Fed Policy: The discussion centered on a 25 bps “hawkish cut,” with skepticism that such moves materially affect the real economy or the labor market
Rates Dynamics: Emphasis that long-term rates are driven by growth and inflation expectations, not the Fed’s policy rate; historical cycles (late 1980s, 2000, 2007) showed the long end often rose during cutting cycles
Yield Curve: Observation of bull steepening with the 30-year relatively flat while the 10-year and shorter maturities decline, signaling weaker growth expectations rather than impending reacceleration
Labor Market Risk: Noted deterioration in employment data and the possibility that recent payrolls are overstated, with risks increasingly tilted to the downside for jobs
Inflation View: Services disinflation continues while goods inflation is attributed to tariffs; skepticism that tariffs cause sustained inflation rather than a one-time price level shift
Market Functioning: Critique of Fed reserve management purchases of T-bills, arguing collateral scarcity and risk—not reserve quantities—drive money-market stress
AI and Growth: AI/data center capex has supported business investment, but sustainability is questioned if employment weakens and aggregate demand softens
No Pitches: No specific companies, sectors, or tickers were pitched; the focus was on macro interest-rate mechanics, Treasuries, and portfolio implications from growth/inflation expectations
Transcript
Hello fellow rebel capitalists. Hope you're well. So it is time. We've got about nine minutes before we get the big Fed rate decision. What are they going to do? Are they going to pause? Are they going to cut rates? And then what will the market reaction be? What will happen to the S&P 500? What will happen to the 10-year Treasury yield? Mortgage rates? All of these rates that are far more important than just Fed funds. what banks are lending to uh or lending uh what banks what interest rate banks are using to lend to one another overnight. So, we got about yeah eight minutes now. Let's do a screen share and go over to what interest rates have done today and then while we're kind of I want to hang out and with all you guys and hear what Jerome Pal has to say as well. what we're expecting, what the market is expecting is a hawkish cut, right? So, he's going to cut rates, but then come out and say how, oh, just you wait and see. Don't you expect another rate cut? Absolutely not. Ju just like he did last time. Don't expect another rate cut. No, no, no, no, no. And that's what the market's expecting. We'll see what we get. But then I want to kind of build on that last video I did and talking about if the Fed rate cuts even matter. And what I'm referring to is the real interest rates that are used in the real economy and mainly like the 10-year Treasury yield. So in past rate cutting cycles, what have interest rates done? Because if you listen to the mainstream media, if you listen to the talking heads at the Fed, they would like you to believe that if the Fed cuts rates by 100 basis points and then every single maturity [laughter] along the Treasury curve, it's just going to come down by 100 basis points. So if they cut by 100, then the two-year should come down by 100, the uh 10ear should come down by 100. 30-year come down by 100 or or at the very least they want you to believe that if they cut then the 10-year Treasury might not come down by a hundred but the 10-year Treasury will at least come down because the Fed's cutting rates, right? So, this is one of those things that I've noticed, and there's a lot of things like this that I've noticed since starting this YouTube channel and really getting neck deep in this stuff on a daily basis. And what I'm referring to specifically is there all these things that are just said over and over and over and over again to the point where people don't even question them. like they just assume that it has to be true or else everyone wouldn't be saying it. So, I don't even have to research it. And the Fed lowering interest rates is the exact same thing. And so, I'm going to wait here to dive into it because I want to look at the 10-year Treasury and what it has done in the past during these Fed rate cutting cycles. Let me give you guys a quick preview of what I want to talk about after we get the news here in five minutes and then while we're waiting for Jerome Pal to speak. I think you guys are going to find this fascinating. I did a super super deep dive on this yesterday in Rebel Capitals Pro for members. So, it's kind of right uh fresh in my memory and I think I'm probably going to do a whiteboard video on it tomorrow. But uh let me show you right here. So, this is the Fed funds rate. Josh, can you see that? >> Yes. Okay. And I we don't really consider anything prior to late 80s. Why is that? Because I'm cherry-picking data? No. Because that's when the Federal Reserve started to target interest rates. Uh prior to Greenspan, they didn't target rates. So if you go back here and Paul Vulkar gets all this credit for breaking the back of inflation because he had the guts to raise rates. Paul Vulkar didn't raise rates. [laughter] I've actually gone back, which I'm sure very few people have done, and and read the reports from the Fed, and what you see is that he had a four percentage points window on rates. So, right here, when the Fed funds rate got up to 19%. Paul Vulkar would have said, "Well, yeah, whether it's 17% or 21%." Whats? [laughter] Oh, it's just somewhere around there. It's just wherever it's going to go, it's going to go. So whether it's 17%, 18%, 20%, 21%, I don't really care. It's just the market's going to take it where the market's going to take it. And but for some reason, history remembers him as the guy who intentionally increased interest rates. [laughter] Now what he did do is he tried to target M2 money supply growth. So the rate of change in M2 money supply growth and he tried to do that by micromanaging bank reserves. He did do that. But unfortunately for Paul Vulkar, it didn't do anything. If you look at the M2 money supply growth, it's even when you do like a a log chart, it's like straight line. like he literally didn't do anything or at least he tried to do something but the net result was nothing. And uh but what he did do which I completely give him credit for whether it was intentional or not is he basically got out of the way and let the market right here uh dictate interest rates and the market did what it needed to do uh to break the back of inflation. Paul Vulker just happened to step aside and be at the right place at the right time. But anyway, getting uh back to Greenspan, he's the first guy that really started to target rates. So that's why I like to focus on the late 80s, early 90s recession. So we see this big Fed rate cutting cycle. Then we see another one here.com. We see another one GFC. We saw another one obviously during the survey sickness. And we see another one right here. Big Fed rate cutting cycle. And I don't really pay much attention to this one because why am I cherry-picking data? No, because you didn't have big inversions of the curve. You didn't have a deteriorating lady market. You didn't really have this. So it it wasn't really it's kind of apples to oranges. So what we can do, which we'll do here in a couple minutes, is we'll look at these cycles and we'll figure out not what the narrative is, but what interest rates really did during these cycles. And then from that we can come to some conclusions as to how much or how little the Fed controls interest rates across the curve and what we should expect to see. Again, no certainties, only probabilities, but what we should expect to see throughout the rest of this cycle and whether or not this cycle is completely unprecedented. And then most importantly with those conclusions, what taking those conclusions and turning that into something that's actionable for your portfolio. That's what I want to do on this live stream. So with that said, let's go over to CNBC and US seizes oil tanker off the coast of Venezuela. Oh, that's good. Always nice to see that we're going to war with another country. But of course, it's about the drugs. I mean, if you think this is about drugs. Wow. Wow. I've got some oceanfront property in Arizona to sell you. All right, let's keep refreshing here. Okay, Fed meeting live updates. Great. We've got one minute here. Look at this. Why the Fed rate cut could boost private equity deal making after what are you talking about? If you guys don't know why I'm so frustrated, watch the last video. The almost the entire front of the curve is inverted. It's lower than fed funds. Them dropping 25 basis points is not going to do anything. It's not going to do anything to the curve. It's not I mean, look [sighs] here. [laughter] So stupid. I feel like I'm taking crazy pills. So, if you didn't watch that last video, just really quick here while we're waiting for the report. I looked at the the curve, which used to be here. I don't know why it all of a sudden disappeared. There it is. And you can see just going out to three months, the curve is inverted. And so why does that matter? Because if the Fed drops 25 basis points, guess what it's going to do to the one year? Guess what it's going to even out to the three month. I mean, you could maybe argue that because short-term interest rates go a lot lower, then that may facilitate dealmaking. But short-term interest rates are already lower than Fed funds. So, the only thing the Fed is doing is bringing Fed funds down to where short-term interest rates already are. Like, what are we talking about here? Or maybe a little bit, you know, I guess the 3month is at uh 3.72 and Fed funds right now, I don't know, maybe 3.85. But, I mean, is it really going to facilitate deal making if the three-month Treasury goes down by five basis points? I mean, come on. This is nonsense. All right, let's get back to it here. Divided Fed approves third rate cut, sees slower pace. They always say that. That's exactly what they said during the last meeting. Remember Pal came out and he says, well, I mean, don't uh don't price in future rate cuts. No, no, no, no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new. And then three months later, yeah, we're cutting rates, but whatever you do, don't price in rate cuts. [laughter] I mean, how can we take these people seriously? How How is it possible? [sighs] Let's see. Make sure I'm seeing this right here. So, they cut 25. [snorts] Um, okay. I don't know why they don't have anything explaining it, but based on this headline, they cut 25. And how do they know they see slower pace ahead? Did they do they do a statement? I thought they did that statement at 2:30 when Pal comes out and starts blabbing. Well, I'll take them at their word. So, US check tourist blah blah blah blah blah. Let me just keep refreshing here. I mean, I think we the main takeaway here is they dropped 25 just like the market expected. Let's see. Divided Fed approves. Jeez, this is annoying. Let me just go to Twitter. This is what's great about Twitter. You know, Twitter, for the most part, is just a dumpster fire of just obnoxious people trying to dunk on one another, but it is good for real time data. So, let me just see here. Fed me Okay. Yeah. So, they cut uh 25 base. Okay. Cool. So, now let's go over and quickly see how interest rates are responding. And I'm going to be shocked if the two-year Treasury didn't come down by 25 basis points. [laughter] Oh, jeez. And I know they're pricing it in, but that that that's they're pricing in a cut. And that's pretty much my point here. So, we got Oh my gosh. Whoa. Time out. The 10-year Treasury is down by 2.6 basis points. Look out. Inflation. [laughter] Oh my gosh. Oh, we're going straight to the 1970s now. Oh my. No, no, no. It's down by 3.2 basis points. Whoa, whoa, whoa, whoa, whoa, whoa. [laughter] Ah, the CPI is headed straight for 10%. And it's honestly, it's probably just a knee-jerk reaction. It probably gets down in here, then Kai probably comes right back to where it was. Let's [laughter] [gasps] Oh, jeez. Oh, but the opposite is true. Like I I don't want to seem like it's just ridiculous that this would somehow impact inflation because it's also completely ridiculous that this would somehow impact the labor market. Like, okay, the 10-year Treasury yields down by three basis points. Oh my gosh, everyone's going to get a highpaying job now. Like, [laughter] [gasps] oh jeez, what's the two you're doing? two years down by five five basis points. Yeah, I mean pretty much what you'd expect. I mean, on a personal note, we'll go over to the TLT. This is not uh this is not investment advice. This might be a lag, though. Is Trading View lag? No, it's probably So, it's kind of jumping all around here. H, it's like shrugging it off. So, that's probably the 20 year or 30 year. Uh, here's the 30-year actually. Yeah, nothing. [laughter] Let's look at the dollar. H, okay. I mean, dollar down on the day, but didn't didn't do anything. Okay, so now that we're waiting for Jerome Powell to come out and give us his incredible words of wisdom and where the dot plot is going from here on out. [laughter] Now we can actually have a serious adult conversation about interest rates for people who are actually thinking and uh let's go to some charts and let's go to the history like I was talking about. Josh, we still good with the screen share. Yeah. Okay, cool. [snorts] So, like I said, we're going to go over to Fed funds and this is kind of just a super brief like overview readers digest version of the deep dive I did for the Rebel Capitalist Pro members. And with the Rebel Capitalist Pro members, I was kind of thinking it through in real time. So, this hopefully will be a little bit more more polished. Okay, so we've got this uh let's go ahead and zoom in. These Fred charts are great. You can just go and 1988. There we go. And you can see we start here April, call it April, May of 1989. And then the Fed rate cutting cycle is done. Call it December 1992. So we've got about May 89, December 92. And you can see they dropped by a lot, [laughter] a lot a lot. They're almost at 10%. They get all the way down to three. I mean, they dropped by almost 7%. So call it 650 700 basis points. Okay. Now let's see what happened to the long end of the curve. The 30-year is this green kind of dotted line. The 10-year is the blue line. And we're going to go back to the same time frame. We'll just say 1988. And then we'll go to where did we cut the other one off? 93 or so. I can't remember. We'll just do 1993. Okay. So, right here we can see that what was it? May 89. So, so right around here is when they start cutting. And you'll notice I mean you fast forward you fast forward two years. I mean, we go to call it April of 91 and interest rates are almost identical at the long end. [laughter] So, and then we go to what was it? December 92. So, that would be here, right around there. And are interest rates lower then? Yeah, they are. They are. But are they down by 7%. [laughter] Not even close. Not even close. And and again, but look at this two-year span from call it 89 to uh 91. So that would have been here to here. [snorts] I mean, you got interest rates dropping by 4%. 4%. And when I talk about interest rates dropping, I'm talking about Fed funds down by 4%. 400 basis points and the long end of the curve is basically flat. So th this is why I especially in these videos and in the whiteboards. Why I always like to go back and look at history and look at the charts and forget the narrative. Forget what's social media is saying. Forget what the mainstream media is saying. Just forget all of these all this dogma that exists in finance and in economics that's just based on something being repeated over and over and over and over and over and over and over again. And then it's exacerbated by everyone taking that thing that's repeated over and over and over again assuming to be true and therefore putting a huge amount of emphasis on it, not even realizing that and not even taking the time to do something like this and say, "Oh, well, wait a minute here. Maybe maybe the Fed doesn't really matter as far as interest rates in the real economy." So all of So think about that. From right here to right here, we had the 10-year Treasury flat. The Fed dropped by 400 basis points. So you tell me, how would that have propped up the labor market? Because that's the Fed's dual mandate, right? It's the labor market and inflation. So if they're cutting rates by 400 basis points, what that means is they're trying to stimulate the economy. Great. How are you stimulating the economy if the 10-year Treasury is flat for two years? You're going to tell me that has a massive stimulative effect? And even if you want to argue that, well, you've got a lot of corporations that have short-term debt. They're rolling it over and blah blah blah. Okay, fine. That that's that's the two-year. So maybe the two-year goes down, maybe it doesn't, [laughter] you know, but to say that the be all end all in terms of inflation and uh the labor market is the Fed. It's just it's a joke. It's a joke. Just like today when the two-year is down now by, you know, Fed cuts 25 basis points and the two-year is down by five. Now again, was this priced in? Sure. But even if the Fed would have paused, do you think that the five uh the 2-year would have gone up by 25 basis points? Absolutely not. It would have got you know market would have been off sides. So the 2-year would have gone up to maybe I don't know 3.67 something like that you know maybe 10 basis points or maybe it would have gone up to 3.7 or something like that. And so again, you have to ask yourself, how is that going to dramatically impact the labor market? The answer is it's not. It's not. Now, if the Fed cuts by 300 basis points in a meeting, okay, maybe we got something to talk about. But what they're doing is they're just following they're just following the two-year. They're far they're basically just following wherever the market is. And therefore what they do it it's it's not it's not moving the needle because the Fed doesn't control the interest rates. And that's blatantly obvious when you just look at history. So now let's go back to that. And what I want to highlight now is like this time from what is this December of 89 to call it August of 90. Look, interest rates went up. And now keep in mind this is when the Fed is cutting or they're at least in a cutting cycle. They may have been paused here or something like that. But interest rates at the long end of the curve go up by say we start at let's say 7.75 and we go up to call it nine. So you interest rates went up by 125 basis points. The real interest rates that matter the most. I'm talking about the 10-year Treasury yield. So h how did that help the labor market? How did that help the housing market? It it didn't. In fact, it would have helped inflation. You see, this is the irony that dur all the time, but especially during these rate cutting cycles, a lot of times the real interest rates that matter are doing the opposite of what the Fed is doing. So, you could even argue that the Fed cutting rates is actually a preventative tool for inflation. And sometimes them hiking rates is a boost to the labor market [laughter] because the real interest rates that matter do the opposite of what Fed funds is doing. So now let's keep let's go here. So so we know for sure at least looking at this cycle now maybe the GFC is different, maybe the dot is different. So let's dive into that. But we know definitively during this cycle a the long end of the curve did not go down. In fact, it really can't go down because the curve always steepens out. So by definition, the long end doesn't go down as much as the uh front end. Um what we can determine during this cycle is that rates actually did finish lower there. So that's good over the whole entire cycle. But does that because of the Fed or is that because of growth in inflate expectations? that I would argue it's because of growth and inflation expectations had nothing to do with the Fed. The Fed was just following it. Okay. And then what we can also say definitively is that there are long periods of time during these rate cutting cycles when the interest rates a lot of the interest rates in the curve are doing the exact opposite of what the Fed is doing. So, think about the narrative here that if you had been watching CNBC and the Fed is cutting rates, it' have been like, "Oh my gosh, the they're going to let the they're cutting too fast. The the inflation genies cutting out coming out of the bottle." I'm sure there's dissension back here during this time. Or maybe there was, maybe there wasn't. But if there's dissension among the ranks, the argument is, "Oh my gosh, if we cut too fast, we cut too fast, we're going to the interest rates are going to be way too low, and therefore inflation is going to rage higher." While they're having this debate, the 10-year Treasury yield is giving them the finger and going up by 125 basis points. and they're sitting there quibbling over whether or not this next rate cut is going to lead to inflation or help the labor. I mean, it's it's freaking insanity. [laughter] Okay, but maybe it's just this cycle. Maybe the dot and the GFC is different. So, let's go over here and Okay, here we got a rate cut starting was that right around November 2000. Okay, cool. and we finish around July 2003. All right. So that uh almost three-year period we go down by what is it five and a half uh percent. So 550 basis points. So now let's look at the long end of the curve and see what it did from basically end of 2000 to the yeah almost end of 2003. We'll go 1998. Oh, it always does that. So, I got to start with this one. So, we'll go 2004. We'll go 98. Okay. Now, you don't we don't even need to look at Fed funds. You can see that th this is the exact same [laughter] shocker, right? That yes, at the end of the cycle, it is true. Interest rates were lower, but they didn't go down near as much as the Fed dropped, which makes sense. You know, the curve is going to steepen out. But what doesn't make sense at all is that there are long periods of time here, uh, notably, you know, right here, where the Fed is cutting very, very quickly. and the long end is actually going up. They're cutting to support the labor market while interest rates are actually going up. That would be a headwind to labor markets. Yet again, during this time, I'm sure they're sitting there arguing and debating as to [laughter] whether or not the next Fed cut is going to lead to booming inflation. It's or how much the next Fed cut is going to support the labor market when 10ear Treasury yield is going from call it five where are we here 4.8% 8% straight up to 5.5. I mean, it's the same thing that happened this cycle. Remember when the Fed started cutting rates? They dropped by 100 basis points. And what happened along into the curve? It went up by 100 basis points. And meanwhile, the mainstream media is just completely ignoring that and just being like, "Oh my gosh, did the Fed cut too fast?" [laughter] Like, yeah. Yeah, they they cut way way too fast. I mean, if anything, you could argue that uh the long end was going up because of growth in inflation expectations from the Fed cutting too fast, but we know what happened there, right? Interest rates went up. What happened after that? They they come back down because reality sinks in about the economy slowing down and that being disinflationary, not uh inflationary. Okay? So, we don't even have to look at Fed funds. You see, this is the exact same thing. Ex. And by the way, they're probably cutting in here, at least paused. And you have another uh look at the 10-year. It's going from 4.3 up to 5.3. So here it's going up by, you know, call it uh what was that 75 basis points or so. This is going up by 100 basis points while the Fed is dropping or at the very least paused. So from this cycle we can also definitively conclude that a the rates did not go down even remotely close even after the cycle was done uh versus Fed funds rate and during long periods of time um while the Fed was dropping the the important interest rates in the economy were actually going up doing the exact opposite. Uh, then we go to the GFC. I got to do this one first. Go to 200. Yeah, go 2011. And we'll go 2005. And it's just more the same. [snorts] >> [laughter] >> right here they started cutting I remember it was September uh right around September yes it was September because the same date as 2024 so it would have been September 18th 2007 is when they started cutting rates so right when they started cutting rates uh the 10 years trading around 4.5 and then you fast forward to the end of the rate cutting cycles right around here and you got the 10-year Treasury trading at 3.8 8 3.9 so it did come down but not a lot and the Fed took rates from 5.25% down to zero and then once again uh during this rate cutting cycle you had times when I know this from memory that the 10-year Treasury from uh March up to May June or so went up by 100 basis points while the Fed was dropping by 100 basis points. So, you know, just taking it to just trying to stretch the absurdity as far as you possibly can just to play devil's advocate. You could say, well, interest rates are lower at the end of the cycle. But what that would completely ignore is this thing called the GFC. Like, like somehow the world coming to an end [laughter] didn't impact the interest rates. it was just the Fed, right? So, no one would argue that. No one in their right mind would argue that. So, you have to say, okay, well, how much of this even trying trying to give that argument the benefit of the doubt? The Fed really impacts rates. um in trying to give that the benefit of the doubt. How much of this was the Fed cutting by five00 basis points and how much of it was just um and I don't know did I say the 10 year earlier? I was just looking at the 30-year. I'm sorry. But how much of this was just due to growth and inflation expectations plummeting because we had the GFC? And I I think anyone that that's just trying to be objective about this would say, well, it's most likely I mean that was most likely coming down to the GFC. And if you don't believe me, just look at this. You know, why is it that we had interest rates on the 30-year Treasury and the 10-year Treasury absolutely tank right here? Was that because the Fed dropped rates? No. That's because Lehman Brothers went bust. growth and inflation expectations. So, I think the main takeaway here and let's go back to let's go back to the 10-year. So, the see it bounced basically right back to where it was. the the main takeaway is when you're trying to figure out interest rates, it's it's better to ignore the Fed, it's better to ignore debt, deficits, and it's best to just really focus on growth and inflation expectations. You what is the expectations for nominal GDP? And that's going to give you a much better compass so to speak as to where interest rates are going. So if as an example, you can look at the labor market and you can see, oh my gosh, we're getting a big deterioration there. And if it's your base case that we continue to see this deterioration, then you can say, okay, well, my base case is probably if we fast forward, you know, a year or so, interest rates will most likely be lower. regardless of what the Fed is doing. Regardless, and if the Fed just stays put right here, let's say 3.5% and you have or non I mean, think about that one as a thought experiment. Let's assume for a moment that the Fed over the next year keeps rates the front end at 3.5%. And let's also assume we have continuing negative non-farm payrolls and then we have a couple quarters of negative real GDP. But the Fed has the front end po pe pe pe pe pe pe pe pe pe pe pe pe pe pe pe pe pe pe pe pegged at 3.5. Where do you think the 10-year treasury is going to be? I can tell you it's going to be lower. It's going to be a hell of a lot lower. Where's the two-year going to be? Where's the three month going to be? Where's the oneear going to be? Way, way lower. I would argue the 30-year might even be a lot lower than Fed funds. you're going to reinvert the curve, right? And so this just is another thought experiment. I mean, they're limitless. Another one of these thought experiments that that show you that if you if you want to be s you want to be religious about this, if you want to be biased because if you want to push a narrative because it just makes you feel better or it makes you sleep well at night or being on team X or team Y makes you feel really good because you're part of a group, that's fine. That's totally cool. I get it. I get it. But I would highly advise against using those conclusions to set up your portfolio because when you're setting up your portfolio, this is not investing advice, but it seems prudent to me to be agnostic and to be as objective as possible. And the only way that you can be super objective is if you factcheck CNBC. If you fact check George Gammon, fact check everybody, especially in terms of something that's so important, and that would be interest rates and what actually moves interest rates. So, and and hopefully just by going through these charts really quick, you see why I always say that interest rates don't control the economy. Interest rates don't control the economy. They are a reflection of what the expectations are for the economy. And if you need any proof, just go back and rewatch the last 15 minutes of this video. Or just go ahead and pull up those charts yourself. Takes 10 seconds. They're right here. This is this is just a Fred chart that I made by editing right here. Super super easy. And then just Fed funds. You guys can find that. Um so just do the quick I mean it takes a half hour. So just do it yourself and if you want to fact check me and then come to your own conclusions. But I think the conclusions that you will come to is that wait a minute here what interest rates are doing you see is they're just reflecting what the expectations are for the economy. They're not controlling it. They're not controlling it. It's like this is a great example. This this plummet in interest rates all the way down here. Was that somehow boosting the economy? Was that somehow making the economy awesome? No, it was a that the world was ending or that was the expectation that the world could be coming to an end. And I'm just talking about a deflationary bust. Now, there is an argument saying that well these interest rates being this low are making it better than it otherwise would be. Okay, I I can I I I can say that's has some merit, but it doesn't mean that it's controlling. That those are two completely different arguments, right? And then you would still have to admit, even though you're saying, well, it's better than it otherwise would have been, you still have to admit that the movement in rates, the movement in rates was not generated by the Fed. it was generated by the market expectations for the real economy. So, I I know there's a lot of these things that I say all the time on these videos and you know it seems like I'm just saying it on a whim. And a lot of times, and I see how people can make this mistake, that it seems like I'm saying this just because it's my opinion and that it's not really researched or it's just, yeah, it's my opinion. It's my opinion that debt and deficits don't matter. It's my opinion that the Fed doesn't. And that's very rarely true. It's usually because I've done about 3,000 YouTube videos on this stuff. [laughter] And believe it or not, I've had to do some research, especially for those whiteboards. Those whiteboards are extremely difficult. And if you don't believe me, try one. Try to take something like quantitative easing or what drives interest rates and try to do a whiteboard on it for YouTube. See how you do. And what you'll find is that you've got to know the subject material extremely extremely well in order to pull that off. And so anyway, but I but also too, it's not fair that I say these things just right off the top of my head, ex ass assuming that you guys are going to assume that I did the research when um I should explain myself a little bit more. That's what I'm trying to say. If I say something like this over and over and over again, occasionally, I should explain why I've come to those conclusions. And I think then it would uh maybe it would give some people a little bit more at the very least it would give them more understanding as to why I've come to the conclusions that I have come to. And by the way I am totally open to being wrong. Totally open. Like if I saw evidence for the that that I have just missed of of of how the Fed actually does control interest rates. I'm open to that. I want to be open to that because I want to incorporate that analysis into my portfolio. Why? Because at the end of the day, I don't care about a religion. I don't care about being right or wrong. I care about making money. That's what I care about. >> [laughter] >> Sounds crazy, right? So, anything that I can include into my analysis that will give me an edge to make money in my portfolio, even if it means what I thought before was wrong, I'm all about it. I'm all about it. And I think that's maybe one thing that makes me a little bit different than some of the other uh talking heads out there. All right. Ooh. So, we should have Jerome Pal, Mr. Pow. Let's see. Okay. Uh, are they going to have this? I can probably just go to YouTube. Let's do that. Oh, shoot. I'm going to have to uh So, let's go to YouTube here. And I'm going to have to switch up the screen share. Josh was just about ready to remind me. I'm sure >> I was just about ready. >> [laughter] >> All right. So, let's switch that up. Go to YouTube. Share. Okay. >> In September. >> Josh, can you hear that? [cough] In the labor [clears throat] market, although official employment data >> and November are delayed, available evidence suggests that both layoffs and hiring remain low and that both households perceptions of job availability and firms peression perceptions of hiring difficulty continue to decline. the official report on the labor market. >> You know what's funny and kind of sad, Josh, is I see there's about 7,500 people watching this right now and there's almost as many people watching my live stream as [laughter] Anyway, let's get back to it >> for September. The most recent release showed that the unemployment rate continued to edge up, reaching 4.4% and that job gains had slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation. Though labor demand has clearly softened as well. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. In our SEP, the median projection of the unemployment rate is 4.5% at the end of this year and edges down thereafter. inflation has eased significantly from its highs. >> I don't want to cut them off too often, but why why why would it go up to 4.5 and then come down after that? Like it's just pulling that out of your pulling that out of your rear end. I think >> in mid 2022, but remains somewhat elevated relative to our 2% longer run goal. Very little data on inflation have been released since our meeting in October. Total PCE prices rose 2.8 8% over the 12 months ending in September. And excluding the volatile food and energy categories, core PCE prices also rose 2.8%. These readings are higher than earlier in the year as inflation for goods has picked up, reflecting the effects of tariffs. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have declined from their peaks earlier in the year as reflected in both market and surveybased measures. [clears throat] Most measures of longerterm expectations remain consistent with our 2% inflation goal. The median projection in the SCP Josh, remind me when I start doing merch again, we have to have a t-shirt that says volatile food and energy prices. [laughter] It's just one of my pet peeves that they always they can't say it's not possible for them to say food and energy prices without saying volatile first. I it drives me crazy. P for total PCE inflation is 2.9% this year and 2.4% next year. A bit lower than the median projection in September. Thereafter the median falls to 2%. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to three and a half to three and 3/4%. In the near term, risks to inflation are tilted to the upside and risks risks to employment to the downside, a challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. A reasonable base case is that the effects of tariffs on inflation will be relatively short-lived, effectively a one-time shift in the price level. Our obligation is to make sure that a one-time increase in the price level does not become an ongoing inflation problem. We haven't even seen a one-time shift in the price level. I mean, a couple things here and there, but the the the tariffs have been eaten by the US importers, at least 90% of them, 10% maybe the consumer. But that that's done. That that's that's ancient history, my friend. It's time to move on. How long are we going to talk about this boogeyman of tariffs creating inflation? I mean, are we going to zoom out 10 years and the Fed is still going to be Oh, but wait, but we could see that tariff inflation from 2025. I mean, come on. At a certain point, you've got to just get over it and be like, "Okay, we're probably not going to see a big boost in prices and definitely not an acceleration to in due to these due to tariffs. I mean, it's it's but with downside risks to employment having risen in recent months, the balance of risks has shifted. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. Accordingly, we judged it appropriate at this meeting to lower our policy rate by a quarter percentage point. With today's decision, we have lowered our policy rate threearters of a percentage point over our last three meetings. This further normalization of our policy stance should help stabilize the labor market while allowing inflation to resume its downward trend toward 2% once the effects of tariffs have passed through. And if you didn't watch the first or the last 20 minutes, go ahead and watch that and just see what 75 basis point cut during a rate cutting cycle actually did anything anything to support the labor market. When you consider the most important interest rates are, let's just say the 2-year out to maybe the 10-year in terms of the real economy. I mean, let's just really really super quick here. If we go back to uh most recent um look at this. So they cut 75 basis points. Woohoo. Great. The long end of the curve is basically the exact same. I mean how can you argue that that is supporting the labor market? I mean it's it's it's insanity. It's just it's just completely ignoring the facts and ignoring the the data here. And then even if you want to look at the two-year, you can say, "Well, that's down." Sure, it's down, but that doesn't necessarily mean it's down because the Fed dropping rates. If it was, then why does the two-year always preede the Fed funds rate? Oh, whoops. Wrong. Uh oh, shoot. You couldn't see that. The adjustments to our policy stance since September bring it within a range of plausible plausible estimates of neutral and leave us well positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, the evolving outlook, and the balance of risks. In our summary of economic projections, FOMC participants wrote down their individual assessments of an appropriate path of the federal funds rate under what each participant judges to be the most likely scenario for the economy. The median participant projects that the appropriate level of the federal funds rate will be 3.4% at the end of 2026 and 3.1% at the end of 2027, unchanged from September. As is always the case, these individual forecasts are subject to uncertainty and they're not a committee plan or decision. Monetary policy is not on a preset course and we will make our decisions on a meeting by meeting basis. Let me turn now to issues related [clears throat] to the implementation of monetary policy with the reminder that these issues are separate from and have no implications for the stance of monetary policy. In light of the continued tightening in money market interest rates relative to our administered rates and other indicators of reserve market conditions, the committee judged that reserve balances have declined to ample levels. Accordingly, at today's meeting, the committee decided to initiate purchases of shorterterm Treasury securities, mainly Treasury bills. >> What an idiot. >> For the sole purpose of maintaining an ample supply of reserves over time. >> What a freaking idiot. So, why is he an idiot? Because if there is tightness in the short-term funding markets, it's because of risk. It's not because of lack of bank reserves. And if it is a a function of risk, then what are you doing by buying T bills? You're taking the one thing, the the one source of collateral that the market needs if there's higher risk. And by the way, even if there's a lack of liquidity, how are the banks going to create that liquidity? They're going to be able to create more liquidity if there's more collateral. If you just take out the collateral and just give the bank reserves, that doesn't do anything. That's making it worse, not making it better. If you're if you're worried about the short-term funding markets, this is completely backwards. It it's it's And by the way, you would think he would know that because remember when the repo crisis happened in uh September 2019, what did they do? They immediately started buying bills. remember because it's not QE. It's not QE because we're buying bills. Remember that? And then what did he do like three weeks later? He's like, "Oh, sorry. Sorry. We're not going to buy bills anymore. We're going to buy the the longer duration. We're going to buy longer maturity." Why is that? Because the market came to him and said, "Hey, idiot. You can't take away this collateral that we need to provide the liquidity for the repo market to begin with." Jeez. Such increases in our securities holdings ensure that the federal funds rate remains within its target range and are necessary because the growth of the economy leads to rising demand over time for our liabilities including currency and reserves. >> As detailed in a statement released today by the Federal Reserve Bank of New York, reserve management purchases will amount to $40 billion in the first month and may remain elevated for a few months to alleviate expected near-term pressures in money markets. Thereafter, we expect the size of reserves reserve management purchases to decline, though the actual pace will depend on market conditions. >> Josh, write this down. And and for those of you watching right now, I'm going to go ahead and make a prediction. I predict that within three months, three months, they're not going to be buying bills anymore. They they'll they'll they'll they won't they I doubt they'll even do a a press release, but if you go look at the data, if they're still buying and still, you know, because the the market needs Fed liabilities. Oh, we got to give them more liabilities, more liabilities, which are are bank reserves. Um if they're still doing that, it ain't going to be by buying T- bills. It's going to be buying further out the curve. That would be my prediction. You heard it right here first. We'll have to see what happens over the next three months. [clears throat] >> In our implementation framework, an ample supply of reserves means that the federal funds rate and other short-term interest rates are primarily controlled by the setting of our administered rates rather than day-to-day discretionary interventions in money markets. In this regime, standing repurchase agreement or repo operations are a critical tool to ensure that the federal funds rate remains within its target range even on days of elevated pressures in money markets. Consistent with this view, the committee eliminated the aggregate limit on standing repo operations. These operations are intended to support monetary policy implementation and smooth market functioning and should be used when economically sensible. To conclude, the Fed has been assigned two goals for monetary policy, maximum employment, and stable prices. We remain committed to supporting maximum employment, bringing our inflation sustainably down to our 2% goal, and keeping longerterm inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. Yeah, actually sorry, Drum. Your actions really don't impact businesses and [laughter] people around the world. Sorry to break it to you, buddy. And by the way, if you're questioning my take, there's another one of these things I probably haven't explained well enough on uh risk versus just amount of reserves in terms of let's just say liquidity in short-term funding markets. Just ask yourself a simple question based on the sofur rate which is what pal is referring to here in in let's just say repo okay so if you look at the the repo market if you look at the interest rate for the day in repo let's say so this would be uh sofa would be a proxy for that so let's say the sofa rate is 4.1%. What you need to understand is that the repo or the so the rate that every single entity got was not 4.1%. No, it was that's the average. So you could have let's say a thousand financial entities that accessed the repo market and borrowed in repo short-term funding that day and each one of them got a different interest rate by the counter uh uh by uh was given a different interest rate by the counterparty. Why? A different risk b different collateral which effectively is different risk. So if risk doesn't matter, then why do we have a thousand different repo rates for each individual transaction in the repo market every single day? Why? That it's obvious. The answer is yes, the the the collateral matters and yes, the risk matters. And it it's it's it's just it really, as you can see, gets under my skin that that was just brushed aside, that little footnote. And we're just supposed to assume that the only reason why you have tightness in these funding markets is just because there's not enough bank reserves. It It's again, it's like a scop. It's it's like a scop that they have to come out and say these things to make them seem important to incentivize or to manipulate markets into doing what they want markets to do or market participants because they know that mechanically what they're doing isn't doing anything if anything counterproductive. But they have to make it seem like they're doing something or else the ruse is up. It's like the Wizard of Oz, right? They want to make sure that that door to the closet isn't opening up because if it did, everyone would be like, "Wait a minute. You you you're nothing. You don't have any power." And then that's the whole central planning thing, right? Then you can't centrally plan is my point. At the Fed, we will do everything we can to achieve our maximum employment and price stability goals. Thank you, and I look forward to your questions. Howard. >> Uh thank you Howard Schneider with Reuters. Uh just first turning to the statement the as just to be clear we're on the same page here. The insertion phrase uh considering the extended timing of additional adjustments. Does that indicate that the Fed is now on hold until there's some clearer signal from uh inflation or jobs or the evolution of the economy along the baseline outlook? So yes, the um the adjustments since September um bring our policy within a broad range of estimates of neutral and as we noted in our statement today, we are well positioned to determine the extent and timing of additional adjustments based on the incoming data, the evolving outlook and the balance of risks. Uh that new language points out that we'll carefully evaluate that incoming data. >> Oh, that just made interest rates go up. I bet I bet that just made the two-year go up. So, this is we're delayed here because I've been stopping it. But let let's I'm just really curious. Let's go over to the two-year. I'll one statement made it spike. Yeah. Yeah. My my guess is Powell said that right here and then it spiked. And the reason it spiked is because that was a hawkish statement. That was a hawkish statement. But let's go back here. Uh and also I would note that having reduced our policy rate by 75 basis points since September and 175 basis points since last September, the Fed funds rate is now within a broad range of estimates of its neutral value and we are well positioned to wait to see how the economy evolves. And if I could follow up on the outlook there, it it it seems like with the additional GDP growth coupled with easing inflation and a fairly steady unemployment rate, this seems like a pretty optimistic outlook uh for next year. Um what's given rise to that? Is this an early bet on AI? Is there some sense of uh improve improving productivity out there? What's what's driving that? >> So a number of things are driving uh what's happening in the forecast? And I would say if you if you look broadly at outside forecasts, you do see a pickup in growth in many of those now too. So it is um it's partly that consumer spending has held up. It's been resilient and it it to another degree it is it is that uh AI spending on data centers and related to AI has been holding up business investment. So overall um the the baseline ex expectation for next year is at least at at the Fed and I think with with outside forecasters too is a pick up in growth from today's relatively low level of level of 1.7%. I mentioned that the SEP median is 1.7 for this year growth and 2.3 for next year. You actually some of that is due to the uh the shutdown. So you can take 210 out of 2026 and put it in 2025. So it would really be 1.9 and 2.1. But overall yes um you know you know for a few reasons fiscal policy is going to be supportive and as I mentioned AI spending will continue the consumer continues to spend. So it looks like uh the baseline would be solid growth next year. And notice he he it's it's all he's cherry-picking there because he's sitting there talking about how the shutdown this is just like pentup demand but yet what he doesn't say is all the demand that was pulled forward by front running tariffs. So [laughter] you I don't know I don't know Jerome and then what he's doing there is and I'll give him credit. It is true that you've had a significant impact on GDP due to this AI spending in capex. That's for sure. That's for sure. And but I think what you would have to ask is say okay well if we're at I don't know what nominal growth is right now. um is the especially when you look at the labor market like look we've had a massive deterioration in the labor market he admits that and we've had that with all the AI capex so are we to assume that the AI capex will be more next year probably not probably less now will that still impact GDP absolutely it will absolutely it will point if you have negative non-farm payrolls if you have negative ADP that's fewer jobs. I don't care how many illegals went home, it's still the bottom line is fewer jobs and less aggregate demand. And so if you have fewer jobs, less aggregate demand, even with AI capex, I don't know that we can safely assume that just because we have AI capex next year, that we're going to expect a booming economy and going back to extremely high levels of of growth. I mean that that does that's completely inconsistent with history. Just go back and look at history. When we have negative ADP numbers and we have negative non-farm payrolls, what you're going to find is is you're not going to find economic growth right there. You're going to usually find economic contractions. And by the way, if we were going to get economic growth, do you do you do you think the 10-year Treasury would be trading just barely above Well, I guess it's not barely above Fed funds now, but do you think the 10-year Treasury would be trading below nominal GDP? Like the 10-year Treasury right now is trading at 4.17. Okay. Do you think that the 10-year Treasury yield? Do you think we would have a yield curve that looks like this? >> [laughter] >> If the market was expecting really great growth where you can go three, four, let's see what call it three, four years out the curve and we're still inverted. That is not the market predicting growth. That that is the opposite of that. [laughter] You say, George, the curve is steepening out. What about the third year? Yeah, let's go back to this and notice what happens every single time in uh one of these. that the 30-year rarely plays ball. Not every single time. Let's go back to the GFC as an example cuz that's really kind of blatantly obvious. And then so during the GFC here, we see that the 30-year Treasury right here, it's it's not even doing close, like we said, to what Fed funds is doing. And it's actually steepening out right here with these two together. That means the curve between the 10ens and the 30s is is pretty flat. But then right here, this big delta or increasing delta, that's going to be a steepener. And that's going to be what we call a bull steepener. Right? So you get a bull steepener here. And where basically the 30-year is flat, but the 10-year is going down at a faster rate. And that's exactly that's exactly what we have seen um here in 2025. If we seen the exact same bull steepener where the 30-year is basically flat and the 10-year has gone down quite substantially. Then of course the two-year has gone down even more than that. You get a bull steepener that is not the market saying that it expects high levels of growth next year. That is the complete opposite. Now could the market be wrong? Sure. Absolutely. But if I'm going to bet one way or the other, again being completely agnostic, I'm going with the market. I'm not going with the Fed. >> Thank you. Thank you uh Mr. Chairman for taking our questions here. Um the uh you had previously described rate cuts in terms of a riskmanagement framework and kind of following up on what Howard was asking um is the riskmanagement phase of rate cuts over here and uh um have you taken out sufficient uh insurance I guess against potential weakness in terms of the data we might get next week when it comes to employment? So, we're going to get a great deal of data between now and you see I got to stop pausing this thing, but it just drives me crazy. That sounds like Steve Leman. It just You see what he's doing? He He He's He's He he's he's playing the Kabuki Theater. He's claiming that the emperor is wearing brand new clothes. He he he's just he's playing into the delusional fantasy that you've you've done these preemptive cuts. So you you've done enough, right? You you you've done enough of these preemptive cuts to where now the labor market is really going to start to boom when again you guys saw what I just did. We just went back to the interest rates and saw that like the 10 year it it's it's come down. It's probably at the same level as when they started cutting rates back in uh 2024. So, how can you sit there and say based on what you see that, you know, the rates are all over the place regardless of what the Fed's doing, even a rate cutting cycle, that somehow that somehow just by coming down to where the rates already were, where they were pricing in at the front end of the curve, that that's somehow going to support the labor market. See, he's assuming that this is true, just playing into the delusional fantasy in the in the January meeting and I'm sure we'll talk more about that and that will the data that we get are going to factor into our thinking but yes we have uh if if you go back uh we held our policy rate at you know 5.4% 4% for more than a year because inflation was high, very high, and unemployment when and the labor market was was really solid at that point. So, what happened is over last summer, summer of of of 24, um inflation came down and the labor market began to show real signs of weakness. And so we we decided as our framework tells us to do that uh when the when the risks to the two goals become more equal, you should move from uh a stance that favors really dealing with one of them. And >> okay, I got to call bull excuse me if there's kids watching, but I got to call again. This I can't take it. I I can't take it. I can't take it. So see what he's implying there again. The Fed is all powerful that when we raised interest rates, well then we started to see inflation come down. Okay, let's go ahead and do a fact check on that one, or at least what he's implying here. So, we can go ahead and look at Fed funds. I've got that right here. They started uh let's see, they started raising rates in 2022, right? April 2022. And inflation was uh inflation peaked out. We know inflation peaked out about August of 2022. So inflation when they're raising rates is still going up, right? Still going up. And then when they get here, let's say July of 2022, and when they start pausing, then what was happening to CPI? It was still coming down. So they're just basically [laughter] you see what's happening now. What they would probably argue I guess is that the interest rate policies have like a lag or something where yes, the CPI was going up while the Fed was cutting rates, but that's just because the CPI didn't know how tough we were going to be. >> [laughter] >> All of a sudden, once you got up to 2 point, think about that. Once you got up to 2.3%, the CPI was 9.1 9.1. And you think that by taking the front end of the curve from zero to 2.5% that that's that's what brought down interest rates or that's what brought down the CPI. And by the way, even if that is what brought down the CPI, if that if it had if an increase of 2%, let's say, had that much of an impact to bring the CPI down, then why on earth haven't you been able to bring the CPI down even further by increasing rates another 2.5%. See, it's it's just whatever is happening. It's it's the difference between causation and correlation. And what happens is when there's these correlations, even though that it really doesn't match up, they just assume that everything that happens is a result of the central planning. It's just well, we raise rates and even though the time frame really doesn't match up and if you really think about it, it doesn't make a lot of sense. But just because they happened in a reasonable amount of time, then it must be because of what we did inflation to a more balanced, more neutral setting. And so we we we did that. We did some cutting and then we we paused for a while to work our way through uh what was happening in the middle of the year. And then we resumed cuts in in September. We've cut now three. We've now cut a total of 175 basis points. And as I mentioned, you know, we feel like uh where we're positioned now puts we're well positioned to wait. >> And along the same lines, they've cut 175 basis points. And what's happened to the unemployment rate? It's gone up. It's gone up. So, I mean, I could just [laughter] I It's just You just think about this that much. and you see that this is all just kabuki theater. It's just a scop. It's all it is. >> See how the economy evolves from here. >> If I could just follow up on the SCP, um you have a whole lot of a big increase in the growth numbers but not a big decline in the unemployment numbers and is that an AI factor in there? What is going on in terms of the dynamic of you get more growth but you don't get a whole lot of decline in unemployment? Thank you sir. So it it is the implication is obviously higher productivity. Um and u some of that may be AI. It just also I think u productivity has just been almost structurally higher for several years now. So if you start to thinking of it as 2% per year you can sustain higher growth without more without more job creation. Uh of course higher productivity is also what enables incomes to rise over long periods of time. So it's basically a good thing. But that may be that's certainly the implication. How how's that? Yeah, that that doesn't make sense because if you I get it what he's saying with higher productivity, but if you have higher productivity as a result of AI, that that's going to be that's going to be a massive decrease to aggregate demand because that's fewer jobs. So that that's I'm not going to put too much I'm not going to harp on that too much because, you know, asking the Fed about AI, I mean, come on. that that that is they don't even understand what's in their wheelhouse or within their wheelhouse, let alone something that's completely outside of their wheelhouse. I would not expect the Fed to have a really good prediction on on AI or what that's going to do to the economy. >> Thank you, Colobby Smith with the New York Times. Um, today's decision was clearly very divided. It wasn't just the two official descents against the cut, but there were also soft descents from four uh others. And I'm just wondering if um this reluctance from several people to support recent reductions suggests that there is a much higher bar for cuts in the near term and and what exactly does the committee need to see um if things are well positioned right now um to support a January reduction? >> Sure. So um let me just say as I mentioned u and as I've mentioned here before the situation is is that our two goals are a bit in tension, right? So, um, interestingly, everyone around the table at the FOMC [clears throat] agrees that inflation is too high and that we want it to come down and agrees that the labor market has softened and that there's further risk. Everyone agrees on that. where the where the difference is is how do you weight those risks and what does your forecast look like and and and where do ultimately Walton where do you think the bigger risk is and and you know it's very unusual to have uh persistent tension between the two parts of the mandate and when you do >> this is what and I think it's >> just not it is so not >> again I got to call them out I'm sorry for keep to I don't want to pause it this much I apologize guys but I can't take it I I can't take it. If he says something that's just complete BS, I've I've got to call him out on it. So, like, let's go back to this and we'll go back to the GFC, which is remember this right here. Remember this huge increase in interest rates. Why did that happen? That happened. And this is during 2008, by the way. This is the beginning of 2008. It was happening because the CPI was ripping higher. I mean, ripping higher. Not like the CPI now where it goes from 2.4 up to three. I'm talking about the CPI in Q4 of of 2007 being right around 3.5% and by the summer call it June July of 2008 it was at 5.6 5.6 6 it you imagine that would be like the CPI going from where what was it uh 2.5 roughly that would be like it going up to uh you know 4.5 or 5% not 3% where we are right now. So this happened during the GFC okay at the beginning of the GFC before the stuff really really hit the fan but as you can see it was within the time frame that the NBER called a recession. Now, what was happening to the labor market during this time? The labor market was tanking. I'm not I'm talking about every single month almost when you look at revisions. We had negative non-farm payrolls. I mean, the the the labor market was in just dire straits. I mean, it was completely collapsing during this uh during this time frame when the inflation rate was going up. So to sit here and say that this is unprecedented or this is somehow unique. No, it's not. We see this. We see this in almost every single cycle where you get these waves where it's like, "Oh my gosh, the Fed's cutting too much. Inflation, inflation, inflation while we see the deterioration in the labor market." We saw in the dot. You guys, if you're just new to the video, go back 20 or 30 minutes and I went through every single one of these cycles and you go back to the dot. Same thing. We had time frames in there where the long end goes up by 7500 basis points. Why? Because everyone was worried about inflation, inflation, inflation, inflation while the labor market was deteriorating. So this is nothing new. We see this literally in every single cycle. And I'm just a schmuck on YouTube. If I know that, then how does the Fed chair not know that? The answer is he does. And this is just a total scop. And that's why one of the main reasons I get frustrated about this. Let's go back. It's actually uh what you would expect to see and we do see it. Meanwhile, the discussions we have are as good as any we've had in my 14 years at the Fed. They're very thoughtful, respectful, and you just have people who have strong views. And you know, we we come together and and we reach we reach u you know, a place where we can make a decision. We made a decision today. we had, you know, nine out of 12 supported it. So, fairly broad support. Um, but it's not like the nor normal situation where everyone agrees on the direction and what and what to do. It's more it's more spread out and I think that's only inherent in the situation in terms of what it would take. You know, we all have an outlook in terms of what's going to come. But I think ultimately uh having cut 75 and you know that the effects of the 75 basis points will only begin to be coming in >> as I've said before a couple times we're well positioned to wait to see how the economy evolves. We'll just have to see and we will get as you again but by by cutting the overnight rate for interbank lending by 75 basis points. you actually want to look me in the eye and argue with a straight face that that's going to have a massive impact on the economy, but it's just going to lag six months. And come on, who are we trying to kid? You know, quite a bit of data. I should mention on the data as long as I'm talking about it that um we're going to need to be careful in assessing particularly the the household uh survey data. Uh there there are very technical uh reasons about the way data are collected in some of these measures both in you know inflation and in uh in labor in the labor market. uh so that the the data may be distorted and not just not just sort of more volatile but distorted and and that's it's uh and that's really because data was not collected in October and half of November. So we're going to get data but we're going to have to look at it carefully and with a somewhat skeptical eye by the time of the January meeting. Notwithstanding that we will have a lot of the December data by the time of the January. So, we expect to see a lot more, but I'm just saying that the what we get for, for example, CPI or for the uh for the um uh uh household survey, uh we're going to we're going to look we're going to look at that really carefully and understand [clears throat] that it may be distorted by very technical factors. >> Um and just just um one more question on desense. Um I mean [clears throat] you talk about in a very positive way just given the complicated nature of the situation we're in economically but is there any point in which those descents become counterproductive either to you know the Fed's communication and the messaging around the policy path forward? >> I wouldn't I don't feel that we're at that point at all. I don't I I would say again these are these are good thoughtful respectful discussions and you hear people say and you'll hear you hear many many outside analysts say the same thing. I could make a case for either for either side. I mean I I could make that case. It's it's a close call. We have to make decisions and uh we you know we always hope that the data will will give us a clear read. But in this situation you you have you have competing as if you look if you look through the SCP you'll see that a very large number of participants agree that risks are to the upside for unemployment and to the upside for inflation. So what do you do? You've got one tool, you can't do two things at once. So, at what pace do you move? How how what what size moves do you make and that kind of thing? And what what's the timing of them? It's it's very it's a very challenging situation. I think we're in a good place to, as I mentioned, to wait and see how the economy evolves. >> Nick Timos of the Wall Street Journal. Um, Chair Powell, there's been some discussion recently of the 1990s. In the 1990s, the committee did two discrete sequences of three quarter point cuts. One in 1995 96 and one in 1998. And after both of those, the next move in rates was up, not down. With policy now closer to neutral, is it a foregone conclusion that the next move in rates is down? Or should we think of policy risks as genuinely two-sided from here? >> What an idiot. What a what an idiot. [sighs] More frustration. Why? Let's go back and look at the first of all, I guess we'd look at the un unemployment rate. Look at what the unemployment rate was doing during this time. It's it's just flat. It's just not doing anything. I mean, it's right here. I mean, the unemployment rate still going down. Did Did Nick, did you see anything like this, my friend? Did you see anything like that, Nick? No, you didn't. Why? Because that this was not an economic contraction or any risk of an economic contraction. And Greenspan just wanted to cut rates to cut rates, right? this. You can't sit there and and we have a deteriorating labor market. Even your hero Jerome Powell admits that we did not have a massively deteriorating labor market back then. That's number one. Number two, and this this is a real biggie. We should get to this by the end. In fact, I want to go over this very, very quickly just so I don't forget. And this is the delta between the 2-year Treasury and the Fed funds rate. So, two-year Treasury is the blue line and Fed funds is the green line. Now, I want you to notice what happens in every single one of these cycles. Every single one. When you get to the end of the cycle, guess which is lower, the Fed funds rate or the two-year Treasury? That would be the Fed funds rate because the curve naturally steepens out, right? So, where are we now? The Fed funds rate is between 3.5 and 3.75. So, just call it 3.6. Okay? And we've got the 2-year Treasury right now at 3.55. It's still under it's and it's tanking, by the way. It's still under still under Fed funds. So what is this telling you? This is telling you that most likely again no certainty is only probability but most likely the path of the Fed funds rate is down. It's not up Tim. I mean, can you see? Again, the issue here with Tim, just to give him the benefit of the doubt, is you're completely excluding everything else except just the Fed funds rate and the Fed policy decision. I mean, let's go to the twos and tens. Hopefully, I've got that up. I do. Okay. So, now let's look here at 1995. Do you see an inversion anywhere here, Tim? Do you see it? You don't. Why? Because it didn't happen. it [laughter] didn't happen. So you had no inversion of the curve. You had the labor market that was fine and and and by the way, you know, there's an argu I might have popped up a bit, but the labor market was not showing the deterioration just using the unemployment rate as a proxy. Um, but I if you go back there, I can almost guarantee you I don't have the data in front of me, but we did not have massive amounts of negative non-farm payroll prints or negative ADP prints. Maybe you had a couple due to weather or something like that, but nothing to the degree to which we have had. Nor have we had this look at this massive inion [laughter] of the curve, which in and of itself tells you why do you have an inversion of the curve? because the financial institutions see a lot of risk and they'd rather take that balance sheet capacity and allocate it to the safest most liquid asset which is treasuries. So you have a bid for treasuries while the Fed is increasing rates because they're behind the curve. No pun intended and you get an inversion. That's why we have an inversion to begin with. No inversion back here, Nick. No inversion, my friend. If you think the Fed is go, the next Fed move is going to be increasing interest rates. Again, maybe they will. There are no certainties. All I would say is the probability of that is incredibly incredibly low. Maybe it's different this time. Always a possibility. So, I don't think that um a a rate hike is anybody's base as the next thing is anybody's base case at this point. And I'm not hearing that. What you what you see is um some people feel we should stop here and and that we're at the right place and just wait. Some people feel like we should cut once or more this year and next year. But the the but when people are writing down their estimates of policy of where it should go, it it is is either holding here or cutting a little or cutting more than a little. So I don't see that as I don't see the base case as involving that. So of course you know a data set of two now three is is not a big data set but I you're you are right about those two uh three cut times in in the 90s. If I could follow up the other >> two three cut times. What? Okay. Oh, he's talking about right here. He's talking about right here. Ah, okay. I thought it was just one. So, let's go to that. Maybe I'm wrong. Now, I would say that if you've got, you know, four out of five times if it plays out like this, probability is still on your side. But let's see. Maybe the curve was uh inverted here. Maybe we had the unemployment rate spike. So that would be uh what is that? 98 to 99. Let's check that out. Yeah. Got a Yeah. teeny weeny weeny weeny weeny inversion just slightly. Okay. So, I'll give him that. I'll give Nick. But let's see the unemployment rate. Oh, where was the unemployment rate here? It's just other stuff. Shoot. Where was the un? Um, I had that up. Oh, there it is. There it is. There it is. Yeah. So, again, apples to apples to oranges. Excuse me. You don't have a year. You have the labor market just going or the uh unemployment rate, excuse me, during that time going straight down. You got it going straight down. And maybe you could argue a little blip here from 4.3 to 4.5. You've got a slight inversion. And you could argue that that inversion was just part of the larger inversion. Um, >> are you trying to show a different screen right now? >> Yeah. Shoot. I forgot I'm showing all these different screens. That sucks. Sorry, guys. I was just showing like five different screens. I've been doing it the whole time, forgetting that we're stuck on this stupid screen. But you'll just have to look it up. [laughter] You'll have to Oh, gee. That's the benefit of doing a live stream, right, with no edits is I totally forgot. So, if you go to uh just I'm not going to go back there. Well, let me do that. We got a lot of people. We got about 10,000 people watching. So, let me just take a quick second just so I can get everyone up to speed and then we'll go back to Pal. Okay. So, now we've got that. Uh Josh, do you see the unemployment rate? Where was it? once you clear up the thousand tabs. I'm sure we will. >> There it is. You see it? >> Got it. >> Okay, cool. Sorry about that, guys. And thank you, Josh, for reminding me. But where what we're looking at is right here. So, in the first rate cut uh that Tim Rose was talking about was right here where the unemployment rate went okay. What did it do? It went up from 5.4 to 5.6 or so. Um, all right. And then there was no inversion of the curve. at least twos and tens. And then we get to 98, which is the second one he's talking about, and we had a slight slight inversion of the curve, but nothing in the labor market. Nothing in the labor market, no no massive deterioration. So to sit there and and that those are the two big big components. So w without that to compare this to what we're seeing today is just it's disingenuous or it's it it's it's it's intellectually I don't want to say dishonest. It's just it's it's not intellectually thorough. That that's a much better way to say it. Okay. Now let's go back and switch up the screen share. very gradually for the better part of two years and indeed the statement today no longer describes the unemployment rate as remaining low. What gives you confidence it won't continue rising in 2026 especially when housing and other rate sensitive sectors still appear to be feeling restrictive policy from the uh notwithstanding the 150 basis points and cuts prior to today. So the the I think the idea is that with with now having cut 755 basis points more now and having policy you know I'd call it in a broad range of of plausible estimates of neutral that that will be a place where which will enable the labor market to stabilize or to only tick up one or two more tents but we won't see how just Okay Josh we've got 10,000 people basically on the live chat for th let me just talk to the 10,000 people that are on here right now. I'm sure a lot of you are small business owners or maybe midsize business owners or maybe even large business owners. I'm sure a lot of you are entrepreneurs. How many of you have gone out and hired a bunch of people over the last three months just because Jerome Pal dropped the Fed funds rate by 75 basis points? Go ahead and tell me in the chat right now. I'll wait. For those of you who who are entrepreneurs, just say yes or no as to whether or not you've hired a bunch of people due to the fact that the Fed just cut by 75 basis points. In fact, I'll take it one step further. Tell me for those of you who are entrepreneurs, if you have ever ever in your life hired people just because Jerome Powell was cutting interest rates. I'm actually just waiting for QE and then I'm I'm hitting the go button. >> There you go. Then it's pedal to the metal. [laughter] Of course not. This is nonsense. So then the only argument could be that somehow by lowering the the overnight rate that that banks charge each other is somehow going to just massively boost aggregate demand. And you're going to see that at your local the dry cleaner that you own and you're gonna be like, "HOLY COW, I GOTTA GO HIRE SOME MORE PEOPLE. WHOA, I'VE NEVER SEEN DEMAND like this. Boy, I sure hope the Fed keeps cutting." I mean, you see, when you hear it over and over and over again, it it's all it's kind of believable, but when you actually think it through in terms of the real economy, you're like, "Wait a minute. This is ridiculous. This is completely [laughter] ridiculous. That's why I get so frustrated. All right, let's go back to it. Have I got the right screen shared now, Josh? >> If you're trying to play Jerome Pal, yes. >> Okay. You know, any kind of a sharper downturn, which we haven't seen any evidence evidence of at all. At the same time, uh, policy is still in a place where it's not accommodative and and we feel like we feel like we have made progress this year in non-tariff related inflation and it as tariffs come through, as they flow through, that'll show through next year. But, as I said, we're we're well past well placed to to wait and see how that turns out. That is our expectation. But, you know, we're going to start to see the data and it'll tell us whether we were right or not. >> Claire Jones, Financial Times. Um, a lot of people interpreted your comments at the October meeting that, you know, when there's a foggy situation, we slow down to mean that, you know, there won't be a cut now, there'd be a cut in January instead. So it'd be good to get a sense of why did the committee decide to move today rather than to move in January instead. Thank you. >> Right. So in October I said um that there was no certainty of moving and that was that was indeed correct. I said it's possible you could think about it that way but I was careful to say other people could look at it differently. So why did we move today? You know I would say point to a couple things. First of all, gradual cooling in the labor market has continued. Unemployment is now up 3/10en from June through September. Payroll jobs uh averaging 40,000 per month since April. We think there's an overstatement in in these numbers by about 60,000. So that would be negative 20,000. >> Whoa, whoa, whoa, whoa, whoa, whoa, whoa, whoa, whoa. Did you hear that, guys? I was not expecting that. That is a bombshell. That is a bombshell. We have averaged, he's talking about non-farm payrolls, I believe here. We've he said we've averaged what is it 40,000 over the last I forgot what he just said, 6 months or so. But he said he thinks they are overstating it by 60,000 a month, which makes sense when you look at all the revisions. But that would bring the non-farm payrolls for the last 6 months down to an average of negative or however month my said down to an average of negative 20,000. Now, I would challenge I I I I do it now, but I got to switch up the stupid screen share [laughter] again. Now, I would challenge you guys, and you can use AI for this. go back and try to look at the last 50 years and look at when we have had negative non-farm payrolls and look at when we have had like six months in a row of non-farm payrolls and try to find and and see if there's a correlation with recessions and try to find a sixmonth period where we have uh substantial negative non-farm payrolls when we're not in an economic contraction. And the and the the point there is you're you're it's going to be tough to find. It's going to be very very very tough to find. So that in and of itself and then you say, "Well, George, what if it's the 1970s, right?" And I've pulled up this chart. Well, dang it. It's a stupid screen share again. I've pulled up a chart. You guys have seen it. Even in the 1970s when you had a slowdown in the labor market, the unemployment rate spike, you had the deterioration, negative non-farm payrolls, etc. you had disinflation. You did not have a reaceleration of inflation. Now you still had prices going up but they were disinflating. They are going up at a much slower pace. Right? So what I'm that my point there is if you're trying to weigh the balances here of probabilities as to should we be more concerned with the labor market or more concerned about inflation. Dude, if you've got negative 20,000 jobs per month on non-farm payrolls and you look at history, trust me, you should be way more concerned about the labor market than you should be about inflation per month. Um, and also just to point out one other thing, surveys of households and businesses both showed declining supply and demand for workers. So I think you can say that the labor market has um uh continued to cool gradually maybe just a touch more gradually than we thought. um you know in terms of inflation um we are it's get come in a touch lower and I think the evidence is is uh kind of growing that what's happening here is services inflation coming down and that's offset by increases in in in goods and that goods inflation is entirely in sectors where there are tariffs. So that does build on the story and so far it's only a story that this is that that the goods inflation which is really the source of the excess at this point that that uh mo almost more than half the source of the excess inflation is goods is tariffs. >> How how do you Okay, I I I I'm going to give him this I'm going to give him this because it is true that that tariffs have slightly increased prices. But that is by no means to say that we should assume that it's not just a a one-time price adjustment, right? And oh, by the way, um it's again we we go back to the majority of the tariffs are being paid by the US importers. That that's without question and you can tell that by the import price data. And then next I would say I I don't know that the large portion of the CPI is due to just these goods that are impacted by tariffs, but more so housing data. It's more so your your stupid lag in housing that doesn't pick up the real-time data of what's happening with prices or what's happening in rents. And if you actually had real time data there or if you strip out housing then you're going to be probably you're definitely going to be sub well not definitely I shouldn't say that because I haven't done the research but my guess would be and I'm going to say with quite a bit of confidence that you would be sub 2% if you stripped out housing and you've got to say then so what do we expect from tariffs? Um and it's I would say that is to some extent down to looking for broader economic uh you know uh heat. you know, do we see a hot economy? Do we see constraints? Do we see what what's going on with wages? You saw the ECI report today. How do you have a hot economy when you have negative 20,000 non-farm payrolls a month? H how can you be worried about a hot economy? And if you're not worried about a hot economy, why the hell would you be worried about an acceleration, not just a price adjustment, but an acceleration due to tariffs? Even even even if those importers tried to pass on 100% of the cost of the tariff, guess what the consumer is going to do? They're going to puke it back up because they don't have the money because they don't have a job. [laughter] Like like great, increase your prices. Woohoo. What's that going to do? Nothing. And then what's going to happen is you're going to be like, whoa, pump the brake on the price increases and you're going to drop the price back to where it was before and eat the margin because if you don't, you're going to go out of business. That this is this is the the issue here with why you can't just look at the price of oil. This is one thing that people do all the time as an example. They look at the price of oil and they just assume that if it goes up to 120 a barrel or whatever that that's going to lead to long-term inflation. No. In fact, a lot of times that's what leads to disinflation because you have the oil prices go up, which is a tax on the consumer, but yet their wages don't go up at the same rate. So what happens to their purchasing power? It goes down. So you get a big spike in oil and sometimes that does spike the CPI, but then it comes right back down because the people just don't have the purchasing power to pay the high prices. Aggregate demand goes down and volume of goods and services sold goes down dramatically. That's exactly what we saw during the GFC. And it there there there's no reason to think that even if you do have that one-time price adjustment, if you don't have if you have a deteriorating labor market, that somehow that's going to equal over the long run price is increasing and going higher and higher and higher and higher and higher and higher. Where the hell's the purchasing power going to come from? >> It doesn't feel like a hot economy that wants to generate, you know, Phillips curve kind of inflation. So we look at all those things um and we say that this was a decision to make. It obviously wasn't uh unanimous and um but overall that was the judgment that that we made and that's the action we took. >> Just on the ambulance reserves [clears throat] point, how concerned were people around the table about some of the tensions we've seen in money markets? >> I wouldn't say concerned. So what what really happened is this um uh balance sheet shrinkage sometimes called QT went on. We had a framework in place for monitoring it and nothing happened. The overnight reverse repo facility went down pretty much close to zero. Uh and then beginning in in September uh the federal funds rate started to tick up within the range, right? And it ticked up almost all the way to uh interest reserve balances. There's nothing wrong with that. What that's telling you is that we're actually in reserves in an ample reserves regime. So, you know, we we knew this was going >> all right, Jerome. It has nothing to do with risk at all. It has it there's no way it can have anything to do with risk. It can only have to do with the amount of bank reserves. [laughter] Come on. when remember that the repo rate is an average of about a thousand different rates based on risk every single day with counterparties going to come. When it finally did come, it came a little quicker than expected, but we were absolutely there to take the actions that we said we would take. So, and we those actions are today. So, you know, we we announced that we're resuming reserve management purchases. That is completely separate from monetary policy. It's just we need to keep an ample supply of reserves out there. Why so big? The answer to that is uh you know if you look ahead you'll see that that April 15th is coming up and our our framework is such that we want to have ample reserves even at times when reserves are at a low level temporarily. So that's what happens on tax day. People pay a lot of money to the government, reserves drop. Sure. >> A low level. Okay. So, prior to 2008, we had about 40 billion of bank reserves. And I'd like to point out 30 billion of that was vault cash, meaning that's not being used for interbank settlement. So, you had about 10 billion of reserves that was actually being used for interbank settlement. Now, I haven't looked at the chart lately, but I would assume, and I've probably got it up. Well, I got to do the screen share, but we're probably around three trillion three trillion in bank reserves. Three trillion from 10 billion. And you're telling me that that's not ample? Like, I get it. SLR, Basil, I get the the all the regulations. There is no way that just regulations alone would prompt you or or or would facilitate the need to go from 10 billion to to three trillion. [laughter] [gasps] 3 trillion. Come on. And M2 money supply went up from 7.5 to what was it 22? Something like that. So you had a a a a doubling, you know, it's it's up by 200%. Yet the amount of I don't even know what that is. I can't even calculate [laughter] that percentage going from 10 billion to three trillion. And somehow you want to argue that we don't have ample reserves. I mean, you just in order to believe this, you you just have to completely ignore history. You just have to completely ignore the data >> sharply and temporarily. So this seasonal buildup that we'll see in the next few months was going to happen anyway. It was going to happen because April 15th is April 15th. There's also a secular ongoing growth of the balance sheet. We have to keep reserves call it constant as a as it relates to the banking system or to the whole whole economy. And that alone calls for us to increase about 2025 billion dollars per month. So that's a small part that that's going on. It's also happening in the context of a temporary. >> So you have to increase it by 25 billion a month. When M2 money supply, let's just say is 22 trillion. I don't know what it is. Let's just say it's around that. when when it was 7.5 trillion the total amount of electronic reserves for interbank settlement was 10 billion and somehow you have to increase it by 25 billion a month right now [laughter and gasps] again it's just it's I I I'm at a loss of words it's it's Will Ferrell it's just it's just we're living in crazy hill land >> very few month uh front loing to get to get reserves high enough to get through the you know the tax period in in in midappril so that's what's happening there [clears throat] >> um thanks Mr. Chairman, um uh this is the last post FOMC press conference uh before an important Supreme Court uh hearing next month. Can you talk about how you're hoping the Supreme Court will rule and uh I'm just curious why the Fed's been so reticent on such a pivotal matter. >> It's not something I I want to address here, Andrew. Um you know, we're not uh we're not legal commentators. It's it's before the courts and uh we think our we we don't think that we help matters by trying to engage as a as a as a as a public discussion of that. I'll give you a mulligan though. [clears throat] >> Thanks. >> I don't know if that means I get three questions but uh >> just one just one more. >> I I guess I wanted to come back to the the 1990s question and like do you see that as a useful model for thinking about uh what is happening in the economy right now? >> I don't think it rises to that level. So, I did think, >> you know, another thing that's weird, too, is all these guys asking questions. It's all 1990s, 1990s, 1990s, 1990s. Why doesn't anyone say, "Well, what about do you think this is similar to ' 89? Do you think this is similar to 2000? Do you think this is similar to 2007, 2008? Do you think this is similar to 20 to 2019? Why is it that the only question they can ask, the outcome is that the economy doesn't go into recession and they completely ignore the vast majority of times when it actually goes into recession. It's a bit of a head scratcher, isn't it? Think that in in 200 was it 19 where we cut three times. But, you know, this is such a unique situation. We this is it's not um uh it's not the 1970s, let's put it that way. But we do have tension between our two goals. >> And so such, if you're new to the stream here, this is not a unique situation that what he's talking about is the the the spread or the delta or whatever the convergence of the labor market and inflation. It happens every single time. It happens every single time in these cycles. you get a six-month period or whatever it is when growth and inflation expectations accelerate. Sometimes it's due to the CPI flatout going up like we saw in 2008. And while at the same time the labor market is deteriorating, it literally happens every single time. And yet no one fact checks him on it. Like how is this? Like I I almost flunked out of high school. I'm just some idiot on YouTube. How is it that the people that are right there in the room with him aren't saying, "Well, whoa, you say this is unprecedented, but the exact same thing happened in 2008." How do you explain that? This is just these are these questions are all just fluff. They're just nonsensical fluff and dril. That's just unique. And in my time at the Fed and I think going back a long ways, we haven't had that in our framework. By the way, if he truly believes that, we've got we got problems. Like, like we've got, if he truly believes that, that means that he hasn't even done enough research to know that this is not true. That in and of itself is frightening. As you know, says that when that's the case, then we try to, you know, take a balanced approach to to the two things and we look at how far they are and how long it would take to get them back to each of them back to the goal. That's a very subjective analysis really, but it just tells you you've gota and I think ultimately what it says is when they're broadly equally threatened or equally at risk, you should be kind of neutral because if you're if you're either accommodative or or or tight, you're favoring one or the other goal. And so we've been trying to we've been sort of moving in the direction of neutral. Now we're in the range of neutral. We're in the high end of the range of neutral, I would say. And that's what we're doing now. It it so happened. >> Basically what what he's saying right here is he's saying we're we're worried about getting kicked in the nuts. Let me just put it down to brass tax here in in a way that everyone can easily understand. He's saying we're we're really worried about we're we're kind of sitting like this. You know, like that meme where the karate guy is kicking the dude in the nuts over and over and over again. We're sitting in that position where we're primed. We're we're we're we're in, you know, we're getting ready. That dude's coming over and he's going to be kicking us in the nuts. But it's one of two dudes. You don't know whether it's the inflation dude that's going to kick you in the nuts or if it's going to be the labor market that's going to kick you in the nuts. But what you do have is you do have 50 years, [laughter] not that much, but you've got going all the way back to the 1980s where every single time you got two guys walking up to you to kick you in the nuts, the labor market dude is the guy that gets you every single time. But yet somehow this time you've got the two guys walking up to you that are getting just primed. They're getting warmed up. They're doing like squats getting ready to kick you in the nuts as hard as they can. And you're like, I don't know who it's going to be. I don't know. This is unprecedented. I don't know who it's going to be. Is it going to be the labor market or is it going to be the inflation rate? When it's always the labor market guy kicking you in the nuts. [laughter] Ah geez that we we've cut three times that you know we have we haven't made any decision about January but as as I've said we think we're well positioned to uh wait and see how the economy performs >> Edward. [clears throat] >> Thanks Mr. Chairman. Edward Lawrence uh with Fox Business. I wanted to ask you um the inflation expectations uh has has come down in your SCP report. Um do you see the tariff price increases as passing through in the next three months? Is it a six-month process that we're looking for that to end? And then because of that, is jobs the threat to the economy? [clears throat] >> So with with tariff inflation, you know, it takes there's the announcement of a tariff and then there's, you know, they start to take effect and then it takes some months. goods may have to be shipped from other parts of the you know it may take you know quite a while for an individual tariff to take its full effect but once it's had that effect then the question is isn't that just a onetime price increase what what good look we got the tariff retardation day we got that in April so we got April May June July August September October November we have nine months Jerome tell me the good that takes nine n months to get here. Just what what good is it? Maybe there's some, but just using good oldfashioned common sense, I don't think there a lot of goods in the basket that take over nine months to get to the United States. So, we've actually we actually look at all of the announcements and and and and what you get from all that. You see sort of a for each one of them there's a time period and then then it's fully in. So if there are no new tariff announcements and we don't know that but let's assume there are no major new tariff announcements inflation from goods uh should peak in the first quarter or so right roughly you know we haven't been able to predict this with any precision no one is but call it the first quarter or or so of next year should be the peak and from here it should be it shouldn't be big it should be a couple tenths or or even less than that we don't really >> it's not that you haven't predicted this with any type of precision decision. You actually have. It's just the outcome has been the inverse of your prediction. So you've actually done a very very good job of predicting it. You just predicted the opposite of what really happened. So if that was the case, if you had a hund if you had a thousand batting average for being wrong, why would you expect that you're going to be right moving forward? Wouldn't you expect that you're just going to be wrong? I mean, I don't know. have precision on this, but and after that again, if there are no new tariffs that that are being announced that will take nine months to get fully in, nine months is also an estimate. Um, then you should start to see that coming down in the back half of next year. And and I want to see if I could address sort of the elephant room. [clears throat] The president's been talking openly about um a new Fed chairman. Does that hinder your current job right now or change your thinking at all? >> No. like >> no mulligans for it. [laughter] Michael Michael McKe from Bloomberg radio and television. Uh tenure rates have are 50 basis [clears throat] points higher than when you started cutting back in September of 2024 and the yield curve basically has been steepening. Uh why do you think that continuing to cut now, especially in the absence of data, is going to bring down the yield on the thing that will move the economy the most? So, we're looking at the real economy and focusing on that. And you have you've got to when the when the long bonds move around, you've got to look at why they're moving around. If you look at inflation compensation, it's very, you know, that's one part of it is is inflation compensation break evens. And, you know, they're at very comfortable levels. They're at levels consistent past the once you get out past the very short term. Now um break evens are at a you know at at quite levels that are quite consistent with 2% inflation over time. So there's nothing happening with rates going up out there that suggests concern about inflation in the long term or anything like that. >> So let me translate the guy getting ready to the the the the one of two guys that's walking at you. It's the labor market getting ready to kick you in the nuts. What's happening is the inflation guy is turning around and walking in the other direction. That's what he's saying. I mean, I look I look at these things pretty regularly. Same thing with surveys. Surveys are all saying that uh the public understands our commitment to 2% and and expects us to get back there. So, so why why are rates going up? It has to be something else. It must be, you know, an expectation of higher growth or something like that. And that's that's a lot of what's been going on. I mean, you saw a big move, you know, toward the end of last year, which was not to do with us. It was to do with other developments. Well, you just mentioned that uh [clears throat] we're the public is expecting you to get back to 2% and Americans overwhelmingly are citing high prices, inflation as their number one concern. Can you explain to them why you're prioritizing uh the labor market which seems relatively stable to most people instead of their number one concern inflation? So we um as you know we have a network of contacts in the US economy which is really unmatched if you go through the 12 reserve banks. Uh so we hear loud and clear how people are experiencing um really costs. It's really it's really high costs and a lot of that is not the current rate of inflation. A lot of that is just embedded higher cost due to higher inflation in 2022 and 23. Uh so that's what's going on >> here. I agree with him here. I gota I'll if I you know obviously I'm I'll say what I disagree but here I agree. on. And so the best thing we can do is restore inflation to to to its 2% goal, and our policy is is intended to do that. But also have a strong economy where real wages are going up, where people are getting jobs and and earning money and and uh that we're going to need to have some years where real compensation is higher. You know, it's positive, significantly positive. So wages, nominal wages are higher than inflation for people to start feeling good about affordability, the affordability issue. And you know, so we're we're working hard on that. We want to we're trying to keep inflation under control, but also support the labor market and strong wages so that people are earning enough money and and feeling economically healthy again. >> Victoria, >> um, hi Victoria with [clears throat] Go. Uh just to follow up on that, I mean this is now the third time that you've cut this year and inflation is around 3%. So is the message that you're sort of trying to send with that that you're okay with where inflation is for now as long as people understand that at some point you still want to get back to 2%. Because inflation is relatively stable where it is. >> Everyone should understand and the surveys show that they do. >> Okay, Josh, I can't I can't take any more of this. the the questions are so stupid. I mean, these people I I don't how what what are the qualifications to get a a badge or a pass to get in there and ask him a question? Like, I I can't I can't take that. You know, it's one thing to be able to just handle the stupidity of Jerome Pal. And I'll give him credit. Maybe he he's not maybe he's he's just I mean, look, I'll cut him some slack here. He's got to put on the show. He's got to put on the show, right? So when I say that he's stupid, I'm not literally saying that he's unintelligent. I'm saying that he what he is saying is stupid. And it's probably because he's got to put on the show because he realizes this is all just a scop and that that's his only game. That is his only tool is psychological manipulation. So that so don't get me wrong there when I but but that the people asking him questions are are are on the brink of retardation and and and they're they're they're a combination of and just asskissers. So I can only handle Jerome Pal so much. I can't handle the the the the asskissers. So on that bombshell guys, enjoy the rest [laughter] of your afternoon. >> [sighs] >> As always, make sure you're standing up for freedom, liberty, free market, capitalism, and we'll see you in the next video.
Fed Rate Decision LIVE (Reaction)
Summary
Transcript
Hello fellow rebel capitalists. Hope you're well. So it is time. We've got about nine minutes before we get the big Fed rate decision. What are they going to do? Are they going to pause? Are they going to cut rates? And then what will the market reaction be? What will happen to the S&P 500? What will happen to the 10-year Treasury yield? Mortgage rates? All of these rates that are far more important than just Fed funds. what banks are lending to uh or lending uh what banks what interest rate banks are using to lend to one another overnight. So, we got about yeah eight minutes now. Let's do a screen share and go over to what interest rates have done today and then while we're kind of I want to hang out and with all you guys and hear what Jerome Pal has to say as well. what we're expecting, what the market is expecting is a hawkish cut, right? So, he's going to cut rates, but then come out and say how, oh, just you wait and see. Don't you expect another rate cut? Absolutely not. Ju just like he did last time. Don't expect another rate cut. No, no, no, no, no. And that's what the market's expecting. We'll see what we get. But then I want to kind of build on that last video I did and talking about if the Fed rate cuts even matter. And what I'm referring to is the real interest rates that are used in the real economy and mainly like the 10-year Treasury yield. So in past rate cutting cycles, what have interest rates done? Because if you listen to the mainstream media, if you listen to the talking heads at the Fed, they would like you to believe that if the Fed cuts rates by 100 basis points and then every single maturity [laughter] along the Treasury curve, it's just going to come down by 100 basis points. So if they cut by 100, then the two-year should come down by 100, the uh 10ear should come down by 100. 30-year come down by 100 or or at the very least they want you to believe that if they cut then the 10-year Treasury might not come down by a hundred but the 10-year Treasury will at least come down because the Fed's cutting rates, right? So, this is one of those things that I've noticed, and there's a lot of things like this that I've noticed since starting this YouTube channel and really getting neck deep in this stuff on a daily basis. And what I'm referring to specifically is there all these things that are just said over and over and over and over again to the point where people don't even question them. like they just assume that it has to be true or else everyone wouldn't be saying it. So, I don't even have to research it. And the Fed lowering interest rates is the exact same thing. And so, I'm going to wait here to dive into it because I want to look at the 10-year Treasury and what it has done in the past during these Fed rate cutting cycles. Let me give you guys a quick preview of what I want to talk about after we get the news here in five minutes and then while we're waiting for Jerome Pal to speak. I think you guys are going to find this fascinating. I did a super super deep dive on this yesterday in Rebel Capitals Pro for members. So, it's kind of right uh fresh in my memory and I think I'm probably going to do a whiteboard video on it tomorrow. But uh let me show you right here. So, this is the Fed funds rate. Josh, can you see that? >> Yes. Okay. And I we don't really consider anything prior to late 80s. Why is that? Because I'm cherry-picking data? No. Because that's when the Federal Reserve started to target interest rates. Uh prior to Greenspan, they didn't target rates. So if you go back here and Paul Vulkar gets all this credit for breaking the back of inflation because he had the guts to raise rates. Paul Vulkar didn't raise rates. [laughter] I've actually gone back, which I'm sure very few people have done, and and read the reports from the Fed, and what you see is that he had a four percentage points window on rates. So, right here, when the Fed funds rate got up to 19%. Paul Vulkar would have said, "Well, yeah, whether it's 17% or 21%." Whats? [laughter] Oh, it's just somewhere around there. It's just wherever it's going to go, it's going to go. So whether it's 17%, 18%, 20%, 21%, I don't really care. It's just the market's going to take it where the market's going to take it. And but for some reason, history remembers him as the guy who intentionally increased interest rates. [laughter] Now what he did do is he tried to target M2 money supply growth. So the rate of change in M2 money supply growth and he tried to do that by micromanaging bank reserves. He did do that. But unfortunately for Paul Vulkar, it didn't do anything. If you look at the M2 money supply growth, it's even when you do like a a log chart, it's like straight line. like he literally didn't do anything or at least he tried to do something but the net result was nothing. And uh but what he did do which I completely give him credit for whether it was intentional or not is he basically got out of the way and let the market right here uh dictate interest rates and the market did what it needed to do uh to break the back of inflation. Paul Vulker just happened to step aside and be at the right place at the right time. But anyway, getting uh back to Greenspan, he's the first guy that really started to target rates. So that's why I like to focus on the late 80s, early 90s recession. So we see this big Fed rate cutting cycle. Then we see another one here.com. We see another one GFC. We saw another one obviously during the survey sickness. And we see another one right here. Big Fed rate cutting cycle. And I don't really pay much attention to this one because why am I cherry-picking data? No, because you didn't have big inversions of the curve. You didn't have a deteriorating lady market. You didn't really have this. So it it wasn't really it's kind of apples to oranges. So what we can do, which we'll do here in a couple minutes, is we'll look at these cycles and we'll figure out not what the narrative is, but what interest rates really did during these cycles. And then from that we can come to some conclusions as to how much or how little the Fed controls interest rates across the curve and what we should expect to see. Again, no certainties, only probabilities, but what we should expect to see throughout the rest of this cycle and whether or not this cycle is completely unprecedented. And then most importantly with those conclusions, what taking those conclusions and turning that into something that's actionable for your portfolio. That's what I want to do on this live stream. So with that said, let's go over to CNBC and US seizes oil tanker off the coast of Venezuela. Oh, that's good. Always nice to see that we're going to war with another country. But of course, it's about the drugs. I mean, if you think this is about drugs. Wow. Wow. I've got some oceanfront property in Arizona to sell you. All right, let's keep refreshing here. Okay, Fed meeting live updates. Great. We've got one minute here. Look at this. Why the Fed rate cut could boost private equity deal making after what are you talking about? If you guys don't know why I'm so frustrated, watch the last video. The almost the entire front of the curve is inverted. It's lower than fed funds. Them dropping 25 basis points is not going to do anything. It's not going to do anything to the curve. It's not I mean, look [sighs] here. [laughter] So stupid. I feel like I'm taking crazy pills. So, if you didn't watch that last video, just really quick here while we're waiting for the report. I looked at the the curve, which used to be here. I don't know why it all of a sudden disappeared. There it is. And you can see just going out to three months, the curve is inverted. And so why does that matter? Because if the Fed drops 25 basis points, guess what it's going to do to the one year? Guess what it's going to even out to the three month. I mean, you could maybe argue that because short-term interest rates go a lot lower, then that may facilitate dealmaking. But short-term interest rates are already lower than Fed funds. So, the only thing the Fed is doing is bringing Fed funds down to where short-term interest rates already are. Like, what are we talking about here? Or maybe a little bit, you know, I guess the 3month is at uh 3.72 and Fed funds right now, I don't know, maybe 3.85. But, I mean, is it really going to facilitate deal making if the three-month Treasury goes down by five basis points? I mean, come on. This is nonsense. All right, let's get back to it here. Divided Fed approves third rate cut, sees slower pace. They always say that. That's exactly what they said during the last meeting. Remember Pal came out and he says, well, I mean, don't uh don't price in future rate cuts. No, no, no, no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new no new. And then three months later, yeah, we're cutting rates, but whatever you do, don't price in rate cuts. [laughter] I mean, how can we take these people seriously? How How is it possible? [sighs] Let's see. Make sure I'm seeing this right here. So, they cut 25. [snorts] Um, okay. I don't know why they don't have anything explaining it, but based on this headline, they cut 25. And how do they know they see slower pace ahead? Did they do they do a statement? I thought they did that statement at 2:30 when Pal comes out and starts blabbing. Well, I'll take them at their word. So, US check tourist blah blah blah blah blah. Let me just keep refreshing here. I mean, I think we the main takeaway here is they dropped 25 just like the market expected. Let's see. Divided Fed approves. Jeez, this is annoying. Let me just go to Twitter. This is what's great about Twitter. You know, Twitter, for the most part, is just a dumpster fire of just obnoxious people trying to dunk on one another, but it is good for real time data. So, let me just see here. Fed me Okay. Yeah. So, they cut uh 25 base. Okay. Cool. So, now let's go over and quickly see how interest rates are responding. And I'm going to be shocked if the two-year Treasury didn't come down by 25 basis points. [laughter] Oh, jeez. And I know they're pricing it in, but that that that's they're pricing in a cut. And that's pretty much my point here. So, we got Oh my gosh. Whoa. Time out. The 10-year Treasury is down by 2.6 basis points. Look out. Inflation. [laughter] Oh my gosh. Oh, we're going straight to the 1970s now. Oh my. No, no, no. It's down by 3.2 basis points. Whoa, whoa, whoa, whoa, whoa, whoa. [laughter] Ah, the CPI is headed straight for 10%. And it's honestly, it's probably just a knee-jerk reaction. It probably gets down in here, then Kai probably comes right back to where it was. Let's [laughter] [gasps] Oh, jeez. Oh, but the opposite is true. Like I I don't want to seem like it's just ridiculous that this would somehow impact inflation because it's also completely ridiculous that this would somehow impact the labor market. Like, okay, the 10-year Treasury yields down by three basis points. Oh my gosh, everyone's going to get a highpaying job now. Like, [laughter] [gasps] oh jeez, what's the two you're doing? two years down by five five basis points. Yeah, I mean pretty much what you'd expect. I mean, on a personal note, we'll go over to the TLT. This is not uh this is not investment advice. This might be a lag, though. Is Trading View lag? No, it's probably So, it's kind of jumping all around here. H, it's like shrugging it off. So, that's probably the 20 year or 30 year. Uh, here's the 30-year actually. Yeah, nothing. [laughter] Let's look at the dollar. H, okay. I mean, dollar down on the day, but didn't didn't do anything. Okay, so now that we're waiting for Jerome Powell to come out and give us his incredible words of wisdom and where the dot plot is going from here on out. [laughter] Now we can actually have a serious adult conversation about interest rates for people who are actually thinking and uh let's go to some charts and let's go to the history like I was talking about. Josh, we still good with the screen share. Yeah. Okay, cool. [snorts] So, like I said, we're going to go over to Fed funds and this is kind of just a super brief like overview readers digest version of the deep dive I did for the Rebel Capitalist Pro members. And with the Rebel Capitalist Pro members, I was kind of thinking it through in real time. So, this hopefully will be a little bit more more polished. Okay, so we've got this uh let's go ahead and zoom in. These Fred charts are great. You can just go and 1988. There we go. And you can see we start here April, call it April, May of 1989. And then the Fed rate cutting cycle is done. Call it December 1992. So we've got about May 89, December 92. And you can see they dropped by a lot, [laughter] a lot a lot. They're almost at 10%. They get all the way down to three. I mean, they dropped by almost 7%. So call it 650 700 basis points. Okay. Now let's see what happened to the long end of the curve. The 30-year is this green kind of dotted line. The 10-year is the blue line. And we're going to go back to the same time frame. We'll just say 1988. And then we'll go to where did we cut the other one off? 93 or so. I can't remember. We'll just do 1993. Okay. So, right here we can see that what was it? May 89. So, so right around here is when they start cutting. And you'll notice I mean you fast forward you fast forward two years. I mean, we go to call it April of 91 and interest rates are almost identical at the long end. [laughter] So, and then we go to what was it? December 92. So, that would be here, right around there. And are interest rates lower then? Yeah, they are. They are. But are they down by 7%. [laughter] Not even close. Not even close. And and again, but look at this two-year span from call it 89 to uh 91. So that would have been here to here. [snorts] I mean, you got interest rates dropping by 4%. 4%. And when I talk about interest rates dropping, I'm talking about Fed funds down by 4%. 400 basis points and the long end of the curve is basically flat. So th this is why I especially in these videos and in the whiteboards. Why I always like to go back and look at history and look at the charts and forget the narrative. Forget what's social media is saying. Forget what the mainstream media is saying. Just forget all of these all this dogma that exists in finance and in economics that's just based on something being repeated over and over and over and over and over and over and over again. And then it's exacerbated by everyone taking that thing that's repeated over and over and over again assuming to be true and therefore putting a huge amount of emphasis on it, not even realizing that and not even taking the time to do something like this and say, "Oh, well, wait a minute here. Maybe maybe the Fed doesn't really matter as far as interest rates in the real economy." So all of So think about that. From right here to right here, we had the 10-year Treasury flat. The Fed dropped by 400 basis points. So you tell me, how would that have propped up the labor market? Because that's the Fed's dual mandate, right? It's the labor market and inflation. So if they're cutting rates by 400 basis points, what that means is they're trying to stimulate the economy. Great. How are you stimulating the economy if the 10-year Treasury is flat for two years? You're going to tell me that has a massive stimulative effect? And even if you want to argue that, well, you've got a lot of corporations that have short-term debt. They're rolling it over and blah blah blah. Okay, fine. That that's that's the two-year. So maybe the two-year goes down, maybe it doesn't, [laughter] you know, but to say that the be all end all in terms of inflation and uh the labor market is the Fed. It's just it's a joke. It's a joke. Just like today when the two-year is down now by, you know, Fed cuts 25 basis points and the two-year is down by five. Now again, was this priced in? Sure. But even if the Fed would have paused, do you think that the five uh the 2-year would have gone up by 25 basis points? Absolutely not. It would have got you know market would have been off sides. So the 2-year would have gone up to maybe I don't know 3.67 something like that you know maybe 10 basis points or maybe it would have gone up to 3.7 or something like that. And so again, you have to ask yourself, how is that going to dramatically impact the labor market? The answer is it's not. It's not. Now, if the Fed cuts by 300 basis points in a meeting, okay, maybe we got something to talk about. But what they're doing is they're just following they're just following the two-year. They're far they're basically just following wherever the market is. And therefore what they do it it's it's not it's not moving the needle because the Fed doesn't control the interest rates. And that's blatantly obvious when you just look at history. So now let's go back to that. And what I want to highlight now is like this time from what is this December of 89 to call it August of 90. Look, interest rates went up. And now keep in mind this is when the Fed is cutting or they're at least in a cutting cycle. They may have been paused here or something like that. But interest rates at the long end of the curve go up by say we start at let's say 7.75 and we go up to call it nine. So you interest rates went up by 125 basis points. The real interest rates that matter the most. I'm talking about the 10-year Treasury yield. So h how did that help the labor market? How did that help the housing market? It it didn't. In fact, it would have helped inflation. You see, this is the irony that dur all the time, but especially during these rate cutting cycles, a lot of times the real interest rates that matter are doing the opposite of what the Fed is doing. So, you could even argue that the Fed cutting rates is actually a preventative tool for inflation. And sometimes them hiking rates is a boost to the labor market [laughter] because the real interest rates that matter do the opposite of what Fed funds is doing. So now let's keep let's go here. So so we know for sure at least looking at this cycle now maybe the GFC is different, maybe the dot is different. So let's dive into that. But we know definitively during this cycle a the long end of the curve did not go down. In fact, it really can't go down because the curve always steepens out. So by definition, the long end doesn't go down as much as the uh front end. Um what we can determine during this cycle is that rates actually did finish lower there. So that's good over the whole entire cycle. But does that because of the Fed or is that because of growth in inflate expectations? that I would argue it's because of growth and inflation expectations had nothing to do with the Fed. The Fed was just following it. Okay. And then what we can also say definitively is that there are long periods of time during these rate cutting cycles when the interest rates a lot of the interest rates in the curve are doing the exact opposite of what the Fed is doing. So, think about the narrative here that if you had been watching CNBC and the Fed is cutting rates, it' have been like, "Oh my gosh, the they're going to let the they're cutting too fast. The the inflation genies cutting out coming out of the bottle." I'm sure there's dissension back here during this time. Or maybe there was, maybe there wasn't. But if there's dissension among the ranks, the argument is, "Oh my gosh, if we cut too fast, we cut too fast, we're going to the interest rates are going to be way too low, and therefore inflation is going to rage higher." While they're having this debate, the 10-year Treasury yield is giving them the finger and going up by 125 basis points. and they're sitting there quibbling over whether or not this next rate cut is going to lead to inflation or help the labor. I mean, it's it's freaking insanity. [laughter] Okay, but maybe it's just this cycle. Maybe the dot and the GFC is different. So, let's go over here and Okay, here we got a rate cut starting was that right around November 2000. Okay, cool. and we finish around July 2003. All right. So that uh almost three-year period we go down by what is it five and a half uh percent. So 550 basis points. So now let's look at the long end of the curve and see what it did from basically end of 2000 to the yeah almost end of 2003. We'll go 1998. Oh, it always does that. So, I got to start with this one. So, we'll go 2004. We'll go 98. Okay. Now, you don't we don't even need to look at Fed funds. You can see that th this is the exact same [laughter] shocker, right? That yes, at the end of the cycle, it is true. Interest rates were lower, but they didn't go down near as much as the Fed dropped, which makes sense. You know, the curve is going to steepen out. But what doesn't make sense at all is that there are long periods of time here, uh, notably, you know, right here, where the Fed is cutting very, very quickly. and the long end is actually going up. They're cutting to support the labor market while interest rates are actually going up. That would be a headwind to labor markets. Yet again, during this time, I'm sure they're sitting there arguing and debating as to [laughter] whether or not the next Fed cut is going to lead to booming inflation. It's or how much the next Fed cut is going to support the labor market when 10ear Treasury yield is going from call it five where are we here 4.8% 8% straight up to 5.5. I mean, it's the same thing that happened this cycle. Remember when the Fed started cutting rates? They dropped by 100 basis points. And what happened along into the curve? It went up by 100 basis points. And meanwhile, the mainstream media is just completely ignoring that and just being like, "Oh my gosh, did the Fed cut too fast?" [laughter] Like, yeah. Yeah, they they cut way way too fast. I mean, if anything, you could argue that uh the long end was going up because of growth in inflation expectations from the Fed cutting too fast, but we know what happened there, right? Interest rates went up. What happened after that? They they come back down because reality sinks in about the economy slowing down and that being disinflationary, not uh inflationary. Okay? So, we don't even have to look at Fed funds. You see, this is the exact same thing. Ex. And by the way, they're probably cutting in here, at least paused. And you have another uh look at the 10-year. It's going from 4.3 up to 5.3. So here it's going up by, you know, call it uh what was that 75 basis points or so. This is going up by 100 basis points while the Fed is dropping or at the very least paused. So from this cycle we can also definitively conclude that a the rates did not go down even remotely close even after the cycle was done uh versus Fed funds rate and during long periods of time um while the Fed was dropping the the important interest rates in the economy were actually going up doing the exact opposite. Uh, then we go to the GFC. I got to do this one first. Go to 200. Yeah, go 2011. And we'll go 2005. And it's just more the same. [snorts] >> [laughter] >> right here they started cutting I remember it was September uh right around September yes it was September because the same date as 2024 so it would have been September 18th 2007 is when they started cutting rates so right when they started cutting rates uh the 10 years trading around 4.5 and then you fast forward to the end of the rate cutting cycles right around here and you got the 10-year Treasury trading at 3.8 8 3.9 so it did come down but not a lot and the Fed took rates from 5.25% down to zero and then once again uh during this rate cutting cycle you had times when I know this from memory that the 10-year Treasury from uh March up to May June or so went up by 100 basis points while the Fed was dropping by 100 basis points. So, you know, just taking it to just trying to stretch the absurdity as far as you possibly can just to play devil's advocate. You could say, well, interest rates are lower at the end of the cycle. But what that would completely ignore is this thing called the GFC. Like, like somehow the world coming to an end [laughter] didn't impact the interest rates. it was just the Fed, right? So, no one would argue that. No one in their right mind would argue that. So, you have to say, okay, well, how much of this even trying trying to give that argument the benefit of the doubt? The Fed really impacts rates. um in trying to give that the benefit of the doubt. How much of this was the Fed cutting by five00 basis points and how much of it was just um and I don't know did I say the 10 year earlier? I was just looking at the 30-year. I'm sorry. But how much of this was just due to growth and inflation expectations plummeting because we had the GFC? And I I think anyone that that's just trying to be objective about this would say, well, it's most likely I mean that was most likely coming down to the GFC. And if you don't believe me, just look at this. You know, why is it that we had interest rates on the 30-year Treasury and the 10-year Treasury absolutely tank right here? Was that because the Fed dropped rates? No. That's because Lehman Brothers went bust. growth and inflation expectations. So, I think the main takeaway here and let's go back to let's go back to the 10-year. So, the see it bounced basically right back to where it was. the the main takeaway is when you're trying to figure out interest rates, it's it's better to ignore the Fed, it's better to ignore debt, deficits, and it's best to just really focus on growth and inflation expectations. You what is the expectations for nominal GDP? And that's going to give you a much better compass so to speak as to where interest rates are going. So if as an example, you can look at the labor market and you can see, oh my gosh, we're getting a big deterioration there. And if it's your base case that we continue to see this deterioration, then you can say, okay, well, my base case is probably if we fast forward, you know, a year or so, interest rates will most likely be lower. regardless of what the Fed is doing. Regardless, and if the Fed just stays put right here, let's say 3.5% and you have or non I mean, think about that one as a thought experiment. Let's assume for a moment that the Fed over the next year keeps rates the front end at 3.5%. And let's also assume we have continuing negative non-farm payrolls and then we have a couple quarters of negative real GDP. But the Fed has the front end po pe pe pe pe pe pe pe pe pe pe pe pe pe pe pe pe pe pe pe pegged at 3.5. Where do you think the 10-year treasury is going to be? I can tell you it's going to be lower. It's going to be a hell of a lot lower. Where's the two-year going to be? Where's the three month going to be? Where's the oneear going to be? Way, way lower. I would argue the 30-year might even be a lot lower than Fed funds. you're going to reinvert the curve, right? And so this just is another thought experiment. I mean, they're limitless. Another one of these thought experiments that that show you that if you if you want to be s you want to be religious about this, if you want to be biased because if you want to push a narrative because it just makes you feel better or it makes you sleep well at night or being on team X or team Y makes you feel really good because you're part of a group, that's fine. That's totally cool. I get it. I get it. But I would highly advise against using those conclusions to set up your portfolio because when you're setting up your portfolio, this is not investing advice, but it seems prudent to me to be agnostic and to be as objective as possible. And the only way that you can be super objective is if you factcheck CNBC. If you fact check George Gammon, fact check everybody, especially in terms of something that's so important, and that would be interest rates and what actually moves interest rates. So, and and hopefully just by going through these charts really quick, you see why I always say that interest rates don't control the economy. Interest rates don't control the economy. They are a reflection of what the expectations are for the economy. And if you need any proof, just go back and rewatch the last 15 minutes of this video. Or just go ahead and pull up those charts yourself. Takes 10 seconds. They're right here. This is this is just a Fred chart that I made by editing right here. Super super easy. And then just Fed funds. You guys can find that. Um so just do the quick I mean it takes a half hour. So just do it yourself and if you want to fact check me and then come to your own conclusions. But I think the conclusions that you will come to is that wait a minute here what interest rates are doing you see is they're just reflecting what the expectations are for the economy. They're not controlling it. They're not controlling it. It's like this is a great example. This this plummet in interest rates all the way down here. Was that somehow boosting the economy? Was that somehow making the economy awesome? No, it was a that the world was ending or that was the expectation that the world could be coming to an end. And I'm just talking about a deflationary bust. Now, there is an argument saying that well these interest rates being this low are making it better than it otherwise would be. Okay, I I can I I I can say that's has some merit, but it doesn't mean that it's controlling. That those are two completely different arguments, right? And then you would still have to admit, even though you're saying, well, it's better than it otherwise would have been, you still have to admit that the movement in rates, the movement in rates was not generated by the Fed. it was generated by the market expectations for the real economy. So, I I know there's a lot of these things that I say all the time on these videos and you know it seems like I'm just saying it on a whim. And a lot of times, and I see how people can make this mistake, that it seems like I'm saying this just because it's my opinion and that it's not really researched or it's just, yeah, it's my opinion. It's my opinion that debt and deficits don't matter. It's my opinion that the Fed doesn't. And that's very rarely true. It's usually because I've done about 3,000 YouTube videos on this stuff. [laughter] And believe it or not, I've had to do some research, especially for those whiteboards. Those whiteboards are extremely difficult. And if you don't believe me, try one. Try to take something like quantitative easing or what drives interest rates and try to do a whiteboard on it for YouTube. See how you do. And what you'll find is that you've got to know the subject material extremely extremely well in order to pull that off. And so anyway, but I but also too, it's not fair that I say these things just right off the top of my head, ex ass assuming that you guys are going to assume that I did the research when um I should explain myself a little bit more. That's what I'm trying to say. If I say something like this over and over and over again, occasionally, I should explain why I've come to those conclusions. And I think then it would uh maybe it would give some people a little bit more at the very least it would give them more understanding as to why I've come to the conclusions that I have come to. And by the way I am totally open to being wrong. Totally open. Like if I saw evidence for the that that I have just missed of of of how the Fed actually does control interest rates. I'm open to that. I want to be open to that because I want to incorporate that analysis into my portfolio. Why? Because at the end of the day, I don't care about a religion. I don't care about being right or wrong. I care about making money. That's what I care about. >> [laughter] >> Sounds crazy, right? So, anything that I can include into my analysis that will give me an edge to make money in my portfolio, even if it means what I thought before was wrong, I'm all about it. I'm all about it. And I think that's maybe one thing that makes me a little bit different than some of the other uh talking heads out there. All right. Ooh. So, we should have Jerome Pal, Mr. Pow. Let's see. Okay. Uh, are they going to have this? I can probably just go to YouTube. Let's do that. Oh, shoot. I'm going to have to uh So, let's go to YouTube here. And I'm going to have to switch up the screen share. Josh was just about ready to remind me. I'm sure >> I was just about ready. >> [laughter] >> All right. So, let's switch that up. Go to YouTube. Share. Okay. >> In September. >> Josh, can you hear that? [cough] In the labor [clears throat] market, although official employment data >> and November are delayed, available evidence suggests that both layoffs and hiring remain low and that both households perceptions of job availability and firms peression perceptions of hiring difficulty continue to decline. the official report on the labor market. >> You know what's funny and kind of sad, Josh, is I see there's about 7,500 people watching this right now and there's almost as many people watching my live stream as [laughter] Anyway, let's get back to it >> for September. The most recent release showed that the unemployment rate continued to edge up, reaching 4.4% and that job gains had slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation. Though labor demand has clearly softened as well. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. In our SEP, the median projection of the unemployment rate is 4.5% at the end of this year and edges down thereafter. inflation has eased significantly from its highs. >> I don't want to cut them off too often, but why why why would it go up to 4.5 and then come down after that? Like it's just pulling that out of your pulling that out of your rear end. I think >> in mid 2022, but remains somewhat elevated relative to our 2% longer run goal. Very little data on inflation have been released since our meeting in October. Total PCE prices rose 2.8 8% over the 12 months ending in September. And excluding the volatile food and energy categories, core PCE prices also rose 2.8%. These readings are higher than earlier in the year as inflation for goods has picked up, reflecting the effects of tariffs. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have declined from their peaks earlier in the year as reflected in both market and surveybased measures. [clears throat] Most measures of longerterm expectations remain consistent with our 2% inflation goal. The median projection in the SCP Josh, remind me when I start doing merch again, we have to have a t-shirt that says volatile food and energy prices. [laughter] It's just one of my pet peeves that they always they can't say it's not possible for them to say food and energy prices without saying volatile first. I it drives me crazy. P for total PCE inflation is 2.9% this year and 2.4% next year. A bit lower than the median projection in September. Thereafter the median falls to 2%. Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to lower the target range for the federal funds rate by a quarter percentage point to three and a half to three and 3/4%. In the near term, risks to inflation are tilted to the upside and risks risks to employment to the downside, a challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. A reasonable base case is that the effects of tariffs on inflation will be relatively short-lived, effectively a one-time shift in the price level. Our obligation is to make sure that a one-time increase in the price level does not become an ongoing inflation problem. We haven't even seen a one-time shift in the price level. I mean, a couple things here and there, but the the the tariffs have been eaten by the US importers, at least 90% of them, 10% maybe the consumer. But that that's done. That that's that's ancient history, my friend. It's time to move on. How long are we going to talk about this boogeyman of tariffs creating inflation? I mean, are we going to zoom out 10 years and the Fed is still going to be Oh, but wait, but we could see that tariff inflation from 2025. I mean, come on. At a certain point, you've got to just get over it and be like, "Okay, we're probably not going to see a big boost in prices and definitely not an acceleration to in due to these due to tariffs. I mean, it's it's but with downside risks to employment having risen in recent months, the balance of risks has shifted. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. Accordingly, we judged it appropriate at this meeting to lower our policy rate by a quarter percentage point. With today's decision, we have lowered our policy rate threearters of a percentage point over our last three meetings. This further normalization of our policy stance should help stabilize the labor market while allowing inflation to resume its downward trend toward 2% once the effects of tariffs have passed through. And if you didn't watch the first or the last 20 minutes, go ahead and watch that and just see what 75 basis point cut during a rate cutting cycle actually did anything anything to support the labor market. When you consider the most important interest rates are, let's just say the 2-year out to maybe the 10-year in terms of the real economy. I mean, let's just really really super quick here. If we go back to uh most recent um look at this. So they cut 75 basis points. Woohoo. Great. The long end of the curve is basically the exact same. I mean how can you argue that that is supporting the labor market? I mean it's it's it's insanity. It's just it's just completely ignoring the facts and ignoring the the data here. And then even if you want to look at the two-year, you can say, "Well, that's down." Sure, it's down, but that doesn't necessarily mean it's down because the Fed dropping rates. If it was, then why does the two-year always preede the Fed funds rate? Oh, whoops. Wrong. Uh oh, shoot. You couldn't see that. The adjustments to our policy stance since September bring it within a range of plausible plausible estimates of neutral and leave us well positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, the evolving outlook, and the balance of risks. In our summary of economic projections, FOMC participants wrote down their individual assessments of an appropriate path of the federal funds rate under what each participant judges to be the most likely scenario for the economy. The median participant projects that the appropriate level of the federal funds rate will be 3.4% at the end of 2026 and 3.1% at the end of 2027, unchanged from September. As is always the case, these individual forecasts are subject to uncertainty and they're not a committee plan or decision. Monetary policy is not on a preset course and we will make our decisions on a meeting by meeting basis. Let me turn now to issues related [clears throat] to the implementation of monetary policy with the reminder that these issues are separate from and have no implications for the stance of monetary policy. In light of the continued tightening in money market interest rates relative to our administered rates and other indicators of reserve market conditions, the committee judged that reserve balances have declined to ample levels. Accordingly, at today's meeting, the committee decided to initiate purchases of shorterterm Treasury securities, mainly Treasury bills. >> What an idiot. >> For the sole purpose of maintaining an ample supply of reserves over time. >> What a freaking idiot. So, why is he an idiot? Because if there is tightness in the short-term funding markets, it's because of risk. It's not because of lack of bank reserves. And if it is a a function of risk, then what are you doing by buying T bills? You're taking the one thing, the the one source of collateral that the market needs if there's higher risk. And by the way, even if there's a lack of liquidity, how are the banks going to create that liquidity? They're going to be able to create more liquidity if there's more collateral. If you just take out the collateral and just give the bank reserves, that doesn't do anything. That's making it worse, not making it better. If you're if you're worried about the short-term funding markets, this is completely backwards. It it's it's And by the way, you would think he would know that because remember when the repo crisis happened in uh September 2019, what did they do? They immediately started buying bills. remember because it's not QE. It's not QE because we're buying bills. Remember that? And then what did he do like three weeks later? He's like, "Oh, sorry. Sorry. We're not going to buy bills anymore. We're going to buy the the longer duration. We're going to buy longer maturity." Why is that? Because the market came to him and said, "Hey, idiot. You can't take away this collateral that we need to provide the liquidity for the repo market to begin with." Jeez. Such increases in our securities holdings ensure that the federal funds rate remains within its target range and are necessary because the growth of the economy leads to rising demand over time for our liabilities including currency and reserves. >> As detailed in a statement released today by the Federal Reserve Bank of New York, reserve management purchases will amount to $40 billion in the first month and may remain elevated for a few months to alleviate expected near-term pressures in money markets. Thereafter, we expect the size of reserves reserve management purchases to decline, though the actual pace will depend on market conditions. >> Josh, write this down. And and for those of you watching right now, I'm going to go ahead and make a prediction. I predict that within three months, three months, they're not going to be buying bills anymore. They they'll they'll they'll they won't they I doubt they'll even do a a press release, but if you go look at the data, if they're still buying and still, you know, because the the market needs Fed liabilities. Oh, we got to give them more liabilities, more liabilities, which are are bank reserves. Um if they're still doing that, it ain't going to be by buying T- bills. It's going to be buying further out the curve. That would be my prediction. You heard it right here first. We'll have to see what happens over the next three months. [clears throat] >> In our implementation framework, an ample supply of reserves means that the federal funds rate and other short-term interest rates are primarily controlled by the setting of our administered rates rather than day-to-day discretionary interventions in money markets. In this regime, standing repurchase agreement or repo operations are a critical tool to ensure that the federal funds rate remains within its target range even on days of elevated pressures in money markets. Consistent with this view, the committee eliminated the aggregate limit on standing repo operations. These operations are intended to support monetary policy implementation and smooth market functioning and should be used when economically sensible. To conclude, the Fed has been assigned two goals for monetary policy, maximum employment, and stable prices. We remain committed to supporting maximum employment, bringing our inflation sustainably down to our 2% goal, and keeping longerterm inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. Yeah, actually sorry, Drum. Your actions really don't impact businesses and [laughter] people around the world. Sorry to break it to you, buddy. And by the way, if you're questioning my take, there's another one of these things I probably haven't explained well enough on uh risk versus just amount of reserves in terms of let's just say liquidity in short-term funding markets. Just ask yourself a simple question based on the sofur rate which is what pal is referring to here in in let's just say repo okay so if you look at the the repo market if you look at the interest rate for the day in repo let's say so this would be uh sofa would be a proxy for that so let's say the sofa rate is 4.1%. What you need to understand is that the repo or the so the rate that every single entity got was not 4.1%. No, it was that's the average. So you could have let's say a thousand financial entities that accessed the repo market and borrowed in repo short-term funding that day and each one of them got a different interest rate by the counter uh uh by uh was given a different interest rate by the counterparty. Why? A different risk b different collateral which effectively is different risk. So if risk doesn't matter, then why do we have a thousand different repo rates for each individual transaction in the repo market every single day? Why? That it's obvious. The answer is yes, the the the collateral matters and yes, the risk matters. And it it's it's it's just it really, as you can see, gets under my skin that that was just brushed aside, that little footnote. And we're just supposed to assume that the only reason why you have tightness in these funding markets is just because there's not enough bank reserves. It It's again, it's like a scop. It's it's like a scop that they have to come out and say these things to make them seem important to incentivize or to manipulate markets into doing what they want markets to do or market participants because they know that mechanically what they're doing isn't doing anything if anything counterproductive. But they have to make it seem like they're doing something or else the ruse is up. It's like the Wizard of Oz, right? They want to make sure that that door to the closet isn't opening up because if it did, everyone would be like, "Wait a minute. You you you're nothing. You don't have any power." And then that's the whole central planning thing, right? Then you can't centrally plan is my point. At the Fed, we will do everything we can to achieve our maximum employment and price stability goals. Thank you, and I look forward to your questions. Howard. >> Uh thank you Howard Schneider with Reuters. Uh just first turning to the statement the as just to be clear we're on the same page here. The insertion phrase uh considering the extended timing of additional adjustments. Does that indicate that the Fed is now on hold until there's some clearer signal from uh inflation or jobs or the evolution of the economy along the baseline outlook? So yes, the um the adjustments since September um bring our policy within a broad range of estimates of neutral and as we noted in our statement today, we are well positioned to determine the extent and timing of additional adjustments based on the incoming data, the evolving outlook and the balance of risks. Uh that new language points out that we'll carefully evaluate that incoming data. >> Oh, that just made interest rates go up. I bet I bet that just made the two-year go up. So, this is we're delayed here because I've been stopping it. But let let's I'm just really curious. Let's go over to the two-year. I'll one statement made it spike. Yeah. Yeah. My my guess is Powell said that right here and then it spiked. And the reason it spiked is because that was a hawkish statement. That was a hawkish statement. But let's go back here. Uh and also I would note that having reduced our policy rate by 75 basis points since September and 175 basis points since last September, the Fed funds rate is now within a broad range of estimates of its neutral value and we are well positioned to wait to see how the economy evolves. And if I could follow up on the outlook there, it it it seems like with the additional GDP growth coupled with easing inflation and a fairly steady unemployment rate, this seems like a pretty optimistic outlook uh for next year. Um what's given rise to that? Is this an early bet on AI? Is there some sense of uh improve improving productivity out there? What's what's driving that? >> So a number of things are driving uh what's happening in the forecast? And I would say if you if you look broadly at outside forecasts, you do see a pickup in growth in many of those now too. So it is um it's partly that consumer spending has held up. It's been resilient and it it to another degree it is it is that uh AI spending on data centers and related to AI has been holding up business investment. So overall um the the baseline ex expectation for next year is at least at at the Fed and I think with with outside forecasters too is a pick up in growth from today's relatively low level of level of 1.7%. I mentioned that the SEP median is 1.7 for this year growth and 2.3 for next year. You actually some of that is due to the uh the shutdown. So you can take 210 out of 2026 and put it in 2025. So it would really be 1.9 and 2.1. But overall yes um you know you know for a few reasons fiscal policy is going to be supportive and as I mentioned AI spending will continue the consumer continues to spend. So it looks like uh the baseline would be solid growth next year. And notice he he it's it's all he's cherry-picking there because he's sitting there talking about how the shutdown this is just like pentup demand but yet what he doesn't say is all the demand that was pulled forward by front running tariffs. So [laughter] you I don't know I don't know Jerome and then what he's doing there is and I'll give him credit. It is true that you've had a significant impact on GDP due to this AI spending in capex. That's for sure. That's for sure. And but I think what you would have to ask is say okay well if we're at I don't know what nominal growth is right now. um is the especially when you look at the labor market like look we've had a massive deterioration in the labor market he admits that and we've had that with all the AI capex so are we to assume that the AI capex will be more next year probably not probably less now will that still impact GDP absolutely it will absolutely it will point if you have negative non-farm payrolls if you have negative ADP that's fewer jobs. I don't care how many illegals went home, it's still the bottom line is fewer jobs and less aggregate demand. And so if you have fewer jobs, less aggregate demand, even with AI capex, I don't know that we can safely assume that just because we have AI capex next year, that we're going to expect a booming economy and going back to extremely high levels of of growth. I mean that that does that's completely inconsistent with history. Just go back and look at history. When we have negative ADP numbers and we have negative non-farm payrolls, what you're going to find is is you're not going to find economic growth right there. You're going to usually find economic contractions. And by the way, if we were going to get economic growth, do you do you do you think the 10-year Treasury would be trading just barely above Well, I guess it's not barely above Fed funds now, but do you think the 10-year Treasury would be trading below nominal GDP? Like the 10-year Treasury right now is trading at 4.17. Okay. Do you think that the 10-year Treasury yield? Do you think we would have a yield curve that looks like this? >> [laughter] >> If the market was expecting really great growth where you can go three, four, let's see what call it three, four years out the curve and we're still inverted. That is not the market predicting growth. That that is the opposite of that. [laughter] You say, George, the curve is steepening out. What about the third year? Yeah, let's go back to this and notice what happens every single time in uh one of these. that the 30-year rarely plays ball. Not every single time. Let's go back to the GFC as an example cuz that's really kind of blatantly obvious. And then so during the GFC here, we see that the 30-year Treasury right here, it's it's not even doing close, like we said, to what Fed funds is doing. And it's actually steepening out right here with these two together. That means the curve between the 10ens and the 30s is is pretty flat. But then right here, this big delta or increasing delta, that's going to be a steepener. And that's going to be what we call a bull steepener. Right? So you get a bull steepener here. And where basically the 30-year is flat, but the 10-year is going down at a faster rate. And that's exactly that's exactly what we have seen um here in 2025. If we seen the exact same bull steepener where the 30-year is basically flat and the 10-year has gone down quite substantially. Then of course the two-year has gone down even more than that. You get a bull steepener that is not the market saying that it expects high levels of growth next year. That is the complete opposite. Now could the market be wrong? Sure. Absolutely. But if I'm going to bet one way or the other, again being completely agnostic, I'm going with the market. I'm not going with the Fed. >> Thank you. Thank you uh Mr. Chairman for taking our questions here. Um the uh you had previously described rate cuts in terms of a riskmanagement framework and kind of following up on what Howard was asking um is the riskmanagement phase of rate cuts over here and uh um have you taken out sufficient uh insurance I guess against potential weakness in terms of the data we might get next week when it comes to employment? So, we're going to get a great deal of data between now and you see I got to stop pausing this thing, but it just drives me crazy. That sounds like Steve Leman. It just You see what he's doing? He He He's He's He he's he's playing the Kabuki Theater. He's claiming that the emperor is wearing brand new clothes. He he he's just he's playing into the delusional fantasy that you've you've done these preemptive cuts. So you you've done enough, right? You you you've done enough of these preemptive cuts to where now the labor market is really going to start to boom when again you guys saw what I just did. We just went back to the interest rates and saw that like the 10 year it it's it's come down. It's probably at the same level as when they started cutting rates back in uh 2024. So, how can you sit there and say based on what you see that, you know, the rates are all over the place regardless of what the Fed's doing, even a rate cutting cycle, that somehow that somehow just by coming down to where the rates already were, where they were pricing in at the front end of the curve, that that's somehow going to support the labor market. See, he's assuming that this is true, just playing into the delusional fantasy in the in the January meeting and I'm sure we'll talk more about that and that will the data that we get are going to factor into our thinking but yes we have uh if if you go back uh we held our policy rate at you know 5.4% 4% for more than a year because inflation was high, very high, and unemployment when and the labor market was was really solid at that point. So, what happened is over last summer, summer of of of 24, um inflation came down and the labor market began to show real signs of weakness. And so we we decided as our framework tells us to do that uh when the when the risks to the two goals become more equal, you should move from uh a stance that favors really dealing with one of them. And >> okay, I got to call bull excuse me if there's kids watching, but I got to call again. This I can't take it. I I can't take it. I can't take it. So see what he's implying there again. The Fed is all powerful that when we raised interest rates, well then we started to see inflation come down. Okay, let's go ahead and do a fact check on that one, or at least what he's implying here. So, we can go ahead and look at Fed funds. I've got that right here. They started uh let's see, they started raising rates in 2022, right? April 2022. And inflation was uh inflation peaked out. We know inflation peaked out about August of 2022. So inflation when they're raising rates is still going up, right? Still going up. And then when they get here, let's say July of 2022, and when they start pausing, then what was happening to CPI? It was still coming down. So they're just basically [laughter] you see what's happening now. What they would probably argue I guess is that the interest rate policies have like a lag or something where yes, the CPI was going up while the Fed was cutting rates, but that's just because the CPI didn't know how tough we were going to be. >> [laughter] >> All of a sudden, once you got up to 2 point, think about that. Once you got up to 2.3%, the CPI was 9.1 9.1. And you think that by taking the front end of the curve from zero to 2.5% that that's that's what brought down interest rates or that's what brought down the CPI. And by the way, even if that is what brought down the CPI, if that if it had if an increase of 2%, let's say, had that much of an impact to bring the CPI down, then why on earth haven't you been able to bring the CPI down even further by increasing rates another 2.5%. See, it's it's just whatever is happening. It's it's the difference between causation and correlation. And what happens is when there's these correlations, even though that it really doesn't match up, they just assume that everything that happens is a result of the central planning. It's just well, we raise rates and even though the time frame really doesn't match up and if you really think about it, it doesn't make a lot of sense. But just because they happened in a reasonable amount of time, then it must be because of what we did inflation to a more balanced, more neutral setting. And so we we we did that. We did some cutting and then we we paused for a while to work our way through uh what was happening in the middle of the year. And then we resumed cuts in in September. We've cut now three. We've now cut a total of 175 basis points. And as I mentioned, you know, we feel like uh where we're positioned now puts we're well positioned to wait. >> And along the same lines, they've cut 175 basis points. And what's happened to the unemployment rate? It's gone up. It's gone up. So, I mean, I could just [laughter] I It's just You just think about this that much. and you see that this is all just kabuki theater. It's just a scop. It's all it is. >> See how the economy evolves from here. >> If I could just follow up on the SCP, um you have a whole lot of a big increase in the growth numbers but not a big decline in the unemployment numbers and is that an AI factor in there? What is going on in terms of the dynamic of you get more growth but you don't get a whole lot of decline in unemployment? Thank you sir. So it it is the implication is obviously higher productivity. Um and u some of that may be AI. It just also I think u productivity has just been almost structurally higher for several years now. So if you start to thinking of it as 2% per year you can sustain higher growth without more without more job creation. Uh of course higher productivity is also what enables incomes to rise over long periods of time. So it's basically a good thing. But that may be that's certainly the implication. How how's that? Yeah, that that doesn't make sense because if you I get it what he's saying with higher productivity, but if you have higher productivity as a result of AI, that that's going to be that's going to be a massive decrease to aggregate demand because that's fewer jobs. So that that's I'm not going to put too much I'm not going to harp on that too much because, you know, asking the Fed about AI, I mean, come on. that that that is they don't even understand what's in their wheelhouse or within their wheelhouse, let alone something that's completely outside of their wheelhouse. I would not expect the Fed to have a really good prediction on on AI or what that's going to do to the economy. >> Thank you, Colobby Smith with the New York Times. Um, today's decision was clearly very divided. It wasn't just the two official descents against the cut, but there were also soft descents from four uh others. And I'm just wondering if um this reluctance from several people to support recent reductions suggests that there is a much higher bar for cuts in the near term and and what exactly does the committee need to see um if things are well positioned right now um to support a January reduction? >> Sure. So um let me just say as I mentioned u and as I've mentioned here before the situation is is that our two goals are a bit in tension, right? So, um, interestingly, everyone around the table at the FOMC [clears throat] agrees that inflation is too high and that we want it to come down and agrees that the labor market has softened and that there's further risk. Everyone agrees on that. where the where the difference is is how do you weight those risks and what does your forecast look like and and and where do ultimately Walton where do you think the bigger risk is and and you know it's very unusual to have uh persistent tension between the two parts of the mandate and when you do >> this is what and I think it's >> just not it is so not >> again I got to call them out I'm sorry for keep to I don't want to pause it this much I apologize guys but I can't take it I I can't take it. If he says something that's just complete BS, I've I've got to call him out on it. So, like, let's go back to this and we'll go back to the GFC, which is remember this right here. Remember this huge increase in interest rates. Why did that happen? That happened. And this is during 2008, by the way. This is the beginning of 2008. It was happening because the CPI was ripping higher. I mean, ripping higher. Not like the CPI now where it goes from 2.4 up to three. I'm talking about the CPI in Q4 of of 2007 being right around 3.5% and by the summer call it June July of 2008 it was at 5.6 5.6 6 it you imagine that would be like the CPI going from where what was it uh 2.5 roughly that would be like it going up to uh you know 4.5 or 5% not 3% where we are right now. So this happened during the GFC okay at the beginning of the GFC before the stuff really really hit the fan but as you can see it was within the time frame that the NBER called a recession. Now, what was happening to the labor market during this time? The labor market was tanking. I'm not I'm talking about every single month almost when you look at revisions. We had negative non-farm payrolls. I mean, the the the labor market was in just dire straits. I mean, it was completely collapsing during this uh during this time frame when the inflation rate was going up. So to sit here and say that this is unprecedented or this is somehow unique. No, it's not. We see this. We see this in almost every single cycle where you get these waves where it's like, "Oh my gosh, the Fed's cutting too much. Inflation, inflation, inflation while we see the deterioration in the labor market." We saw in the dot. You guys, if you're just new to the video, go back 20 or 30 minutes and I went through every single one of these cycles and you go back to the dot. Same thing. We had time frames in there where the long end goes up by 7500 basis points. Why? Because everyone was worried about inflation, inflation, inflation, inflation while the labor market was deteriorating. So this is nothing new. We see this literally in every single cycle. And I'm just a schmuck on YouTube. If I know that, then how does the Fed chair not know that? The answer is he does. And this is just a total scop. And that's why one of the main reasons I get frustrated about this. Let's go back. It's actually uh what you would expect to see and we do see it. Meanwhile, the discussions we have are as good as any we've had in my 14 years at the Fed. They're very thoughtful, respectful, and you just have people who have strong views. And you know, we we come together and and we reach we reach u you know, a place where we can make a decision. We made a decision today. we had, you know, nine out of 12 supported it. So, fairly broad support. Um, but it's not like the nor normal situation where everyone agrees on the direction and what and what to do. It's more it's more spread out and I think that's only inherent in the situation in terms of what it would take. You know, we all have an outlook in terms of what's going to come. But I think ultimately uh having cut 75 and you know that the effects of the 75 basis points will only begin to be coming in >> as I've said before a couple times we're well positioned to wait to see how the economy evolves. We'll just have to see and we will get as you again but by by cutting the overnight rate for interbank lending by 75 basis points. you actually want to look me in the eye and argue with a straight face that that's going to have a massive impact on the economy, but it's just going to lag six months. And come on, who are we trying to kid? You know, quite a bit of data. I should mention on the data as long as I'm talking about it that um we're going to need to be careful in assessing particularly the the household uh survey data. Uh there there are very technical uh reasons about the way data are collected in some of these measures both in you know inflation and in uh in labor in the labor market. uh so that the the data may be distorted and not just not just sort of more volatile but distorted and and that's it's uh and that's really because data was not collected in October and half of November. So we're going to get data but we're going to have to look at it carefully and with a somewhat skeptical eye by the time of the January meeting. Notwithstanding that we will have a lot of the December data by the time of the January. So, we expect to see a lot more, but I'm just saying that the what we get for, for example, CPI or for the uh for the um uh uh household survey, uh we're going to we're going to look we're going to look at that really carefully and understand [clears throat] that it may be distorted by very technical factors. >> Um and just just um one more question on desense. Um I mean [clears throat] you talk about in a very positive way just given the complicated nature of the situation we're in economically but is there any point in which those descents become counterproductive either to you know the Fed's communication and the messaging around the policy path forward? >> I wouldn't I don't feel that we're at that point at all. I don't I I would say again these are these are good thoughtful respectful discussions and you hear people say and you'll hear you hear many many outside analysts say the same thing. I could make a case for either for either side. I mean I I could make that case. It's it's a close call. We have to make decisions and uh we you know we always hope that the data will will give us a clear read. But in this situation you you have you have competing as if you look if you look through the SCP you'll see that a very large number of participants agree that risks are to the upside for unemployment and to the upside for inflation. So what do you do? You've got one tool, you can't do two things at once. So, at what pace do you move? How how what what size moves do you make and that kind of thing? And what what's the timing of them? It's it's very it's a very challenging situation. I think we're in a good place to, as I mentioned, to wait and see how the economy evolves. >> Nick Timos of the Wall Street Journal. Um, Chair Powell, there's been some discussion recently of the 1990s. In the 1990s, the committee did two discrete sequences of three quarter point cuts. One in 1995 96 and one in 1998. And after both of those, the next move in rates was up, not down. With policy now closer to neutral, is it a foregone conclusion that the next move in rates is down? Or should we think of policy risks as genuinely two-sided from here? >> What an idiot. What a what an idiot. [sighs] More frustration. Why? Let's go back and look at the first of all, I guess we'd look at the un unemployment rate. Look at what the unemployment rate was doing during this time. It's it's just flat. It's just not doing anything. I mean, it's right here. I mean, the unemployment rate still going down. Did Did Nick, did you see anything like this, my friend? Did you see anything like that, Nick? No, you didn't. Why? Because that this was not an economic contraction or any risk of an economic contraction. And Greenspan just wanted to cut rates to cut rates, right? this. You can't sit there and and we have a deteriorating labor market. Even your hero Jerome Powell admits that we did not have a massively deteriorating labor market back then. That's number one. Number two, and this this is a real biggie. We should get to this by the end. In fact, I want to go over this very, very quickly just so I don't forget. And this is the delta between the 2-year Treasury and the Fed funds rate. So, two-year Treasury is the blue line and Fed funds is the green line. Now, I want you to notice what happens in every single one of these cycles. Every single one. When you get to the end of the cycle, guess which is lower, the Fed funds rate or the two-year Treasury? That would be the Fed funds rate because the curve naturally steepens out, right? So, where are we now? The Fed funds rate is between 3.5 and 3.75. So, just call it 3.6. Okay? And we've got the 2-year Treasury right now at 3.55. It's still under it's and it's tanking, by the way. It's still under still under Fed funds. So what is this telling you? This is telling you that most likely again no certainty is only probability but most likely the path of the Fed funds rate is down. It's not up Tim. I mean, can you see? Again, the issue here with Tim, just to give him the benefit of the doubt, is you're completely excluding everything else except just the Fed funds rate and the Fed policy decision. I mean, let's go to the twos and tens. Hopefully, I've got that up. I do. Okay. So, now let's look here at 1995. Do you see an inversion anywhere here, Tim? Do you see it? You don't. Why? Because it didn't happen. it [laughter] didn't happen. So you had no inversion of the curve. You had the labor market that was fine and and and by the way, you know, there's an argu I might have popped up a bit, but the labor market was not showing the deterioration just using the unemployment rate as a proxy. Um, but I if you go back there, I can almost guarantee you I don't have the data in front of me, but we did not have massive amounts of negative non-farm payroll prints or negative ADP prints. Maybe you had a couple due to weather or something like that, but nothing to the degree to which we have had. Nor have we had this look at this massive inion [laughter] of the curve, which in and of itself tells you why do you have an inversion of the curve? because the financial institutions see a lot of risk and they'd rather take that balance sheet capacity and allocate it to the safest most liquid asset which is treasuries. So you have a bid for treasuries while the Fed is increasing rates because they're behind the curve. No pun intended and you get an inversion. That's why we have an inversion to begin with. No inversion back here, Nick. No inversion, my friend. If you think the Fed is go, the next Fed move is going to be increasing interest rates. Again, maybe they will. There are no certainties. All I would say is the probability of that is incredibly incredibly low. Maybe it's different this time. Always a possibility. So, I don't think that um a a rate hike is anybody's base as the next thing is anybody's base case at this point. And I'm not hearing that. What you what you see is um some people feel we should stop here and and that we're at the right place and just wait. Some people feel like we should cut once or more this year and next year. But the the but when people are writing down their estimates of policy of where it should go, it it is is either holding here or cutting a little or cutting more than a little. So I don't see that as I don't see the base case as involving that. So of course you know a data set of two now three is is not a big data set but I you're you are right about those two uh three cut times in in the 90s. If I could follow up the other >> two three cut times. What? Okay. Oh, he's talking about right here. He's talking about right here. Ah, okay. I thought it was just one. So, let's go to that. Maybe I'm wrong. Now, I would say that if you've got, you know, four out of five times if it plays out like this, probability is still on your side. But let's see. Maybe the curve was uh inverted here. Maybe we had the unemployment rate spike. So that would be uh what is that? 98 to 99. Let's check that out. Yeah. Got a Yeah. teeny weeny weeny weeny weeny inversion just slightly. Okay. So, I'll give him that. I'll give Nick. But let's see the unemployment rate. Oh, where was the unemployment rate here? It's just other stuff. Shoot. Where was the un? Um, I had that up. Oh, there it is. There it is. There it is. Yeah. So, again, apples to apples to oranges. Excuse me. You don't have a year. You have the labor market just going or the uh unemployment rate, excuse me, during that time going straight down. You got it going straight down. And maybe you could argue a little blip here from 4.3 to 4.5. You've got a slight inversion. And you could argue that that inversion was just part of the larger inversion. Um, >> are you trying to show a different screen right now? >> Yeah. Shoot. I forgot I'm showing all these different screens. That sucks. Sorry, guys. I was just showing like five different screens. I've been doing it the whole time, forgetting that we're stuck on this stupid screen. But you'll just have to look it up. [laughter] You'll have to Oh, gee. That's the benefit of doing a live stream, right, with no edits is I totally forgot. So, if you go to uh just I'm not going to go back there. Well, let me do that. We got a lot of people. We got about 10,000 people watching. So, let me just take a quick second just so I can get everyone up to speed and then we'll go back to Pal. Okay. So, now we've got that. Uh Josh, do you see the unemployment rate? Where was it? once you clear up the thousand tabs. I'm sure we will. >> There it is. You see it? >> Got it. >> Okay, cool. Sorry about that, guys. And thank you, Josh, for reminding me. But where what we're looking at is right here. So, in the first rate cut uh that Tim Rose was talking about was right here where the unemployment rate went okay. What did it do? It went up from 5.4 to 5.6 or so. Um, all right. And then there was no inversion of the curve. at least twos and tens. And then we get to 98, which is the second one he's talking about, and we had a slight slight inversion of the curve, but nothing in the labor market. Nothing in the labor market, no no massive deterioration. So to sit there and and that those are the two big big components. So w without that to compare this to what we're seeing today is just it's disingenuous or it's it it's it's it's intellectually I don't want to say dishonest. It's just it's it's not intellectually thorough. That that's a much better way to say it. Okay. Now let's go back and switch up the screen share. very gradually for the better part of two years and indeed the statement today no longer describes the unemployment rate as remaining low. What gives you confidence it won't continue rising in 2026 especially when housing and other rate sensitive sectors still appear to be feeling restrictive policy from the uh notwithstanding the 150 basis points and cuts prior to today. So the the I think the idea is that with with now having cut 755 basis points more now and having policy you know I'd call it in a broad range of of plausible estimates of neutral that that will be a place where which will enable the labor market to stabilize or to only tick up one or two more tents but we won't see how just Okay Josh we've got 10,000 people basically on the live chat for th let me just talk to the 10,000 people that are on here right now. I'm sure a lot of you are small business owners or maybe midsize business owners or maybe even large business owners. I'm sure a lot of you are entrepreneurs. How many of you have gone out and hired a bunch of people over the last three months just because Jerome Pal dropped the Fed funds rate by 75 basis points? Go ahead and tell me in the chat right now. I'll wait. For those of you who who are entrepreneurs, just say yes or no as to whether or not you've hired a bunch of people due to the fact that the Fed just cut by 75 basis points. In fact, I'll take it one step further. Tell me for those of you who are entrepreneurs, if you have ever ever in your life hired people just because Jerome Powell was cutting interest rates. I'm actually just waiting for QE and then I'm I'm hitting the go button. >> There you go. Then it's pedal to the metal. [laughter] Of course not. This is nonsense. So then the only argument could be that somehow by lowering the the overnight rate that that banks charge each other is somehow going to just massively boost aggregate demand. And you're going to see that at your local the dry cleaner that you own and you're gonna be like, "HOLY COW, I GOTTA GO HIRE SOME MORE PEOPLE. WHOA, I'VE NEVER SEEN DEMAND like this. Boy, I sure hope the Fed keeps cutting." I mean, you see, when you hear it over and over and over again, it it's all it's kind of believable, but when you actually think it through in terms of the real economy, you're like, "Wait a minute. This is ridiculous. This is completely [laughter] ridiculous. That's why I get so frustrated. All right, let's go back to it. Have I got the right screen shared now, Josh? >> If you're trying to play Jerome Pal, yes. >> Okay. You know, any kind of a sharper downturn, which we haven't seen any evidence evidence of at all. At the same time, uh, policy is still in a place where it's not accommodative and and we feel like we feel like we have made progress this year in non-tariff related inflation and it as tariffs come through, as they flow through, that'll show through next year. But, as I said, we're we're well past well placed to to wait and see how that turns out. That is our expectation. But, you know, we're going to start to see the data and it'll tell us whether we were right or not. >> Claire Jones, Financial Times. Um, a lot of people interpreted your comments at the October meeting that, you know, when there's a foggy situation, we slow down to mean that, you know, there won't be a cut now, there'd be a cut in January instead. So it'd be good to get a sense of why did the committee decide to move today rather than to move in January instead. Thank you. >> Right. So in October I said um that there was no certainty of moving and that was that was indeed correct. I said it's possible you could think about it that way but I was careful to say other people could look at it differently. So why did we move today? You know I would say point to a couple things. First of all, gradual cooling in the labor market has continued. Unemployment is now up 3/10en from June through September. Payroll jobs uh averaging 40,000 per month since April. We think there's an overstatement in in these numbers by about 60,000. So that would be negative 20,000. >> Whoa, whoa, whoa, whoa, whoa, whoa, whoa, whoa, whoa. Did you hear that, guys? I was not expecting that. That is a bombshell. That is a bombshell. We have averaged, he's talking about non-farm payrolls, I believe here. We've he said we've averaged what is it 40,000 over the last I forgot what he just said, 6 months or so. But he said he thinks they are overstating it by 60,000 a month, which makes sense when you look at all the revisions. But that would bring the non-farm payrolls for the last 6 months down to an average of negative or however month my said down to an average of negative 20,000. Now, I would challenge I I I I do it now, but I got to switch up the stupid screen share [laughter] again. Now, I would challenge you guys, and you can use AI for this. go back and try to look at the last 50 years and look at when we have had negative non-farm payrolls and look at when we have had like six months in a row of non-farm payrolls and try to find and and see if there's a correlation with recessions and try to find a sixmonth period where we have uh substantial negative non-farm payrolls when we're not in an economic contraction. And the and the the point there is you're you're it's going to be tough to find. It's going to be very very very tough to find. So that in and of itself and then you say, "Well, George, what if it's the 1970s, right?" And I've pulled up this chart. Well, dang it. It's a stupid screen share again. I've pulled up a chart. You guys have seen it. Even in the 1970s when you had a slowdown in the labor market, the unemployment rate spike, you had the deterioration, negative non-farm payrolls, etc. you had disinflation. You did not have a reaceleration of inflation. Now you still had prices going up but they were disinflating. They are going up at a much slower pace. Right? So what I'm that my point there is if you're trying to weigh the balances here of probabilities as to should we be more concerned with the labor market or more concerned about inflation. Dude, if you've got negative 20,000 jobs per month on non-farm payrolls and you look at history, trust me, you should be way more concerned about the labor market than you should be about inflation per month. Um, and also just to point out one other thing, surveys of households and businesses both showed declining supply and demand for workers. So I think you can say that the labor market has um uh continued to cool gradually maybe just a touch more gradually than we thought. um you know in terms of inflation um we are it's get come in a touch lower and I think the evidence is is uh kind of growing that what's happening here is services inflation coming down and that's offset by increases in in in goods and that goods inflation is entirely in sectors where there are tariffs. So that does build on the story and so far it's only a story that this is that that the goods inflation which is really the source of the excess at this point that that uh mo almost more than half the source of the excess inflation is goods is tariffs. >> How how do you Okay, I I I I'm going to give him this I'm going to give him this because it is true that that tariffs have slightly increased prices. But that is by no means to say that we should assume that it's not just a a one-time price adjustment, right? And oh, by the way, um it's again we we go back to the majority of the tariffs are being paid by the US importers. That that's without question and you can tell that by the import price data. And then next I would say I I don't know that the large portion of the CPI is due to just these goods that are impacted by tariffs, but more so housing data. It's more so your your stupid lag in housing that doesn't pick up the real-time data of what's happening with prices or what's happening in rents. And if you actually had real time data there or if you strip out housing then you're going to be probably you're definitely going to be sub well not definitely I shouldn't say that because I haven't done the research but my guess would be and I'm going to say with quite a bit of confidence that you would be sub 2% if you stripped out housing and you've got to say then so what do we expect from tariffs? Um and it's I would say that is to some extent down to looking for broader economic uh you know uh heat. you know, do we see a hot economy? Do we see constraints? Do we see what what's going on with wages? You saw the ECI report today. How do you have a hot economy when you have negative 20,000 non-farm payrolls a month? H how can you be worried about a hot economy? And if you're not worried about a hot economy, why the hell would you be worried about an acceleration, not just a price adjustment, but an acceleration due to tariffs? Even even even if those importers tried to pass on 100% of the cost of the tariff, guess what the consumer is going to do? They're going to puke it back up because they don't have the money because they don't have a job. [laughter] Like like great, increase your prices. Woohoo. What's that going to do? Nothing. And then what's going to happen is you're going to be like, whoa, pump the brake on the price increases and you're going to drop the price back to where it was before and eat the margin because if you don't, you're going to go out of business. That this is this is the the issue here with why you can't just look at the price of oil. This is one thing that people do all the time as an example. They look at the price of oil and they just assume that if it goes up to 120 a barrel or whatever that that's going to lead to long-term inflation. No. In fact, a lot of times that's what leads to disinflation because you have the oil prices go up, which is a tax on the consumer, but yet their wages don't go up at the same rate. So what happens to their purchasing power? It goes down. So you get a big spike in oil and sometimes that does spike the CPI, but then it comes right back down because the people just don't have the purchasing power to pay the high prices. Aggregate demand goes down and volume of goods and services sold goes down dramatically. That's exactly what we saw during the GFC. And it there there there's no reason to think that even if you do have that one-time price adjustment, if you don't have if you have a deteriorating labor market, that somehow that's going to equal over the long run price is increasing and going higher and higher and higher and higher and higher and higher. Where the hell's the purchasing power going to come from? >> It doesn't feel like a hot economy that wants to generate, you know, Phillips curve kind of inflation. So we look at all those things um and we say that this was a decision to make. It obviously wasn't uh unanimous and um but overall that was the judgment that that we made and that's the action we took. >> Just on the ambulance reserves [clears throat] point, how concerned were people around the table about some of the tensions we've seen in money markets? >> I wouldn't say concerned. So what what really happened is this um uh balance sheet shrinkage sometimes called QT went on. We had a framework in place for monitoring it and nothing happened. The overnight reverse repo facility went down pretty much close to zero. Uh and then beginning in in September uh the federal funds rate started to tick up within the range, right? And it ticked up almost all the way to uh interest reserve balances. There's nothing wrong with that. What that's telling you is that we're actually in reserves in an ample reserves regime. So, you know, we we knew this was going >> all right, Jerome. It has nothing to do with risk at all. It has it there's no way it can have anything to do with risk. It can only have to do with the amount of bank reserves. [laughter] Come on. when remember that the repo rate is an average of about a thousand different rates based on risk every single day with counterparties going to come. When it finally did come, it came a little quicker than expected, but we were absolutely there to take the actions that we said we would take. So, and we those actions are today. So, you know, we we announced that we're resuming reserve management purchases. That is completely separate from monetary policy. It's just we need to keep an ample supply of reserves out there. Why so big? The answer to that is uh you know if you look ahead you'll see that that April 15th is coming up and our our framework is such that we want to have ample reserves even at times when reserves are at a low level temporarily. So that's what happens on tax day. People pay a lot of money to the government, reserves drop. Sure. >> A low level. Okay. So, prior to 2008, we had about 40 billion of bank reserves. And I'd like to point out 30 billion of that was vault cash, meaning that's not being used for interbank settlement. So, you had about 10 billion of reserves that was actually being used for interbank settlement. Now, I haven't looked at the chart lately, but I would assume, and I've probably got it up. Well, I got to do the screen share, but we're probably around three trillion three trillion in bank reserves. Three trillion from 10 billion. And you're telling me that that's not ample? Like, I get it. SLR, Basil, I get the the all the regulations. There is no way that just regulations alone would prompt you or or or would facilitate the need to go from 10 billion to to three trillion. [laughter] [gasps] 3 trillion. Come on. And M2 money supply went up from 7.5 to what was it 22? Something like that. So you had a a a a doubling, you know, it's it's up by 200%. Yet the amount of I don't even know what that is. I can't even calculate [laughter] that percentage going from 10 billion to three trillion. And somehow you want to argue that we don't have ample reserves. I mean, you just in order to believe this, you you just have to completely ignore history. You just have to completely ignore the data >> sharply and temporarily. So this seasonal buildup that we'll see in the next few months was going to happen anyway. It was going to happen because April 15th is April 15th. There's also a secular ongoing growth of the balance sheet. We have to keep reserves call it constant as a as it relates to the banking system or to the whole whole economy. And that alone calls for us to increase about 2025 billion dollars per month. So that's a small part that that's going on. It's also happening in the context of a temporary. >> So you have to increase it by 25 billion a month. When M2 money supply, let's just say is 22 trillion. I don't know what it is. Let's just say it's around that. when when it was 7.5 trillion the total amount of electronic reserves for interbank settlement was 10 billion and somehow you have to increase it by 25 billion a month right now [laughter and gasps] again it's just it's I I I'm at a loss of words it's it's Will Ferrell it's just it's just we're living in crazy hill land >> very few month uh front loing to get to get reserves high enough to get through the you know the tax period in in in midappril so that's what's happening there [clears throat] >> um thanks Mr. Chairman, um uh this is the last post FOMC press conference uh before an important Supreme Court uh hearing next month. Can you talk about how you're hoping the Supreme Court will rule and uh I'm just curious why the Fed's been so reticent on such a pivotal matter. >> It's not something I I want to address here, Andrew. Um you know, we're not uh we're not legal commentators. It's it's before the courts and uh we think our we we don't think that we help matters by trying to engage as a as a as a as a public discussion of that. I'll give you a mulligan though. [clears throat] >> Thanks. >> I don't know if that means I get three questions but uh >> just one just one more. >> I I guess I wanted to come back to the the 1990s question and like do you see that as a useful model for thinking about uh what is happening in the economy right now? >> I don't think it rises to that level. So, I did think, >> you know, another thing that's weird, too, is all these guys asking questions. It's all 1990s, 1990s, 1990s, 1990s. Why doesn't anyone say, "Well, what about do you think this is similar to ' 89? Do you think this is similar to 2000? Do you think this is similar to 2007, 2008? Do you think this is similar to 20 to 2019? Why is it that the only question they can ask, the outcome is that the economy doesn't go into recession and they completely ignore the vast majority of times when it actually goes into recession. It's a bit of a head scratcher, isn't it? Think that in in 200 was it 19 where we cut three times. But, you know, this is such a unique situation. We this is it's not um uh it's not the 1970s, let's put it that way. But we do have tension between our two goals. >> And so such, if you're new to the stream here, this is not a unique situation that what he's talking about is the the the spread or the delta or whatever the convergence of the labor market and inflation. It happens every single time. It happens every single time in these cycles. you get a six-month period or whatever it is when growth and inflation expectations accelerate. Sometimes it's due to the CPI flatout going up like we saw in 2008. And while at the same time the labor market is deteriorating, it literally happens every single time. And yet no one fact checks him on it. Like how is this? Like I I almost flunked out of high school. I'm just some idiot on YouTube. How is it that the people that are right there in the room with him aren't saying, "Well, whoa, you say this is unprecedented, but the exact same thing happened in 2008." How do you explain that? This is just these are these questions are all just fluff. They're just nonsensical fluff and dril. That's just unique. And in my time at the Fed and I think going back a long ways, we haven't had that in our framework. By the way, if he truly believes that, we've got we got problems. Like, like we've got, if he truly believes that, that means that he hasn't even done enough research to know that this is not true. That in and of itself is frightening. As you know, says that when that's the case, then we try to, you know, take a balanced approach to to the two things and we look at how far they are and how long it would take to get them back to each of them back to the goal. That's a very subjective analysis really, but it just tells you you've gota and I think ultimately what it says is when they're broadly equally threatened or equally at risk, you should be kind of neutral because if you're if you're either accommodative or or or tight, you're favoring one or the other goal. And so we've been trying to we've been sort of moving in the direction of neutral. Now we're in the range of neutral. We're in the high end of the range of neutral, I would say. And that's what we're doing now. It it so happened. >> Basically what what he's saying right here is he's saying we're we're worried about getting kicked in the nuts. Let me just put it down to brass tax here in in a way that everyone can easily understand. He's saying we're we're really worried about we're we're kind of sitting like this. You know, like that meme where the karate guy is kicking the dude in the nuts over and over and over again. We're sitting in that position where we're primed. We're we're we're we're in, you know, we're getting ready. That dude's coming over and he's going to be kicking us in the nuts. But it's one of two dudes. You don't know whether it's the inflation dude that's going to kick you in the nuts or if it's going to be the labor market that's going to kick you in the nuts. But what you do have is you do have 50 years, [laughter] not that much, but you've got going all the way back to the 1980s where every single time you got two guys walking up to you to kick you in the nuts, the labor market dude is the guy that gets you every single time. But yet somehow this time you've got the two guys walking up to you that are getting just primed. They're getting warmed up. They're doing like squats getting ready to kick you in the nuts as hard as they can. And you're like, I don't know who it's going to be. I don't know. This is unprecedented. I don't know who it's going to be. Is it going to be the labor market or is it going to be the inflation rate? When it's always the labor market guy kicking you in the nuts. [laughter] Ah geez that we we've cut three times that you know we have we haven't made any decision about January but as as I've said we think we're well positioned to uh wait and see how the economy performs >> Edward. [clears throat] >> Thanks Mr. Chairman. Edward Lawrence uh with Fox Business. I wanted to ask you um the inflation expectations uh has has come down in your SCP report. Um do you see the tariff price increases as passing through in the next three months? Is it a six-month process that we're looking for that to end? And then because of that, is jobs the threat to the economy? [clears throat] >> So with with tariff inflation, you know, it takes there's the announcement of a tariff and then there's, you know, they start to take effect and then it takes some months. goods may have to be shipped from other parts of the you know it may take you know quite a while for an individual tariff to take its full effect but once it's had that effect then the question is isn't that just a onetime price increase what what good look we got the tariff retardation day we got that in April so we got April May June July August September October November we have nine months Jerome tell me the good that takes nine n months to get here. Just what what good is it? Maybe there's some, but just using good oldfashioned common sense, I don't think there a lot of goods in the basket that take over nine months to get to the United States. So, we've actually we actually look at all of the announcements and and and and what you get from all that. You see sort of a for each one of them there's a time period and then then it's fully in. So if there are no new tariff announcements and we don't know that but let's assume there are no major new tariff announcements inflation from goods uh should peak in the first quarter or so right roughly you know we haven't been able to predict this with any precision no one is but call it the first quarter or or so of next year should be the peak and from here it should be it shouldn't be big it should be a couple tenths or or even less than that we don't really >> it's not that you haven't predicted this with any type of precision decision. You actually have. It's just the outcome has been the inverse of your prediction. So you've actually done a very very good job of predicting it. You just predicted the opposite of what really happened. So if that was the case, if you had a hund if you had a thousand batting average for being wrong, why would you expect that you're going to be right moving forward? Wouldn't you expect that you're just going to be wrong? I mean, I don't know. have precision on this, but and after that again, if there are no new tariffs that that are being announced that will take nine months to get fully in, nine months is also an estimate. Um, then you should start to see that coming down in the back half of next year. And and I want to see if I could address sort of the elephant room. [clears throat] The president's been talking openly about um a new Fed chairman. Does that hinder your current job right now or change your thinking at all? >> No. like >> no mulligans for it. [laughter] Michael Michael McKe from Bloomberg radio and television. Uh tenure rates have are 50 basis [clears throat] points higher than when you started cutting back in September of 2024 and the yield curve basically has been steepening. Uh why do you think that continuing to cut now, especially in the absence of data, is going to bring down the yield on the thing that will move the economy the most? So, we're looking at the real economy and focusing on that. And you have you've got to when the when the long bonds move around, you've got to look at why they're moving around. If you look at inflation compensation, it's very, you know, that's one part of it is is inflation compensation break evens. And, you know, they're at very comfortable levels. They're at levels consistent past the once you get out past the very short term. Now um break evens are at a you know at at quite levels that are quite consistent with 2% inflation over time. So there's nothing happening with rates going up out there that suggests concern about inflation in the long term or anything like that. >> So let me translate the guy getting ready to the the the the one of two guys that's walking at you. It's the labor market getting ready to kick you in the nuts. What's happening is the inflation guy is turning around and walking in the other direction. That's what he's saying. I mean, I look I look at these things pretty regularly. Same thing with surveys. Surveys are all saying that uh the public understands our commitment to 2% and and expects us to get back there. So, so why why are rates going up? It has to be something else. It must be, you know, an expectation of higher growth or something like that. And that's that's a lot of what's been going on. I mean, you saw a big move, you know, toward the end of last year, which was not to do with us. It was to do with other developments. Well, you just mentioned that uh [clears throat] we're the public is expecting you to get back to 2% and Americans overwhelmingly are citing high prices, inflation as their number one concern. Can you explain to them why you're prioritizing uh the labor market which seems relatively stable to most people instead of their number one concern inflation? So we um as you know we have a network of contacts in the US economy which is really unmatched if you go through the 12 reserve banks. Uh so we hear loud and clear how people are experiencing um really costs. It's really it's really high costs and a lot of that is not the current rate of inflation. A lot of that is just embedded higher cost due to higher inflation in 2022 and 23. Uh so that's what's going on >> here. I agree with him here. I gota I'll if I you know obviously I'm I'll say what I disagree but here I agree. on. And so the best thing we can do is restore inflation to to to its 2% goal, and our policy is is intended to do that. But also have a strong economy where real wages are going up, where people are getting jobs and and earning money and and uh that we're going to need to have some years where real compensation is higher. You know, it's positive, significantly positive. So wages, nominal wages are higher than inflation for people to start feeling good about affordability, the affordability issue. And you know, so we're we're working hard on that. We want to we're trying to keep inflation under control, but also support the labor market and strong wages so that people are earning enough money and and feeling economically healthy again. >> Victoria, >> um, hi Victoria with [clears throat] Go. Uh just to follow up on that, I mean this is now the third time that you've cut this year and inflation is around 3%. So is the message that you're sort of trying to send with that that you're okay with where inflation is for now as long as people understand that at some point you still want to get back to 2%. Because inflation is relatively stable where it is. >> Everyone should understand and the surveys show that they do. >> Okay, Josh, I can't I can't take any more of this. the the questions are so stupid. I mean, these people I I don't how what what are the qualifications to get a a badge or a pass to get in there and ask him a question? Like, I I can't I can't take that. You know, it's one thing to be able to just handle the stupidity of Jerome Pal. And I'll give him credit. Maybe he he's not maybe he's he's just I mean, look, I'll cut him some slack here. He's got to put on the show. He's got to put on the show, right? So when I say that he's stupid, I'm not literally saying that he's unintelligent. I'm saying that he what he is saying is stupid. And it's probably because he's got to put on the show because he realizes this is all just a scop and that that's his only game. That is his only tool is psychological manipulation. So that so don't get me wrong there when I but but that the people asking him questions are are are on the brink of retardation and and and they're they're they're a combination of and just asskissers. So I can only handle Jerome Pal so much. I can't handle the the the the asskissers. So on that bombshell guys, enjoy the rest [laughter] of your afternoon. >> [sighs] >> As always, make sure you're standing up for freedom, liberty, free market, capitalism, and we'll see you in the next video.