Jerome Powell FINALLY Signals Fed Rate Cuts Coming!

Well, finally, Jerome Pal of the Federal Reserve has indicated that interest rates will be lowered in the not tooistant future. [Music] Today, he spoke for the last time since he steps down next year at the Jackson Hole Economic Policy Symposium. Here is how the Wall Street Journal described it. Federal Reserve Chair Jerome Pal opened the door for the central bank to cut rates as soon as its meeting next month. when he said the prospect of a sharper slowdown in the job market might reduce concerns that the cost increases due to tariffs will fuel inflation. And as soon as next month is amazing. Stocks did shoot up as soon as he said that. But let's actually watch the speech together. Well, some of the speech cuz it's pretty long and it might get boring, but we'll watch a little bit and we'll go through some of what he said. When I appeared at this podium one year ago, the economy was at an inflection point. So at inflection point means at a uh a point of change. Basically our policy rate had stood at 5 and a quarter to 5 a.5% for more than a year. That restrictive policy stance was appropriate to help bring down inflation and to foster a sustainable balance between aggregate demand and supply. Okay. So we yeah we have had that that 5.5% interest rate or he said five and a quarter to five and a half uh for a year up until the last meeting the last uh Jackson Hole meeting. uh last year and then they did lower rates a little bit late last year, okay, by about one percentage point around the time of the election, a little bit before the election, a little bit after the election. Inflation had moved much closer to our objective and the labor market had cooled from its formerly overheated state. Upside risks to inflation had diminished, but the unemployment rate had had increased by almost a full percentage point. A development that historically has not occurred outside of recessions. Hasn't occurred outside of recession. remember had that whole thing last year or the year before about are we in a recession, are we not? And they kind of remember they changed the definition of of a recession. I remember that like like I'd almost forgotten of all that uh that controversy, but yeah, I think we did have a sort of mini recession sometime during the Biden presidency, but um they kind of didn't want to admit it. Anyway, let's keep watching. This year, the economy has faced new challenges. Significantly higher tariffs across our trading partners are remaking the global trading system. Okay. So, yeah, I I would say, you know, that's pretty much accurate. I mean, it is a challenge, isn't it? It is an economic challenge. Trump's tariff policies. Obviously, we do have significantly higher tariffs. He is trying to remake uh the global trading trading system. So, all accurate statements. Labor supply has softened in line with demand, sharply lowering the break even rate of job creation needed to hold the unemployment rate constant. All right? And that is a key point. Okay? because basically he explains in the speech but I'll give it to you here that the Fed's kind of mandate is he has to balance uh inflation and the unemployment rate. Okay? And he kind of he's he's kind of balancing these two things. He's trying to maintain 2% inflation. That's their target whilst keeping the economy at full employment. And he's got a certain set of economic tools that he can do this. Actually only a few things that he can do. One of them is raising or lowering interest rates. The effects of tariffs on consumer prices are now clearly visible. We expect those effects to accumulate over coming months with high uncertainty about both timing and amounts. The question that matters for monetary policy is whether these price increases are likely to materially raise the risk of an ongoing inflation problem. A reasonable base case is that the effects will be relatively short-lived, a one-time shift in the price level. Okay, I think that's fair as well. I mean, he thinks that tariffs will contribute to a one-time shift in the price level. That would make sense because if you're going from say 5% to 15% then that would be a you know 10% increase on the wholesale price which might translate to maybe a 5% increase or less on the actual consumer price. Um and it should happen either you know just all at once or you know maybe over a month or two or a few months as old inventory is replaced by new inventory that has the tariff. So it could you know it could last a few months but really what he's saying is that it shouldn't be an ongoing thing. All right. A price increase should have t because of tariffs should in theory be uh a one-term thing, but there are a few unstable factors. All right. I think he now actually gets to the point though. The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance. Okay, so there we go. He's considering changes to the policy stance. The stance this year uh throughout 2025 has been not to lower rates. So if you were to change that policy stance, that would mean that you would be willing to lower rates. He continues, nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance. Okay, so he admits policy is in restrictive territory, i.e. restricting the growth of the economy and uh that changes in the the whole outlook may warrant uh actually changing the stance. So there was a second confirmation of it in the speech right there. As you know, the market shot up as soon as he spoke. So analysts and Wall Street and everyone certainly thinks that what he means is uh they could quite realistically lower rates um you know quite soon. Okay, he is saying that they will think about cutting rates. Uh but it's wrapped up in a lot of language about how it's a fine balance between maintaining full employment and fending off inflation and all that stuff. I got to say it's pretty admiral how he is, you know, trying to be completely unpolitical and just sticking to the mandate that he is given by Congress. Okay, that balance between maintaining full employment and keeping inflation at 2%. Um, but you know, because there is a lot of pressure on him, right? 20% of the US's 36 trillion national debt is maturing this year. Another 15% matures next year. That means they need to refinance it. And right now, it would have to be refinanced at at higher rates. Okay? literally costing the country, you know, trillions of dollars over the long run. So, understandably, Trump is putting a lot of pressure on him because of that. The Fed has cut interest rates by 1% since a year ago with the Fed funds rate now sitting at 4.5%. So, you know, I guess that was a start. I remember people saying, is he doing it to help Biden in the election? And you could have said that for the first cut, which was before the election, but Pal then continued to cut. And the final cut was, I think, December 18th last year. So that's, you know, after Trump had already been elected as president-elect, but before he'd taken office. Now, my personal feeling though is that we do need uh rates to come down even more. Okay? Not only for the national debt, which would be great if we could refinance it at lower rates, but for the whole economy, right? Just take the housing market. There's so much pentup demand right now. You can just feel it. Like people don't want to swap their 3% rate for a 6%, right? they don't want to move cuz, you know, that's what's going to happen. If they if they have a 3% rate and they move house and they're upsizing, if you're downsizing and you're, you know, buying the whole house cash, then that's a different story. But if you're upsizing and you're going to be taking out a new mortgage, you're getting you're swapping a 3% rate for like a 6% rate or more. Okay? So, people aren't moving, right? They're just staying put. All right? Which is causing a lot of, you know, a restriction in inventory in a lot of housing markets here in the US and prices to go up. No one wants to cash out refi either because they'd get a higher rate. So that's probably affecting demand for things like home renovation projects, which are what people often cash out refi for, right? You want a new roof. A lot of people will cash out refinance for that if they haven't, you know, got savings to do it. I want to cash out actually and refinance my Airbnb rental property uh and use the money uh or some of that money to put a generator in since it occasionally loses power if there's a storm and that's a pain if there's a guest staying. You have to give a partial refund or maybe even a full refund if they end up having to leave the property and stay somewhere else. My rate is 4.6%. So I'm not refinancing for anything above four, ideally 3.6 or below, a whole percentage point below. So just to bring the housing market back to normal, I think we need lower rates, right? We had super low interest rates for over 10 years. People have got used to that and that's kind of where the benchmark is and that's why uh we have this problem now. Okay, Powell is kind of doing the right thing. Okay, what would be right under normal situations if rates hadn't been super low for so long. Anyway, guys, I'm just happy to see that he is finally begrudgingly acknowledging that he should lower rates a bit. And uh since rates are probably coming down, it's a great time to invest in stocks since what happens to stocks if rates go down? Stocks go up. So, why not open a new brokerage account with Mumu? If you sign up through my link below, you can get between 20 and $1,000 worth of free Nvidia stock depending on how much you deposit into your new account. Mumo, of course, is a fantastic commission-free brokerage app where you can buy US and international stocks and ETFs. You can even track the portfolios of some of the world's greatest investors like Nancy Pelosi. Check it out in the links below. Thanks for watching. Please subscribe if you're new. We'll see you next time. Bye-bye.