Banking Crisis or Inflation!? Pivotal Fed Press Conference!

Understanding the Federal Reserve's Interest Rate Situation

This transcript discusses the Federal Reserve's interest rate situation, including its background, Jerome Powell's speech and press conference, and what it all means for the markets.

Background on Interest Rates

• The Fed began raising interest rates a year ago to tame inflation.

• Markets expected a pause or pivot when inflation started coming down from its highs last summer.

• Inflation data came in higher than investors were expecting, causing concern for the Fed.

Banking Crisis and Fed Response

• Personal consumption expenditures index (PCE) for January was slightly higher than previous month, suggesting inflation may have started going up again.

• Jerome Powell testified that the Fed was determined to raise interest rates and keep them higher for longer in response to this inflation data.

• Silicon Valley Bank went under, kicking off a banking crisis in the United States.

• The FED introduced the bank term funding program (BTFP), allowing banks to borrow money against their assets to honor customer withdrawals without having to sell their assets at a loss.

• Investors expected the FED to stop raising interest rates or even lower them at its March meeting due to banking crisis concerns.

Jerome Powell's Speech and Press Conference

• Mixed messages given by Jerome during subsequent press conference caused markets not to move much after rate hike announcement.

• Jerome addressed banking crisis concerns at start of press conference.

• The FED is prepared to use "all of its tools" to prevent a true banking crisis from occurring according to Jerome.

Jerome Powell's Speech on the Economy and Interest Rates

In this section, Jerome Powell discusses the state of the economy and interest rates. He cites statistics from the Fed's Summary of Economic Projections (SCP) and warns that it will be a "bumpy ride" to get inflation down to the Fed's target.

The Fed's Mandate

• The Fed's job is to address inflation and unemployment by adjusting interest rates.

• Fed officials see the economy weakening and unemployment rising by the end of the year because of higher interest rates.

• Jerome cites a concerning PCE print for January and points out that fed officials project a PCE of around 3.3 percent by the end of 2023.

Interest Rates

• The FED has raised interest rates to five percent and will continue to shrink its balance sheet.

• Whether or not the FED decides to raise interest rates again will depend on incoming data.

• Fed officials see interest rates at 5.1 percent come the end of the year, which means another 25 basis point rate hike in May.

Inflation

• Getting inflation down to the fed's two percent Target will require a period of below-trend growth and a softening of labor market conditions.

• Many investors are finally starting to expect a recession as a consequence of the banking crisis.

Q&A Session with Reporters

In this section, reporters ask Jerome Powell questions about various topics related to his speech, including whether or not depositors are still withdrawing and if the Fed has considered pausing its rate hikes because of the banking crisis.

Banking Crisis

• Jerome says that the banking system is safe and that all bank deposits are safe.

• The Fed settled on 25 basis points estimating that the tightening of credit conditions because of the banking crisis would count as another 25 basis point hike.

• Banks have access to that BTFP facility so they will always be able to honor withdrawals even if their assets continue to fall in value.

Rate Hikes

• The FED will raise rates again if inflation doesn't come down and will keep rates where they are if it does.

• It's too soon to say how much the banking crisis could affect the fed's rate hikes.

Other Tools

• Adjusting interest rates is the appropriate approach to solving the inflation issue.

FED's Oversight of Banks

Jerome Powell, the Chairman of the Federal Reserve, discusses the FED's oversight of banks and how they failed to see the banking crisis coming. Michael Barr, the Fed's Vice Chair for Supervision, is looking into this issue.

FED Oversight

• The FED failed to see the banking crisis coming.

• Michael Barr is investigating this issue.

• Jerome Powell is not involved in this investigation.

Disinflation in the Economy

Jerome Powell discusses disinflation in the economy and how it is limited to goods. Inflation on services remains high.

Disinflation

• Disinflation is limited to goods.

• Services inflation remains high.

• Core Consumer Price Index (CPI) excluding food and energy seems to be flatlining.

• Services related inflation could get stuck at around 5%.

Credit Crunch and Unintended Consequences

Jerome Powell admits that a credit crunch may come due to the banking crisis. He also acknowledges that there could be unintended consequences.

Credit Crunch and Unintended Consequences

• A credit crunch may come due to the banking crisis.

• The FED knows there could be unintended consequences.

Risk of Other Banks Going Under

Jerome Powell denies that other banks are at risk despite as many as 190 banks being at risk of going under because of withdrawals including one of the biggest banks.

Risk of Other Banks Going Under

• Jerome Powell denies that other banks are at risk.

• As many as 190 banks in the United States are at risk of going under because of withdrawals including one of the biggest banks.

Rate Hikes and Cuts

Jerome Powell discusses the possibility of another rate hike and insists that rate cuts will not happen in 2023. He also suggests that additional rate hikes may not be needed if the banking credit crunch comes about.

Rate Hikes and Cuts

• Another rate hike is possible.

• Rate cuts will not happen in 2023.

• Additional rate hikes may not be needed if the banking credit crunch comes about.

Fiscal Spending and Inflation

Jerome Powell denies that fiscal spending is the primary driver of inflation right now, but emphasizes "right now".

Fiscal Spending and Inflation

• Fiscal spending is not the primary driver of inflation right now.

• Keywords are "not right now".

Increase in Fed's Balance Sheet

Jerome Powell explains that the increase in Fed's balance sheet is due to loans to FDIC and Banks, but it is not quantitative easing (QE).

Increase in Fed's Balance Sheet

• The increase in Fed's balance sheet is due to loans to FDIC and Banks.

• It is not quantitative easing (QE).

• QE consists of buying assets from commercial banks typically U.S government debt with a goal of keeping interest rates low.

FED's Response to Bank Runs

This section discusses the FED's response to bank runs and depositors' protection.

FED's Response to Bank Runs

• The FED had discussed the possibility of bank runs at their previous meetings.

• The FED has the tools to protect depositors in a worst-case scenario, implying that it will bail out all depositors in the event of a countrywide banking crisis.

• It is illegal for the FED to bail out all depositors without a new law. Treasury Secretary Janet Yellen had to clarify this statement after causing market crashes with her initial comments.

• Deposits flowed from European banks into US banks due to Janet Yellen's clarification statement.

Credit Crisis and Unemployment Spike

This section discusses how the Fed can ensure that unemployment doesn't spike way past its target and whether a soft landing is still possible.

Credit Crisis and Unemployment Spike

• Jerome didn't have an answer on how the Fed can ensure that unemployment doesn't spike way past its target.

• A soft landing may no longer be possible, but Jerome said it still was somehow.

• $400 billion of commercial real estate loans will be refinanced in 2023, which begs the question of what happens when their value plummets because they can't possibly be repaid.

Markets' Reaction to Fed's Interest Rates

This section discusses the Fed's interest rates and their impact on the markets.

Markets' Reaction to Fed's Interest Rates

• Markets will likely continue to slide as the Fed raises rates directly or indirectly via the banking crisis it seems to have allowed to occur.

• The Fed is intent on raising interest rates and keeping them high for the foreseeable future.

• When debts start getting refinanced at higher interest rates that nobody can afford, it will be a credit aspect of the crisis.

FED's Third Mandate

This section discusses whether the Fed has a third mandate and its implications.

FED's Third Mandate

• Some have said that the FED has a third mandate, which is to ensure that the US dollar remains the world's reserve currency.

• When the FED raises interest rates, it makes US dollar-denominated debt more expensive because USD is used for international trade.

The FED's Dollar Swap Facility

In this section, the speaker discusses the FED's dollar swap facility and how it is used to provide dollars to countries that need them with pro-US terms and conditions attached.

The Catch with the Dollar Swap Facility

• The dollar swap facility is only available to countries that are closely allied with the United States.

Expansion of the Dollar Swap Facility

• The FED recently announced that it would be expanding its dollar swap facility to ensure allies get the dollars they need.

Interest Rates and Credit Squeeze

• The speaker believes that the FED will keep raising interest rates to squeeze America's enemies and use the dollar swap facility to ensure America's friends always have USD to pay their more expensive dollar debts.

• The fact that the new dollar swap facility has been barely used suggests that a credit squeeze is still coming.

Conclusion and Deals Page

In this section, the speaker concludes his video by encouraging viewers to like, subscribe, and check out his deals page for crypto discounts, promos, and bonuses.

Conclusion

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