The Fed Just Changed the Rules of Inflation. Almost Nobody Caught It

The Fed just changed the rules of inflation, and almost nobody caught it. Not the banks, not the analysts, which means that almost everybody is positioned on the wrong side of the market right now, and they don't even know it yet. If we just look just at this week, we can see that this morning, the biggest inflation drop in six years, down 0.4% in a single month. And just 24 hours earlier, oil jumped 9%, and Wall Street started betting on rate hikes. So it's the same data, but opposite directions. So half the comments here say that the numbers are fake, right? And look, I'm the first one to say they're fake, right? I've been calling CPI CP lie for a long time, but this one, it's real. The other half says that oil's back up, so the Fed, they have to hike. They have to start raising. Well, those are the easy answers, but they're both wrong, because that Fed, they don't exist anymore. The new Fed doesn't care where inflation comes from. It only cares if it spreads. Buried in this morning's report is one number that says it isn't. The number everyone strips out and ignores is now the only number that moves policy. So I'm going to show you all this. I'm going to show you the rule change that Wall Street hasn't priced in, why the rate hike bets are about to break. I want to show you the one number to watch to your position before they figure all this out. You ready? Let's go. All right, let's get into this, and just real quick, the reason why this matters is because we need to know the price of money, so we know where the money supply is going, so we know where asset prices are going. That's why this topic's important, and by the way, if you like this topic, click that like button and subscribe to this channel so you can get more of this as we break it down. Okay, so the government, they dropped the number. The June inflation report came out and headlined CPI. As I said, typically CPI, it fell. It fell 0.4% in a single month. Now, I know that that sounds minuscule. It doesn't sound like a lot, but it's the biggest monthly drop since April 2020. Now, think about that. April 2020, that was right when the depths of COVID came down, the lockdown, all of that, and it was the biggest drop since then, and we saw inflation went up 4.2% down to 3.5%. Now, the thing that's catching everybody off guard here is that Wall Street expected the opposite. They expected, well, they expected a drop of barely 0.1%, so they got four times more drop than what they expected, and so when you open up the report, the source is pretty obvious. Why did CPI drop? Well, energy fell 5.7% in one month. Gasoline, what you pay at the pump, dropped 9.7%. Hopefully, you felt that a little bit in your pocketbook, but that's what did the work here. Now, real quick, I decided to make this video because everybody online is calling this data fake, right? The Fed's faking it. They just want cover so they can start lowering rates again and all of that, and again, like I said at the intro, I'm the first person to call them out. CPI, as I call it, they change the basket all the time, but this one matters. This print is telling the truth this time anyway, right? And the composition is how you know. Gas prices collapsed in June, right? And you saw that. You noticed gas prices coming down, hopefully, and the report is just finally catching up to what you see, your own life, and nobody's saying, of course, that your gas is cheap. It's still pretty expensive. Energy is still up 15.7% from a year ago, but the question isn't whether prices are high. The question to be asking here, if you want to know where asset prices are going anyway, is which direction the prices are moving, and more specifically, why? Now, 24 hours before this report dropped, oil jumped 9.4% in a single day. Again, this is the biggest one-day move since April. Then the ceasefire with Iran, it broke down on July 8th. We saw tankers getting hit in the Strait of Hormuz, and the market instantly started to flip. We went from pricing rate cuts in to all of a sudden a better chance, a one-in-three chance that the Fed is actually going to hike this month. But look, this is still the same economy. It's the same week. Inflation data says the one thing, and the market is betting on the opposite. So everybody's picking a side here. Half the comments say the numbers are rigged. The other half say oil is going back up, so inflation has to come back up. So then, of course, the Fed has to hike. So both sides are arguing about the same number. But what people seem to be missing is that the referee in the game, the referee got changed. The Fed that everyone seems to be modeling, the one that reacted in the past to every headline, they got replaced in May. And the new referee, the new Fed, they're playing a completely different game. They're playing by a different set of rules anyway. Now, for the last, let's say, four years, the Fed ran on one single doctrine. Any inflation from any source, it demanded some sort of response, right? Jerome Powell, he would stand up and go to Jackson Hole, like he did back in 2022. And he told you exactly what that meant. He said, Biden inflation would, quote, bring some pain to households and businesses. Okay, it sounds pretty bad. This means that pain was the tool, right? If the Fed would raise rates, making money more expensive, then they could crush demand. And that demand got crushed because people like you and I were broke. And all of a sudden, those people, well, lots of people were put out of work. So they were broke, demand dropped. Now, whether the inflation came from too much spending or a broken supply chain, the playbook, it didn't care. It didn't care where the inflation came from. The response was always the same. But that's the old rules. Here's what happened to those old rules. The referee changed. Kevin Warsh took the chair on May 15th. At his very first meeting on camera, he rejected the entire framework. He called the inflation versus jobs trade-off a cruel choice. Like, why do we gotta make people broke here? It's cruel. And he's right. He said that the Fed doesn't have to make that choice. Now, I did make a whole other video. I'll link to it in the description down below. I made a whole video on that moment, the regime shift change and how the Fed was gonna act. And then he did something that got almost no coverage at all. He launched five task forces to rebuild how the Fed operates. Now, one of them is re-examining the inflation framework itself. And buried in his comments is the line that matters most. Warsh, he drew a distinction between prices the Fed can't control, oil, eggs, and the Fed's actual job, stopping those shocks from spreading into everything else. You see, the old Fed, they responded to the source of inflation. But the new Fed, they respond to the spread of inflation, right? That's the entire regime change right there. Sources versus spread. Now, watch how clean the proof is here. This year, we've seen it play out three times. The experiment ran three times. We saw late February, we had war breakout with Iran, right? The Strait of Hormuz closed. And that was roughly about 20% of the world's oil. Now, of course, when that happened, supply shock, inflation runs up to 4.2% by May. But then June 17th, we got a deal signed. The US, Iran signed a deal. And then oil round trips all the way down to the pre-war premium. WTI actually closed below where it sat the day before the war had started. Now, three weeks later, you get the biggest inflation drop in six years. Then July 8th, well, ceasefire collapses. And then war breaks out again, and oil jumps 9% in a day. So we saw three doses. We saw three responses. But as you can see, the inflation rate of the United States has been tracking one single waterway. The Strait, on the other side of the planet. So, I mean, of course, no demand story is going to survive that chart. The economy, though, here in the US, it didn't overheat in March. It didn't cool off again in June. It was the Strait closed. And then the Strait opened again. So if the Fed can't control the Strait, if the Fed can't control oil, then what's the new trigger? Well, there's one number, core inflation. Everything except food and energy. The number analysts use to strip out and nobody talks about, right? This morning, it printed 0.0 for the month, which means, of course, flat. Now, year over year, it was about 2.6%. And the context here, it makes it land. At the June meeting, the Fed's own projections feared core running at 3.3% this year. And that fear was, of course, the oil shock. They thought the oil shock would leak into everything else in the economy. But it's not. It's not leaking. You see, but under the old rules, today's report is ambiguous. Headline collapsed, but oil spiking again. So I don't know. Who knows? But under the new rules, it's a green light. The shock isn't spreading. It's not spreading into the rest of the economy, into the rest of the prices. And that's the only question that the new Fed, the Warsh Fed, is asking. Now, I've been on record making a lot of these videos. I've been on record since Warsh was nominated that this framework right here, and the change that he was going to make was coming. And this print is the first live fire test that we've seen it. We've seen his call. And it came back exactly the way the regime changed that it would. OK, but with all this, which, I don't know, seems pretty obvious, it seems like Wall Street still hasn't gotten the memo. Bank of America flipped its forecast from just a few weeks ago. They're now calling for three quarter point hikes this year, in September, October, and December. And that would take the Fed from today's about 3.5% to 3.75%, and maybe up to as much as 4.5%. Now, at the June meeting, the Fed's own dot plot flipped. Hawkish, too. Nearly half the officials penciled in rate hikes by the year end. Only one of them saw a cut. And the moment that crude spiked again on the Iran headlines, Fed funds futures started shifting from pricing no move to, again, pricing real odds of a rate hike. Now, every one of those bets runs on the same logic, right? Oil goes up, so headline inflation goes up. So then, of course, the Fed has to respond. But again, that's the old reaction function. They're modeling a Fed that got retired with Jerome Powell back in May. But here's the thing. Those dots were submitted in June, when the Fed's own projections had core inflation running at 3.3% this year. Now, the whole, you know, hike case was built on the oil shock leaking into everything else. But this morning, core printed 2.6 year over year. Again, down from 2.9% in May. And it's still drifting lower. So the thing that they were afraid of happening, it's not happening, right? Within hours of the print, some economists were already saying multiple hikes look overstated compared to what futures are actually pricing. Now, Kevin Warsh, he's on Capitol Hill this week. And his message is basically that this isn't mission accomplished on inflation. Not yet. Now, when people hear that, they think it's really hawkish, right? But it's not. It's not a hike signal. It's a new chairman that's guarding the Fed's credibility here. So don't listen for his tone on oil. Listen for the standard Fed keyword, whether he says the shock is broadening into core, or is it staying contained, right? That's the word that's to tell. But let's play out both parts here. If the war premium in oil unwinds again, you already watched this once, right? Crude gave back most of its spike in June. The headline number flips soft right behind it, cuts on lock, and the repricing happens fast. If the war drags on, then headline, headline inflation, it gets noisy again. But again, under the new Fed, under the new Fed rules anyway, noisy, it's not part of the policy. The Fed would hold, core keeps deciding, and governments finance wars through credit and liquidity, right? Just as they have for a long time. So there's two different paths, but they both go to the same destination. Easier money. That's where they're going. The only difference right here is timing and how bumpy the ride is, which means that the trade was never predicting the war. It's front running the moment that the market reprices the new Fed. Now the next Fed meeting is July 28th. That's where the crowd starts figuring out what you already know. Until then, one number. The core prints, the all items, less food and energy index that the Fed actually runs its projections on, not oil headlines, not sound bites from hearings, right? That's the number that decides. And look, knowing what's coming, of course, you know, that's one piece of it. But knowing how to sequence your own balance sheet ahead of the liquidity run that's coming, what to hold, in what order, against what, that requires a full system, a wealth system, and not just a tip. But let's look at the playbook for this new Fed regime in three moves. And look, knowing what's coming is one piece of this, but knowing how to sequence your own balance sheet ahead of this liquidity turn, like what to hold, in what order, against what, that requires a wealth system and not just a tip. But let's take a minute and let's look at a playbook for what this new Fed regime does. Let's look at it in three moves, okay? So move one is reprice your own framework, right? Stop reading inflation reports like it's 2022, because it's not. The headline number is now noise in the system. The composition is the signal, that's what we're looking for. So every report from here, open the table and you check one thing. Is the shock spreading or is it staying contained? You just learn to read the report better than most of the people covering it, all right? Now, move two, position before the confirmation, not after. Now, June showed you the speed of the move, right? Oil unwound, print flip soft, and the entire rate conversation turned inside of just one month. So when the market reprices the new Fed, maybe July 28th, maybe the meeting after, the comment, the commentaries, they're gone, right? The window is the gap between what you know now, and what the crowd figures out later. So that gap, that's the whole trade, okay? Move number three, own what front runs liquidity. So when markets start pricing easier money, well, capital starts moving ahead of it. Where does it go? Well, it moves into hard assets, right? Gold does this, real estate does it, a little bit slower. Of course, the most liquid sensitive asset on the planet is Bitcoin. So it's the smallest of all of them, which means it reprices the fastest, carries no earnings, there's no board of directors, none of that to like muddy the signal. So it's the purest expression of the liquidity turn. Now, one thing I'll say about Bitcoin, I think it's worth saying at this point, is that everyone's been talking about this four-year cycle of Bitcoin, right? It seems to happen like magic on a calendar, right? The high has come in about 18 months after the halving, the low is 12 to 18 months after that. So based off the calendar, the low should be somewhere around September, October of this year, like it's magic, right? And then, you know, the number goes back up. But the calendar was never the mechanism, right? Markets, they don't know what calendars are, they don't keep calendars. The cycle is a liquidity cycle. Every major Bitcoin bull market lines up with the global liquidity turn. And of course, the last, I don't know, 14 minutes watching this video showed you how the next liquidity cycle gets unlocked. And so the cycle timing, that's not the reason to act. It's the confirmation that the mechanism is running on schedule. And you don't have to pick Bitcoin over gold, or land, or real estate, or business, or whatever you want. It's the same question. Who owns real assets when money gets easier? Now, Bitcoin is just the fastest horse in the race. Now, the Fed changed the rules. The market hasn't repriced it yet. And the number that settles it prints before the mainstream crowd is even watching. Because of course, the crowd watches headlines. Owners watch the reaction function. So decide which side you're on before the next Fed meeting, which is July 28th. And if you want to see how the Fed is doing, what no other Fed chair could do for the last several decades, and what this means specifically for your wealth, you probably want to watch this video right here. And I'll see you over there.