Transcript of THE 90% RATE HIKE: Why Kevin Warsh Is Defying The White House on Wednesday!
Wall Street Truthbombs
0:00The Federal Reserve is about to raise0:01your credit card rate, and the president0:03of the United States cannot do a thing0:06to stop it. By the end of this video,0:08you're going to understand exactly why0:10Kevin Warsh is about to hike into the0:12teeth of the White House, what it does0:14to your borrowing costs inside of one0:16billing cycle, and why the fight0:18everyone thinks that they're watching is0:20not the fight that is actually happening0:23at all.0:24Let's start with the setup.0:27Millions of Americans spent this entire0:29summer waiting, praying for rate cuts.0:32That was the consensus trade. That was0:34the plan for refinancing the card0:36balance and unfreezing the housing0:38market. And over the span of about 20:41weeks, that entire narrative inverted.0:44Market odds of a quarter point hike at0:46the September 16th meeting ran around0:4858% in early September. After that0:52August inflation data, they surged0:54toward 90%. The current target range is0:573.5 to 3.75%.1:00A hike takes it to 3.751:03to 4%. And because the prime rate is set1:06at three percentage points over the top1:09of that range, guess what? Prime goes1:12from 6.75%1:14to 7% the moment the gavel comes down in1:18the Fed headquarters. That is not an1:21abstraction, my friends. If you carry a1:23revolving credit card, or your APR is1:26Remember that your APR is spread over1:29prime,1:29and it reprices inside of one single1:33billing cycle. The average card rate is1:35already running around 21% in case you1:38haven't checked. If you have a home1:40equity line of credit, same mechanic and1:43same speed. The Fed doesn't have to wait1:46for the economy to transmit this one.1:49Your statement does it for them. So, the1:52headline pretty much writes itself.1:55Warsh defies the White House. Warsh1:58shocks Wall Street. And the pressure, my2:00friends, is very real. The president has2:03publicly demanded lower rates and has2:05said he would not have picked Warsh if2:08he wanted hikes. The vice president has2:10made the same argument on housing2:12affordability. Midterm elections, in2:14case you haven't noticed, land on2:16November 3rd. And watch how that2:19probability traveled. It sat near 57%2:22right after the July meeting. It climbed2:24towards 66% at the end of August. It2:27slid back to roughly 58% in the first2:29week of September. Then one inflation2:32report took it to 90%.2:36That is not a market with conviction.2:39That is a market being dragged. But2:41here's the first crack. If Wall Street2:43Street is pricing this at 90%, it's not2:46a shock. A shock is something that the2:49market has not already done for you. My2:52friends, let's dig deeper into this one,2:55okay? But before we do, please don't2:57forget to click like and subscribe. It's2:59important to be in the know about this3:00stuff, and this is exactly how you do3:02it. Okay.3:04Let's start with the vote math because3:06almost nobody on television actually3:08counts it. The Federal Open Market3:11Committee has 12 votes. You need seven3:13to move. At the July 29th meeting, the3:16committee held rates steady by a vote of3:18nine to three. The three who wanted an3:21immediate quarter point increase were,3:23well, Beth Hammack of the Cleveland Fed,3:26Neel Kashkari of Minneapolis, and Lorie3:29Logan of Dallas. They are Reserve Bank3:32presidents, not governors, and several3:34outlets got that wrong. That was the3:36first time since September of 2016 that3:39three policymakers dissented in the same3:42direction. Remember, 2016. That was That3:45was a minute ago, huh? That's been 103:47years, actually. So, the hike camp3:49doesn't need to be invented. It already3:52exists and it already lost once. It3:55needs four more votes, just four more3:57votes and the minutes from that meeting,3:59while published 3 weeks later, showed4:01something that the scent count does not4:03capture. Officials beyond those three4:06said a hike would be needed if inflation4:08did not cool. That's a conditional4:10statement sitting in the public record.4:13August inflation, well, in case you4:15haven't noticed, didn't cool. The4:16condition was met in the writing before4:18the data even landed. And here's where4:21the mainstream framing kind of falls4:22apart. A Fed chair almost never loses a4:26vote because the chair sets the proposal4:28that gets voted on. The question was4:31never whether Warsh could find your4:32votes. The question is whether Warsh4:35wants to hike and he's already told you,4:38he has said it plainly that inflation is4:41too high and that rates are not actually4:43restricting borrowing in the economy4:46outside of housing. That's not an4:49undecided man, in case you haven't4:51noticed. It's also worth knowing that a4:53chair can lose. In 1986, Paul Volcker,4:56you remember that guy, was outvoted by4:58his own Board of Governors on the5:00discount rate.5:02The most powerful central banker of the5:04modern era got rolled out by his own5:07colleagues. So, the vote is not5:10ceremonial, my friends. It is just not5:12part the part that decides this one.5:14Now, the part that nobody's putting on a5:16graphic on TV, let's talk about that.5:19The tightening already happened and the5:21Federal Reserve didn't do it. You know5:23what I'm talking about here? You do. The5:2630-year Treasury yield. It sits near5:285.36 36%. It crossed 5.33% in5:32mid-August, the highest level in about,5:35get this, 19 years. The 10-year is near5:394.9 for 5%. None of that required a5:42committee vote or a press conference or5:44the president's permission. The bond5:47market has been tightening financial5:48conditions all summer while the Fed sat5:51on its hands. The 30-year mortgage5:53follows that long end, not the Fed funds5:56rate. Corporate borrowing costs also5:58follow it, and so does the United States6:01Treasury, which brings us to the real6:04institutional conflict. It's not Walsh6:07versus the White House, it's the Federal6:09Reserve versus the Treasury's coupon.6:14The national debt crossed $40 trillion6:16just this month. Federal interest rates6:19cost hit $1.25 trillion in 2025. That is6:2418.5% of all federal revenue, the6:28highest share since 1991.6:31And it's more than the entire defense6:33budget. The Congressional Budget Office6:35projects that share that share climbing6:37toward 25% by 2036.6:41Almost one in five tax dollars, my6:43friends, now goes to interest. That6:47number is why the political pressure6:49exists in the first place, in case you6:51hadn't noticed. Nobody in Washington is6:53demanding lower rates because they read6:55a Phillips curve. They want lower rates6:58because the government is the largest7:00floating rate borrower on the planet7:02Earth, and it has to refinance trillions7:04of dollars short date of short dated7:06paper every single year. When a7:09government needs a central bank to keep7:11rate low in order to afford itself,7:13economists have a name for that. It's7:15called fiscal dominance. Remember that7:18because you're going to hear it a lot in7:20the months to come. And it's the fastest7:22way ever invented to destroy a currency.7:27Stop and think about what the long end7:29is actually saying right now. A 30-year7:31yield at a 19-year high while the Fed7:34has been on hold. It's not a growth7:36forecast, it's a credibility invoice.7:39So, what does this mean for real money?7:42Start with your own balance sheet.7:43Anything variable reprices almost7:46immediately. Cards, home equity lines,7:48margin loans, variable rate private7:51student debt, small business lines of7:53credit that sit at prime plus a spread.7:56If you've been planning to carry balance7:58until rates come down, well, that plan8:00just got expensive and the market is now8:02pricing a second hike before year end.8:06And let me be straight with you about8:07the size of it because the headlines8:09will not be. A quarter point on a8:12$10,000 car balance is about $25 a year.8:17That is not what hurts. What hurts is8:19that you were promised the opposite8:21direction. Every household budget and8:24every refinancing plan built on the8:25assumption of cheaper credit in 2026 is8:29now built on a forecast that, well, it8:31inverted. The cost is not the 25 basis8:34points. The cost is the plan. Next,8:37let's talk about bonds.8:39The front end of the yield curve takes8:41the first hit and the curve flattens as8:44short yields catch up. This is the thing8:46to watch. It's not the hike itself. It's8:48whether the long end goes down or up8:51afterward. If the 30-year falls on a8:53hike, the market is telling you it8:55trusts the Fed to kill inflation. If the8:5830-year rises on a hike, well, the9:00market is telling you it no longer9:02believes the fiscal path is solvent.9:06Those are two completely different9:07worlds and you will know which one you9:09live in within about 48 hours. Now we9:13have equities after that. Let's talk9:15about those. A rising discount rate is a9:18direct markdown on every long duration9:20growth story in your portfolio. And I've9:23said this before, you probably own a lot9:26of those. Think about all those great AI9:28companies and those tech companies.9:30Those are all long duration growth9:32stocks. But the bigger risk is not not9:35quarter point. It's the dot plot and the9:37vote split that comes with it.9:40A hike with three dovish dissents tell9:42you that this one is this is a one-off.9:45A hike with a unanimous or near9:47unanimous vote and a higher projected9:49path tells you a cycle just started and9:52it's not a good one and almost nothing9:54in this market is priced for a cycle.9:57That's it. Everyone's thinking about a9:59one-and-done at this point and there's a10:01fourth channel that nobody really wants10:02to name. That is of course that we10:04talked about this a lot in the last10:06couple years, independence. This10:09committee hike seven weeks before a10:10midterm election while the White House10:12is publicly demanding the opposite.10:15That's the Fed buying credibility and10:16paying for it with growth and political10:19capital. That purchase is exactly what10:21the long end wants. It is almost why the10:24pressure campaign will get louder, not10:27quieter after the decision. Now, let me10:30argue the other side. You know I always10:32like to do that and that is my job. This10:35case this the case for a hold at this10:37point is not a dumb one. Core producer10:40prices excluding food and energy rose10:42only 2/10 of a percent in August below10:44consensus and those are the components10:46that feed the Fed's preferred PCE gauge.10:49Consumer sentiment just collapsed to10:5047.8%10:52and a big piece of the core inflation10:54beat came from a record one-month jump10:56in wireless phone service of all things.10:58Uh that will likely reverse. Warsh could11:00hold one more cycle and use the dot plot11:03and the press conference to project an11:05aggressive path instead getting the11:07tightening without the political blast11:10radius. I would be wrong on this thesis11:13if the committee holds with a hawkish11:15projection, if the vote comes in11:16unanimous in either direction, or if the11:1930-year yield falls hard into the11:21meeting. Watch all three of those11:23things. Now, here is where we actually11:25are right now.11:27The market has priced a hike at roughly11:2990%. The hike camp inside the committee11:32already exists and it's already voted11:34once. The chair has already said out11:36loud, really loudly, that policy is not11:39restrictive and the long end of the11:40curve has been doing the Fed's job for11:43all summer while the country's interest11:45bill ran past 1.25 trillion dollars. Put11:49your eyes on four dates. The FOMC11:51decision and the dot plot on September11:5316th next this coming week, the August11:55core PCE print that comes later in the11:58month, that's September 30th, the next11:59CPI release on October 14th, kind of a12:02month from now, and the midterm12:04elections, of course, that come, in case12:07you don't know, November 3rd. So, your12:10truth bomb for today is this. The Fed's12:12not defying the White House, it's12:13obeying the bond market. When a country12:16owes 40 trillion dollars, the only vote12:18that actually counts is the one taken12:20every single day at the 30-year bond12:24auction.12:25Join me every day at Wall Street Truth12:27Bombs where I drop them right here12:28before the market figures them out.
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