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Speaker 1: Hey everyone and thanks for jumping back into the macroverse. Today we're going to discuss

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Speaker 1: what the Federal Reserve will do at the next FOMC meeting. If you guys like the content

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Speaker 1: make sure you subscribe to the channel, get the video a thumbs up and check out the

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Speaker 1: upcoming ITC conference. Ticket prices will be going up in just about a week and a half,

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Speaker 1: November 1st. So make sure you guys get your ticket if you do want to attend. Let's go

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Speaker 1: ahead and jump in. So interest rates right now are at 4%. And it's expected

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Speaker 1: that the Fed will raise again before the end of the year.

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Speaker 1: Earlier this year, right, we talked about the Fed having to likely raise rates starting at

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Speaker 1: the September meeting. And when I talked about that, I actually got a lot of pushback on

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Speaker 1: it. A lot of people said that there was absolutely no way that the Federal Reserve would

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Speaker 1: raise rates before the midterms. But again, they did it anyways. As it

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Speaker 1: stands right now, and I think it's unlikely to change a whole lot because we already got

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Speaker 1: a lot of hot inflation reports. CPI came in hot. The producer price index came in

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Speaker 1: hot. The inflation reports were somewhat elevated. Despite all

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Speaker 1: of that, the market doesn't really seem to think there's going to be a rate hike in

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Speaker 1: October. I think I misspoke in a video not too long ago, where I said that it was an 80 %

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Speaker 1: chance to raise it's actually an 80 something percent chance to hold rates. So you have an

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Speaker 1: 80 % chance the Fed is going to hold rates steady. Now, to some degree, the

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Speaker 1: market is obviously the market today is different than 2018. I'm not trying to imply that

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Speaker 1: it's the same. But to some degree, this does in feel like deja vu from

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Speaker 1: 2018. And the reason I say that is because if you actually look at the FOMC meetings

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Speaker 1: back in 2018, if you scroll down to the September meeting, and you just click on the

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Speaker 1: statement, you can see that they decided to raise the target range for the Fed funds rate

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Speaker 1: to two to two and a quarter percent so they raised rates in september of 2018

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Speaker 1: a midterm year just like they did in 2026 all right now from there at

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Speaker 1: the next meeting the next meeting was actually what like one or two days after the midterms

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Speaker 1: it was in november in the november meeting they did not raise rates you can see that they

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Speaker 1: held rates constant at two to two and a quarter percent So far, that's tracking with what

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Speaker 1: we're seeing in 2018 as well. A rate hike in September, a pause at the next meeting, the

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Speaker 1: October to November meeting. What did they do in December back then? Because there was

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Speaker 1: another meeting in December. And what you'll see is that at that meeting, so a month,

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Speaker 1: month and a half after the midterms, they raised rates again to 2 .5%. Now, a lot of

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Speaker 1: people might look at this and say, well, they're going to raise rates in next March and

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Speaker 1: potentially next June.

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Speaker 1: This historically is not the best predictor of what's actually going to happen many, many

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Speaker 1: months out, right? Like a lot of times this just changes constantly. So I would not put a

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Speaker 1: lot of faith in this. Even the Federal Reserve often gets it wrong. If you look

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Speaker 1: at the summary of economic projections, the SCP, back in December of

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Speaker 1: 2018, what you'll see is that the Fed funds rate at the time, you know, for 2018, it says 2

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Speaker 1: .4, but they were projecting 2 .9 % for 2019,

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Speaker 1: right? And this is before the pandemic, right? Like, we're not talking about 2020 where

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Speaker 1: they were projecting 3 .1. We're just saying, look, at the end of 2018, the Fed was

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Speaker 1: essentially penciling in two more rate hikes in 2019.

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Speaker 1: If you look today, the market is assuming, let's get past the December meeting,

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Speaker 1: let's pretend like we're already at four and a quarter. The market is penciling in two more

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Speaker 1: rate hikes in 2027.

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Speaker 1: So it's clear that the market does not always know what's going to happen. It often does

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Speaker 1: not. And the Fed does not often know what's going to happen. Because back in 2018, when the

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Speaker 1: SEP was calling for two more rate hikes, the Fed didn't raise at all

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Speaker 1: in 2019. And by the end of 2019, by September or July, they

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Speaker 1: had already started cutting rates again. So don't look at this to tell you what has

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Speaker 1: to happen. Because to a large extent, the Federal Reserve just is tracking the two -year

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Speaker 1: yield, right? If interest rates are going up, it's more than likely because they are trying

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Speaker 1: to get to the two -year yield. You can see that where the two -year yield goes, the purple

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Speaker 1: line, the Fed funds rate often follows. And the two -year yield now is elevated above the

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Speaker 1: Fed funds rate at 4 .76%.

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UNKNOWN: But

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Speaker 1: it was also elevated at the end of 2018 as well, right? So think about it like this.

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Speaker 1: The two -year yield just hit 4 .9%, right? And now it's at 4 .76%, but just a little bit

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Speaker 1: ago, it hit 4 .9%. At the end of 2018, the two -year yield was at around

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Speaker 1: 2 .9%.

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Speaker 1: So the reason why the market perhaps thought that the Fed was going to raise

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Speaker 1: rates closer

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Speaker 1: to 2 .9, you can see right here 2 .9, is arguably because that's where the two -year yield

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Speaker 1: was back then when they penciled it in or around that level. But then the two year yield

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Speaker 1: came down to where the Fed funds rate was. So what happened is that policy

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Speaker 1: became restrictive, even though the Fed didn't have to raise anymore. Because if you use

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Speaker 1: the two year yield as an approximation of the neutral rate, we can all get into all sorts

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Speaker 1: of discussions as to why or why not that may or might not be the case. But when you look at

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Speaker 1: the two year yield coming back down to where the Fed funds rate was, then it turned out

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Speaker 1: that the two rate hikes the Fed had penciled in back then didn't actually have to happen.

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Speaker 1: What if the same thing happens today? Okay, what if

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Speaker 1: following the midterms, the two year yield would come back down? Now, if

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Speaker 1: you look at the, we can look at year -to -date roi of what it did in

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Speaker 1: 2018 so just looking at at the two -year yield and what we're going to do is we're just

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Speaker 1: simply going to overlay 2026 and 2018 you can see how the two -year yield went up but then

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Speaker 1: and it surged into the fomc meeting where they did not raise rates

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Speaker 1: isn't that interesting you can see the two -year yield topped on november 7th that was That

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Speaker 1: was basically when the FOMC was.

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Speaker 1: If you go back and look, you can see the meeting was November 7th to 8th. So back then, the

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Speaker 1: two -year yield topped on

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Speaker 1: November 8th, right? The day of the FOMC, where they did not raise rates. So what if

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Speaker 1: the same thing happens? What if the two -year yield goes up? Maybe it bounces into

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Speaker 1: midterms, okay? Okay, just bear with me for a moment, right? Two -year yield bounces into

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Speaker 1: midterms. The Fed does not raise rates.

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Speaker 1: The long end is spooked by this going into the midterm, so it spikes, but then it comes

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Speaker 1: down on the other side of it. If the two -year yield were to come back down after the

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Speaker 1: midterms, and let's say the Fed raises rates in December, then you're getting

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Speaker 1: awfully close to being back in restrictive territory. Because imagine if the if the two

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Speaker 1: year yield or imagine if the Fed funds rate goes up to four and a quarter, it goes up to

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Speaker 1: four and a quarter. And if the two year yield were to drop, then they're basically the same

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Speaker 1: thing, right? So that is how you could get a situation where they don't necessarily have to

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Speaker 1: raise rates as much in 2027, just like they didn't have to raise rates as much as they

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Speaker 1: thought they would have needed to in 2019. So I hope that that I mean, it might be clear as

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Speaker 1: mud. But hopefully, some of you guys are, you know, picking up what I'm throwing down,

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Speaker 1: right in the sense that it seems like a very similar setup, right? Like, it feels like the

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Speaker 1: Fed's behind and they need to raise rates because we're getting these hot inflation reports

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Speaker 1: and they're just not raising rates more than likely at the october meeting

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UNKNOWN: again

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Speaker 1: only like a 16 chance they raise rates so imagine that imagine the two -year yield surges

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Speaker 1: into that and then following that two -year yield drops the fed raises in december and then

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Speaker 1: all of a sudden the fed funds rate and the approximation of the neutral rate are nearly

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Speaker 1: identical so then going into 2027 perhaps they end up holding for a while

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Speaker 1: it's a compelling narrative right i mean it really is and i mean history doesn't always

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Speaker 1: repeat itself but it certainly does rhyme i just want people to be aware of of that

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Speaker 1: potential outcome because i remember you know looking at some of this stuff back then and

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Speaker 1: thinking like okay they're gonna like they're gonna have to raise rates the the scp is

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Speaker 1: calling for two more rate hikes in 2019 and those rate hikes never actually happened. So I

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Speaker 1: could see us getting one more rate hike in December. But after that, I would I would not be

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Speaker 1: so deterministic. Okay, I think one more rate hike is in the cards before the end of the

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Speaker 1: year. But once we get out of 2027, you have to start to wonder if the long

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Speaker 1: end going up as much as it has, if that's going to start to weigh on on businesses.

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Speaker 1: And if it does, and you start to see growth scares, then there's not going to be, you know,

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Speaker 1: those rate hikes just simply might not manifest at all. Okay, so, and remember with the

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Speaker 1: long end, what normally happens in the last couple of midterm years is it tops in October,

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Speaker 1: it puts in a top in October, it then drops, and then it rallies back into the midterms.

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Speaker 1: Sometimes it's a higher high,

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Speaker 1: sometimes it's a lower high, and then it drops after the midterms. So I feel like the

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Speaker 1: playbook's there and it's like, it seems like this is what's likely going to happen. So

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Speaker 1: let's see if it does, because if it does, then we might just be running the same playbook

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Speaker 1: eight years later. Right. So those are my views. My guess is the Fed's not going to raise

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Speaker 1: rates in October, which is coming up in about nine days, the FOMC meeting about nine days.

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Speaker 1: I'm guessing they're not going to raise rates. I think you'll likely see you know yields go

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Speaker 1: back up into the midterms and then after that you'll see them fall and then as they're

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Speaker 1: falling in December the federal raise rates again that'll get the fed funds rate basically

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Speaker 1: equivalent to the two -year yield and then from there I'm guessing they might end up

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Speaker 1: holding for a while in 2027. If you guys like the content make sure you subscribe to the

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Speaker 1: channel give the video a thumbs up also check out the sale on Into the Cryptoverse Premium

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Speaker 1: at into the cryptoverse .com and as a reminder make sure you get your ticket to the

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Speaker 1: upcoming investing through the cycles conference taking place in Miami uh main conference

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Speaker 1: day will be November 21st we'll have some stuff going on November 20th as well links in the

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Speaker 1: description below or the pinned comment I will see you guys next time bye