How a Fed Cut will Send Rates Soaring Higher Instead

Summary

Joe 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

00:00

📉 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.

05:02

📈 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.

10:03

🚀 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.

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 setting monetary policy, including interest rates. In the video, the speaker discusses the Fed's control over interest rates, specifically the federal funds rate, and its implications on the economy. The Fed's actions are central to the video's theme of how interest rate adjustments can affect long-term debt and inflation.

💡Interest Rates

Interest rates are the cost of borrowing money or the return on invested capital. In the context of the video, the speaker explains that the Federal Reserve controls the federal funds rate, which is the interest rate at which banks lend to each other overnight. The video explores the paradox that while the Fed may cut rates to stimulate the economy, it could inadvertently lead to higher long-term interest rates on debt.

💡Long-term Debt

Long-term debt refers to financial obligations that have a maturity of more than one year. The video discusses how the Federal Reserve's interest rate decisions can impact the cost of long-term debt, suggesting that a decrease in short-term rates could lead to an increase in long-term rates due to market reactions to perceived inflation risks.

💡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 emphasizes the Fed's role in managing inflation and how cutting interest rates could signal to the market that the Fed is easing its fight against inflation, potentially leading to an increase in inflation expectations.

💡Yield Curve

The yield curve is a line that plots the interest rates, or yields, of bonds across different maturity dates. An inverted yield curve, as mentioned in the video, occurs when short-term interest rates are higher than long-term rates, which is an unusual phenomenon that has historically predicted recessions. The video discusses how the Fed's actions can affect the shape of the yield curve.

💡Fed Funds Rate

The federal funds rate is the interest rate at which depository institutions lend balances to other banks overnight. The video script explains that this is the primary interest rate controlled by the Federal Reserve. Changes in the fed funds rate can influence other interest rates and have broader economic implications.

💡Asymmetric Trade

An asymmetric trade refers to a financial strategy where the potential for profit is much greater than the potential for loss. In the video, the speaker mentions hosting a master class on this topic, suggesting that asymmetric trades can be used to profit from market volatility and major events, which ties into the video's overall theme of navigating financial markets.

💡Opportunity Cost

Opportunity cost is the loss of potential gain from other alternatives when one alternative is chosen. In the video, the concept is used to explain why long-term bond investors might demand higher interest rates, as they are compensating for the opportunity cost of not investing their money elsewhere.

💡Purchasing Power

Purchasing power is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. The video discusses how inflation erodes purchasing power over time, which is a key consideration for long-term bond investors when setting interest rates.

💡Recession

A recession is a period of negative economic growth that lasts for at least two consecutive quarters of a fiscal year. The video suggests that the Federal Reserve's actions, particularly in normalizing the yield curve, could inadvertently trigger a recession by signaling to the market that inflation is not being adequately addressed.

💡Risk Compensation

Risk compensation in finance refers to the additional return or interest rate that investors demand for taking on additional risk. In the video, the speaker explains that long-term bond investors will demand higher interest rates as compensation for the increased risk associated with inflation and the potential for a recession.

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