Transcript of THE MISSING DOT: What Wall Street Missed in the Fed’s Unanimous Rate Hike!
Wall Street Truthbombs
0:00For two full days, every network in0:02America has been reading page four of0:05the Federal Reserve's projections like0:07scripture. Here's what nobody told you.0:10The man who runs the committee is not on0:13page four. By the end of this video,0:16you're going to understand exactly what0:17changed last Wednesday, why the headline0:20about erased rate cuts is actually0:23backwards, and why your mortgage rate is0:25not locked at 7% no matter who tells you0:28that it is. If you've ever caught a0:30train at a Penn Station, you know the0:33ritual. A few hundred people standing in0:35the middle of the concourse. Nobody's0:37sitting. Nobody's even talking. Every0:40single head is tilted up at the board0:43because why? Because they don't post the0:46track until the very last minute. If0:49you've been there, you know exactly what0:51I'm talking about. And when it finally0:53flips, the whole crowd literally runs at0:56one staircase at the same time. It's1:00absolute mayhem. Now, here's the thing1:03about that crowd. Their behavior is not1:06really about, well, the train. It's1:08about the withholding. The institution1:11decided not to tell you early. And1:13everything the crowd does flows from1:16that one single decision. Remember that1:19because on Wednesday, the Federal1:21Reserve took down the board, literally.1:24Let's start with what actually happened1:26on Fed Day last week. On Wednesday the1:2916th, the Federal Reserve, excuse me,1:31the Federal Open Market Committee of the1:33Federal Reserve, it raised the target1:35range of the Fed funds rate to by a1:38quarter of a point to 3.75 and 4%. You1:42probably know this at this point. The1:44vote was 12 to nothing. Not a single1:47descent. Now, that's the first rate1:50increase since July of 2023. That was 31:54years and change ago, and it came after1:56the president pretty publicly demanded,1:59well, pretty much the opposite. On the2:026th, he posted, quote, "Lower the2:04interest rates because the USA is a much2:07stronger credit than it was just a short2:09time ago." The committee hiked well2:12anyway, unanimously. And that part is2:15real and it actually matters. Then Kevin2:19Walsh, the chairman, he stood up and he2:21said something that sounds technical,2:22but it's really not. He said, and I2:24quote him right now, we removed a dose2:27of accommodation. That's his quote. And2:30separately, I'd be hardpressed to2:32describe a broad financial condition as2:35restrictive. Translate that. He's2:37telling you that even after raising2:39rates, he doesn't think policy is tight2:42yet. It's just less loose. So, the press2:46grabbed the projections and pretty much2:48ran with them. The 2027 dot moved up a2:51half a point. The headline pretty much2:53wrote itself. The Fed erased your ray2:57cuts. Let's dig in further to this thing2:59that you read all the headlines of the3:01week on. But before we do, click like3:04and don't forget to subscribe. It's3:06important to be in the know about this3:07very stuff and this is exactly how you3:09do it. Okay. Now, here's the part that3:11should stop you pretty much cold, and3:13I've not seen it anywhere else. The3:16summary of economic projections is built3:19from dots. That's the SE, as you heard,3:22the SEP. Everyone talks about the SE.3:24That's that summary of economic3:25projections. Uh, and it's released by3:27the Fed quarterly. Each participant3:30submits where they think rates are going3:32to go or where they should be in the3:34future and forever. And there are 193:37people who are eligible to submit one.3:4018 submitted. The chair for the second3:43straight time did not. And then at the3:46podium, he said it pretty loudly. His3:48words exactly were quote, "Those aren't3:51my forecasts. Those are the forecasts of3:54my 18 colleagues." He also said, "I'm3:58not in the forward guidance business." I3:59think we knew that already, but he had4:01to let us know once again. Uh, so there4:04we have that.4:06The entire financial press spent 484:08hours interpreting a document that the4:11most powerful person in the room and4:13perhaps the most powerful banker in the4:15whole world declined to sign and then4:18publicly disowned it. And there's a4:21second to tell that almost nobody4:22caught. Go pull Wednesday's statement4:24and compare it to March's statement.4:27Every Fed statement for decades has4:29ended with a roster voting for the4:31monetary policy action were uh who was4:34voting uh and what what the names were4:37of the folks that made those votes. Now,4:40Wednesday's statement gives you the4:42tally uh but not the names. We know4:45absolutely nothing about the 12 uh4:49voters that actually voted for the rate4:51hike. We don't officially know who the4:5312 were until the minutes actually come4:55out in October. Then we're going to find4:57out. That, my friends, is the regime5:00regime change, not a hawkish path, the5:03deliberate end of Fed telling you the5:05path officially. And once you see it5:08that way, go back and check the5:10arithmetic on the erase cuts because it5:13doesn't say what people think it says.5:15Follow me on this. In June, the median5:18had rates at 3.75%5:21this year and 3.6255:24next year. That is not a cutting path.5:27That is a 12 basis point of drift right5:31there. Half of one cut in September. The5:34median is 4.125 this year and 4.125 next5:39year. So yes, that small downward tilt5:43in 2027, it's gone. But now look where5:46they end up. June had rates falling from5:483.75% to a long run level of 3.1%.5:54That's the 65 basis points of total5:57easing. September has them falling from6:004 and 1/8 to 3.2%.6:03That is 92 1.5 basis points. The Fed is6:06projecting more total easing than it was6:09in June, not less. Did you just get6:12that? So if you look further out on the6:14chart, you notice that they just kind of6:17push those things out, but ultimately in6:20the longer run, we see more cutting, not6:23less. Interesting, right? It just starts6:25later, right? The cuts weren't erased.6:28As I just said, they were just pushed6:29back a year. And here's the detail that6:31makes the whole hawkish read wobble.6:34They raised the 2027 rate path by 506:37basis points and didn't change the 20276:41inflation forecast at all. It's 2.3% for6:45headline and 2.5% for core. Identical to6:48June, the same as before. Think about6:51what that actually means. If you6:52genuinely believed you needed a half6:55more point of restriction next year,6:57your inflation forecast for next year,7:00well, it should move upwards or7:02downwards or something. Theirs didn't7:04move at all. Didn't even move a hair.7:06Now, let me be honest with you about7:08three things because this is where the7:10internet is going to get it all wrong.7:12First, the long run neutral rate did go7:16up from 3.1% to 3.2%.7:20People are calling that a structural7:21shift. Now, go look at the history. That7:24dot has moved in six of the last 157:26projection rounds and it has climbed7:297/10 of a point since 2023. A onetenth7:32move is the smallest increment the Fed7:35ever even prints. June of 2024 was a7:38bigger jump. This is not unusual. Get7:41that. Second, you're going to hear that7:43the market is pricing three more hikes.7:46Well, it's not really. The Fed's own7:48dots imply one more increase and then a7:50hold for 2027. And futures put the7:53October meeting around pretty much a7:56coin flip at the moment. Let's call it a7:58half with roughly an 87% chance of at8:01least one more by December. One, maybe8:05two, definitely not three. Third, and8:08this is the one that should calm you8:09down. Look at what stocks actually did.8:12The S&P fell less than a half a percent8:14on decision day. Then on Thursday, it8:17rose 1.1% and the Nasdaq rose 1.7%.8:21More than erasing it. Okay, the Dow is8:24the one hold out and it's still down on8:26the week. A Wednesday, excuse me, if8:28Wednesday had really been a structural8:30regime shock, equities would not have8:32roundtriped it in two sessions. So, what8:35did actually move? Well, the front end8:37of the bond market, of course, the8:392-year Treasury jumped from 467 to 4748:43on the decision, while the 10-year8:45barely budged from 5% to 5.01%.8:49that compressed the gap between them8:51from about 33 basis points to about 27.8:55So the curve the yield curve flattened8:57between the two-year and the 10-year.8:58And I want to kill something before it9:00spreads too much farther. This is not an9:02inverted yield curve and it's not even9:04close to one. The spread that actually9:06matters for recession signals. That's9:08the 3 months against the 10-year. It's9:11positive by about 82 basis points at the9:14moment. Anybody telling you this week uh9:16put us near inversion has not pulled the9:20curve. Right? If you look at the curve,9:22you see it's still pretty steep from the9:24three uh 3month through the 10ear.9:26Although you can't ignore the fact that9:27it has flattened, right? We'd like to9:29see it go in the other direction. Now,9:31let's talk about the kitchen table. You9:33know, I love to talk about the kitchen9:35table because that's where all of us in9:37the real world are. And as I often say,9:39it's probably where I hang out a little9:42bit too much. Okay. Daily mortgage9:44quotes on lender rate sheets hit about9:477.24 on Wednesday right after the Fed.9:49That's the top of the entire 52- week9:52range. It came back to 7.19% on9:55Thursday. The Freddy Mack weekly survey9:57printed 6.95, up from 6.76, but that10:01survey window mostly closed before the10:03decision. So, it's not fully caught up10:05yet. It probably will at some point.10:08Now, here's an important one. Lenar, the10:11building company, reported on Wednesday,10:13and the chairman said the quiet part. He10:16said, quote, "Today is at approximately10:197% with the 10-year Treasury hovering10:22right around 5%." And then this, the10:25buyer at the median family income is10:27stretching well past 30% of gross income10:31to carry a home. Their gross margin was10:3415.8%.10:36My friends, a year ago it was more like10:3817.5 12%. They're giving back 12% of the10:42price in incentives on an average home10:45around $372,000.10:47New orders fell 9%. And now the most10:51important thing I will say today, you're10:53going to see headlines claiming that10:55because the Fed moved its neutral rate10:57to about 3.2%,11:007% mortgages are now permanent. That11:02arithmetic, well, it's kind of wrong.11:05and and I want to be able to check it11:07you to check it yourself. The neutral11:09rate is an overnight rate. Your mortgage11:12is priced off of 10 years. Those are not11:15the same number and you can't skip the11:17step between them. Historically, the11:1910-year runs about one point above the11:22Fed funds rate. So, a 3.2% neutral gets11:25you a 10ear somewhere around 4 and a/411:28and the normal mortgage spread of 1.8 811:31to two points. Uh, and you land around11:346%. Not seven, which means today's 7% is11:38not a floor. It's probably more like a11:41ceiling built out of two temporary11:43things. A Fed funds rate that is11:45currently above neutral. Okay? And a11:48term premium that is unusually fat right11:50now because of, you're not going to be11:52surprised to hear this, oil and supply.11:55I'm not telling you 5% mortgages are11:57coming back next spring. They're11:59probably not okay and they probably12:01require unfortunately a recession to get12:04that low. But don't let somebody sell12:08you a permanent floor using arithmetic12:10that skips a whole step between the12:12between the Fed funds rate and the 10ear12:14note. Please one last piece and it12:17landed uh on Friday morning. The Bank of12:19Japan re uh raised its policy rate to 112:23and a4%. That's the highest since 1995.12:27My god, that was the year that my12:28daughter was born. The It's a 31-year12:32high. Everybody will call that12:34coordinated global tightening, except12:36the vote was 7-2. Not unanimous over12:40there in Tokyo. And here's the part that12:42breaks the story. The yen went down on12:45the hike, not up. And Japanese12:47government bond yields, they actually12:49fell. Governor Ua said this quote, "It's12:52hard to pinpoint where the neutral rate12:54actually is and therefore the terminal12:57rate." The market heard a central bank12:59that doesn't know where it is going13:01either, which is the theme of the entire13:04week. Okay? Two of the most powerful13:07central banks on Earth. Both raise rates13:10and both refuse to tell you what13:12actually comes next. So, what do you13:14actually do about all this crazy stuff?13:17Well, audit anything you carry at a13:19variable rate and find out exactly when13:21it resets. And I've told you this13:23before. A home equity line, a business13:25credit line, if you own bonds, know your13:28duration because the front end is where13:30the damage happened this past week. And13:32stop building a financial plan around a13:35refinance that depends on a specific13:37date. The one thing Wednesday actually13:40proved is that nobody is publishing13:42dates anymore. Watch two things going13:45forward. October 27th and 28th, the next13:48meeting, which the market calls roughly,13:50as I said before, a coin flip, and the13:53minutes in early October, which is when13:55we finally find out who the 12 votes13:58belong to. So, your truth bomb for today14:00is this. The Fed didn't erase your rate14:02cuts. It actually projected more of them14:05and moved them later. But the chairman14:08skipped the forecast entirely and the14:11and took the names off the vote. And a14:13central bank that stops telling you14:15where it's going is not being hawkish.14:17It's taking down the departure board and14:20letting you stand there and simply14:22guess. Join me every day for Wall Street14:24Truth Bombs where I drop them right here14:26before the market figures them out.14:28Okay, next week I want to show you what14:31happens to the housing market when14:33builders run out of margin to buy your14:36rate down because as I said before,14:38Lenar just told us how close that is. So14:43check back on Monday and catch that
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