[New post] The Fed Just Sent Markets Soaring

User ID posted: " https://www.youtube.com/watch?v=BsKHwy8k6Dg The Fed Just Sent Markets Soaring by Joseph Brown Jerome Powell spoke on Friday morning about the near future of monetary policy that can be expected coming out of the Federal Reserve. He was decisively les" Respond to this post by replying above this line New post on Avid Investor The Fed Just Sent Markets Soaring by User ID Jerome Powell spoke on Friday morning about the near future of monetary policy that can be expected coming out of the Federal Reserve. He was decisively less hawkish than other members of the Fed have been in recent days which sent all asset markets careening higher. 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See Full Video Transcript Below What's up everybody my name is Joe Brown and this is Heresy Financial on Friday morning Federal Reserve chairman Jerome Powell gave his speech at Jackson Hole in this speech he signaled quite clearly the future path for the Federal Reserve their monetary policy and what they're going to be doing with their asset purchases and interest rates so today in this video we are going to talk about number one what Jerome Powell said number two what it means for the future of monetary policy by the Federal reserve and number three white sent markets sky high ready let's dive in it's important to note here that every single word from these pre-scripted speeches that Federal Reserve members give are designed they're the intent behind them is to move markets 110 the goal of these speeches is to try and enact monetary policy and make changes happen in the economy based on expectations about monetary policy so that they have to do as little as possible with actually changing things about their monetary policy they want to try to try and change the markets their expectations alone so the first thing that he addressed that stood out to me was he talked about inflation he said basically inflation there are some readings of inflation that are a cause for concern but we still hold to the belief that it is going to be transitory going to be temporary and I've said this before I'll say it again when they're talking about inflation and they're saying that it's transitory or that it'll go away they mean the rate of change of prices they don't mean the absolute level of prices that means if inflation is five percent right now they expect inflation in the future to be let's say two percent that means that the big increase in prices we're experiencing right now they do not expect that those prices will come back down they're just expecting that the rate of change in those prices will slow again so that we're experiencing a big jump in prices right now and then the rate of change in prices will level off so those prices aren't coming back down they'll stay up where they're at and they'll continue to just grow a little bit from there now the other thing that he said about inflation that I thought was kind of funny was that he said we're looking at all sorts of measures on inflation and he says because we're looking at all sorts of measures of inflation we can see that these spikes in inflation aren't broad-based and so basically there's not really a cause for concern because it's not across the entire every single measure of inflation we're looking at it's just in isolated areas that we're seeing the big spikes basically what he means by that is we have so many different ways that we use to measure inflation we can smush around the data to make the official numbers look like your cost of living isn't actually going as much going up as much as your grocery bill your budget says it is par for the course now he says the other thing that they're looking at is a they're looking for a rise in wages because he recognized in this speech earlier on that wages rising are necessary for an increase in the quality of living now here's the thing that is only necessary if you've created a system that is built on inflation a system that can only survive if all prices always go up because for most of human history you have deflation where over time people get more for less you bring abundance out of scarcity through technology and progress and wealth growth basically what happens is over time people's cost of living goes down this means that just by saving money with a zero interest rate you save money next year that hunt you put a hundred dollars away this year next year that hundred dollars will go further than it does this year that means you don't need a raise you just get your same salary and now you're richer this year because things got cheaper so not only can you save more but every dollar you save gains in purchasing power over time and this is a natural byproduct of a of an economy or a system built on sound money with a non-elastic supply but instead we've got a hamster wheel economy where you have to increase the supply of money exponentially to keep pace to push asset prices higher and then you're in a situation where you need wages to continually rise in order to just keep pace with the cost of living the problem is this is not how new money moves throughout an economy typically when you have new money enter an economy you have it first hit asset prices so basically the rich get richer then it hits the prices of goods and services that hits you know consumer inflation and then after that usually you see it hit wages so by the time people get their hands the average person gets their hands on that new money in the form of raises and increased incomes the cost of living for them has already gone up and they've already been hurt by it and the funny thing is that exact same course of progression of new money happens with deflation as well and so when you have deflation typically asset prices get hit then goods and services get hit and then wages get hit and so when you have a deflationary system over a decades you know decades-long period like we had from let's say 1870 to 1900 in the united states even though people's nominal wages went down their cost of living went down even further which meant their real wages their real incomes went up now that's not bad enough that we live in a forced system where they've designed it intentionally to need inflation and to need inflation to exponentially grow over time he talks about wages one more time and he actually says that an increased rise in wages too much is actually bad because if you have wages start to spike well then that translates to too high of costs for companies and then those companies have to pass on those higher costs to consumers and then you can get runaway inflation so he recognizes that we need wages to rise in order for the average person to be able to afford their increased cost of living but he also recognizes hey that's a double-edged sword because as we do that those costs are just passed on to consumers so anybody who gets these raises they're having to pay it all out in the form of a higher cost of living now the final thing that he says about monetary policy specifically attacking inflation is he admits the long lag time in between when they do something and when the results from that impact the economy and it's just hilarious he basically says hey if we see inflation as high right now and we do something to attack that inflation right now well let's say that's about a year until what we do actually impacts that inflation well what happens if in a year from now when the results of our monetary policy start hitting the economy what if inflation has already come back down by that point then when our monetary policy results actually start to hit the economy inflation's too low and we could actually cause massive damage to the economy and without any critical thinking whatsoever you might look at that and think yeah that's perfectly reasonable if you're expecting inflation to go back down you don't want to do any monetary policy right now to counteract that inflation because by the time your monetary policy actually has a result inflation might already be back down to let's say two percent that could crush the economy but here's the problem when would that ever change it's impossible to see the future at everything you've tried to forecast specifically about the inflation rate in the past year let's say has been completely off base you've always been consistently wrong about it and what makes you think that your forecasts about inflation now are going to come true and so what happens in six months or a year if inflation is not transitory you can still say a year from now it's going to be lower we can never enact any monetary policy to counteract inflation because there's such a long lag time and what if it's temporary what if it's transitory you can always see that you don't have a crystal ball so you always have the opportunity to say hey well it could be lower in the future so we can't do anything to counteract it now because then it might have too much of an effect so it's just an absolutely preposterous excuse to not do anything about the rise in inflation and it really is just a way to say hey we don't really care about inflation right now we don't want to do anything about it we'd much rather have the inflation and still get to do as much money printing as we want now specifically regarding their monetary policy he said we do expect that by the end of the year we're going to start tapering our asset purchases and he said I want to make it absolutely clear we're going to take this slow we're going to take this easy and we are going to not have this tied whatsoever to any uh hikes in interest rates we're gonna keep that interest rate pegged near zero he said that's much more of an aggressive tool we're gonna hold off on that for a while now this is in sharp contrast to all of the statements that Federal reserve officials have been making for the last week coming out and saying very strongly we need to taper we need to tighten we need to raise interest rates we need to start clamping down inflation is a risk and it's almost like a coordinated attack where all of these expectations for tightening and hawkish monetary policy have been coming out blasting the media getting the markets prepared getting the markets tightened up so that when uh Powell comes out and he says yeah we're gonna do a little bit of tapering but really nothing else now all of a sudden the markets are like hey well that's good news that's a lot better than what we were expecting sending the markets to all-time high and we could see that in gold we saw that in silver we saw that in all cryptocurrencies but bitcoin is a big one we saw that in the stock markets especially the Russell 2000 up almost 3 today so markets just loved this news as to how this will actually affect interest rates especially considering the uh Federal government is right now trying to pass tons of trillions of dollars worth of spending they're currently up against the debt ceiling that they haven't resolved they're spending down the treasury general account they've got about 300 billion dollars left in the treasury general account so they're still injecting a ton of cash into the system without creating any new collateral for the banking system to offset those liabilities those deposits of that cash in the banking system and so it is unclear what this will do especially to longer term interest rates especially as the government is prepping to start issuing a ton of new debt right at the same time as the Federal Reserve is going to start lowering its asset purchases which are you know 80 billion dollars a month of those are treasuries and so a spike in interest rates especially towards the longer end of the curve could definitely have an impact on what the Federal Reserve chooses to do about their asset purchases they may need to either change the composition of those asset purchases or start accumulating more treasuries versus the amount of let's say mortgage-backed securities in order to supply the demand that the Federal government needs for their debt so we will see what happens it is a house of cards the only question is what will be the last straw as always I really appreciate you guys thank you so much for watching have a great day Disclaimer: This article is solely for informational purposes only and it should not be construed as a solicitation or offer to buy or sell on any financial securities/instruments, etc. nor anyone should take the content as an investment advise, any opinion expressed in this article are subject to change without prior notice, eurymanthus.wordpress.com and its author is under no obligation to keep current of the information herein and accepts no liabilities for any gains, losses of any kind arising from any of the material presented on any post/s and/or article/s published. 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