week this is

according to the CME fed watch

tool the next fed meeting after this one

takes place on September 18th that's

less than 2 months away now look at this

so the market expectation is there is a

100% chance that they cut interest rates

at this meeting or prior there's an

88.7% chance that they cut interest

rates by

0.25% there's an 11% chance that they

cut by

0.5% now I want to be absolutely clear

about this with you so you understand

what's going on why this is so important

so some people are going to say well

listen if they're going to cut interest

rates it's only going to be by

0.25% they're only going to cut by a

quarter point so what's the big deal the

big deal so the significance is that

this is just the start because they're

going to continue cutting interest rats

in 2025 and 2026 that's written in their

projections in their

SCP another thing separately this is

apart from interest rates is the

quantitative tightening so they've

already outlined their plan

and what I'm basically getting at is

that they're going to revert back to an

extreme level of money printing I've

been saying that they're going to do

that in 2025 and it looks like they're

right on targets so in other words I

would say ladies and gentlemen easy

money is coming back now I want to pose

this question to you you could chime in

with your

opinion because it makes you think it

made me think the question is why is the

Federal Reserve going to start cutting

interest rates right now because think

about it when are you supposed to cut

interest rates when the economy is

struggling if if there's a disaster

let's just say a housing market crash or

if unemployment is just very high

right but here's the thing the

government Reports say that the economy

is not struggling the GDP report came

out last week GDP for Q2 came in at

positive

2.8% so that is extremely strong and

take a look at home prices home prices

have reached a new record high and they

keep on breaking records every month so

this is coming from the National

Association of Realtors just a few days

ago home prices today are still high

record-breaking high and

unaffordable and look at the most recent

jobs report in July for the month of

June 206,000 jobs added so this is a

strong labor market that's what's being

reported so it appears that everything

is fine you can make the case that it's

much better than fine you can say

phenomenal

then my question to you is then what is

going to happen to the economy to labor

market to home prices when the Federal

Reserve starts cutting interest rates

aggressively and starts printing

trillions of dollars again because

that's the

plan my guess is that easy money will

reignite inflation it's not like it ever

stopped it's just going it's still going

up it's just not going up as quickly as

before but it'll reignite and if you

think that home prices are un affordable

right now just wait until mortgage

interest rates drop to 4% drop back down

to 3% if GDP is 2.8% right now imagine

what easy money will do if you think the

cost of living is bad right now let's I

would say let's see what happens 12

months from now I can take a guess that

our wages will not keep up with expenses

with the cost of living and I have to

say this part this is a shout out to

Social Security recipients I have to say

this because nobody's said this yet but

I know that people are going to start

talking about this in the near future

okay so just think about it when is the

Social Security cost of living

adjustments based off of it's based off

of Q3 inflation stats July August and

September if inflation stats remain low

for Q3 then the cola adjustment for next

year is going to be pathetically low and

if the Federal Reserve starts the easy

money policy beginning on September 18th

and re reignites inflation for Q4 in

2025 then Social Security recipients are

going to get royally screwed over again

okay so if everything is looking good

according to the government then why is

the Federal Reserve going to start

cutting interest rates and risk

reigniting

inflation so I would say it's quite

simple it's for two reasons so the first

one is that the inflation stats they've

been coming

in adequately to the federal reserve's

liking so there's there are many ways to

measure

there's there's CPI there's pce there's

headline there's core the fed's

preferred measure of inflation is pce

core inflation that just came in

recently at

2.6% and people are saying that that's

good enough to give the Federal Reserve

enough confidence to start cutting

interest rates and reason number two is

that you have to remember that the

Federal Reserve has a dual mandate they

have two jobs yes the first one is to

manage inflation and the other one is

maximum

employment so although the economy

continues to add jobs you have to

realize that the unemployment rate has

been steadily ticking up it's hit 4.1%

it's just the way that they calculate it

but it's been climbing up now here's

what the federal reserve's plan is so

this is very important because this is

what they're going to

do so the FED funds interest ratees is

currently at

5.5% their projection is to cut interest

rates one time this year in 2024 it's

going to be by quarter points so that

would bring down the FED funds interest

rate to

5.25% so the market is saying that the

expectation is that that cut that one

cut this year is going to be in

September there's going to be two more

meetings left this year after September

they'll be in November and in December

and that means that the Federal Reserve

will do nothing at those two

meetings now looking at next year the

federal reserve's projection is to cut

interest rates from

5.25% to

4.25% by the end of the year by the end

of

2025 so how they're going to do that how

they're going to reduce interest rates

by one full percentage point is unknown

so what I mean by that is are they going

to cut interest rates by

0.25% at four meetings next year or will

they cut interest rates at two meetings

by half a percentage point at those

meetings so we don't know how they're

going to do it nor do we know the timing

of when those cuts will

be so that's 2025 in 2026 the Federal

Reserve projects that they will cut

interest rates from

4.25% down to

3.25% by the end of

2026 so the same questions remain how

they're going to do it the the sizing of

the interest rate cuts and the timing of

course nobody knows the ultimate goal

which they're calling their longer run

rate is to get the federal fund interest

rates to slightly lower than

3% so is this goal is this projection

and is this timeline realistic of course

that's the big question so you have to

remember that they had the FED funds

interest rate at

0.25% so there basically 0% so what I'm

saying is are they really going to stop

at 3% they're slightly below 3% or are

they going to go back down to close to

zero or here's another scenario will

inflation make a comeback and cause the

Federal Reserve to keep interest rates

higher for longer so let me know what

you think okay so I want to share with

you what I'm thinking when the Federal

Reserve starts cutting interest rates

interest rates on credit cards are still

going to remain Skyhigh right now

they're averaging 24% that's crazy so

when they start cutting interest rates

yeah it's going to come down a little

bit the average it might fall to

something close to 20% but obviously

that's still like an arm and a leg

that's

ridiculous the interest rates on auto

loans they're going to be more difficult

to predict that's because they don't

correlate as much as other interest

rates basically they have a mind of

their own now the interest rates for the

housing markets will be much more

predictable so the FED funds rate and

the fed's bond buying significantly

affect the 10-year yield which we've Co

I mean we' covered this very thoroughly

in our real estate

videos If the Fed is going to do what

they're projecting to do then we should

see the 30 year fixed mortgage interest

rate still in the 6% range for the rest

of the year so that's an improvement

because we were averaging if you just if

you remember just about 3 months ago we

were at 7.3% as the average and we

peaked close to

7.9% but for q1 of next year which is 6

to 8 months outs from here I would

expect mortgage interest rates to be

averaging in the mid 5% range to 6% to

low 6% so that is much better but that's

obviously not going to be anywhere close

to people that have to the many people

that have 3% interest rates mortgage

interest rates are lower but that's

still going to be good enough for a lot

of homeowners to refinance in terms of

the stock market or risk on assets of

course easy money is going to be a good

thing however it is not guaranteed to

drive up the markets because history has

shown that when the Federal Reserve

pivots the markets tend to go down but

that's generally because the Federal

Reserve Cuts interest rates in response

to financial disaster just think about

2008 which you can make the case that

it's different this time or you can make

the case that it's not that it's going

to be very similar in terms of cost of

living I would make a bet that it's just

going to get worse

just again that's just my opinion you

can let me know what you

think so beyond the lookout for the

official fed decision and the results

are going to be on a Wednesday I'll keep

you updated please subscribe cribe I

thank you for the support and I wish you

a very nice day take care