Fed Updates

During yesterday’s Fed Minutes meeting (separate from FOMC meeting), participants noted that the labor market is still tight (more jobs than workers), but is starting to show signs of loosening. The participants also agreed on slower rate hikes that will allow the Fed to better assess progress while also stating a consensus that a 75 BPS rate hike is still necessary. The market took the Fed minutes meeting to be bullish, by focusing on the consensus of slower rate hikes; but what the market is ignoring is that the Fed participants said a 75 BPS hike is necessary and that we haven’t seen peak inflation yet. It is extremely important to note that on January 1st, 2023 the CPI formula is changing yet again, using 1 year of data to calculate inflation instead of the current 2 years. The Fed would be virtually (on paper) eliminating 2021’s inflation data from the CPI. What this means is that CPI numbers in 2023 will be lower and make current rate seem sufficient to tame inflation even if it isn’t. The one downside of this CPI formula change is that while on paper inflation would be lower, real-world inflation would still be high and running rampant. I believe that the December rate hike will likely be 75 basis points, and the next one in 2023 to be lower or even paused. By changing the CPI formula and lowering its print the Fed would most likely be able to avoid a financial crisis by not having to raise rates, but on the other hand cause runaway inflation. You can read “The Gold Bull” & “The Bitcoin Bull” Signals in your member’s area to learn how to grow your wealth in times of financial crisis & inflation.

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