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The FED Just Broke The Market

The FED Just Broke The Market

What’s up guys? So despite the Federal Reserve’s best attempt to bring down prices, as of yesterday, inflation came in at a whopping 8.2%, which was significantly higher than expected and a sign that things might continue getting worse, with another substantial rate hike plans less than three weeks away.

The FED Just Broke The Market

 However, what’s even more concerning isn’t that housing sentiment is already near an alltime low. People are now earning cash at the highest level in ten years, and Pizza Hut is about to sell an Italian taco to rival Taco Bell’s Mexican Pizza.

 But instead the fact that inflation is still not going away with the reality that an even stronger dollar could trigger the next crisis. So let’s talk about exactly what this means. Why these numbers continue to get worse.

 How this is about to impact your investments. And then finally. What you could do about this to make money on this episode of we are totally although. Before we start. If you appreciate all the research that goes

iAnd as a thank you for doing that, here’s a picture of the cutest nail that I could find on Google.

 So thank you guys so much and also a big thank you to FTX us for sponsoring this video, but more on that later. All right, so before we go into these exact readings and why inflation has yet to meaningfully fall, 

we have to talk about the latest Federal Reserve warning because this gives us a solid indication of what we can expect over the coming few months. Now, to start at the latest FOMC meeting, they made it clear that they anticipate that the US economy would grow at a below trend pace in this in the coming few years, 

implying that our markets will likely remain relatively flat for quite some time. After all, the International Monetary Fund warns that the worst is yet to come for the global economy and for the United States. Forecasts are being lowered as

people are expected to spend less money. Second, it was noted that wage increases could put a greater than expected amount of upward pressure on price inflation, which doesn’t look good, especially when demand remains strong and the labor market continues to be very tight. 

Their concern is that inflation won’t go down because quite honestly, people are still making too much money. So without the unemployment number going up, inflation could remain high. Of course,

 they do admit that there has been a notable slowdown in residential investment and other interest sensitive spending, but they followed that up by saying that a sizable portion of economic activity had yet to display much response, 

The FED Just Broke The Market

giving the impression that they’re looking for a broad decline across the entire market, regardless of how much money you make. Of course, in terms of how long this could last, they said that inflation pressures would gradually recede in coming years and that it would likely be appropriate to maintain

that level for some time until there was compelling evidence that inflation was on course to return to the 2% objective. Or in other words,

 the expectation is that inflation is not going to go away as fast as any of us thought. They’re going to continue raising interest rates for as long as they need to, and then they’re going to leave them there for as long as it takes to make sure that inflation is not going to reappear. However, in terms of what’s happening right now,

 we have to talk about the most recent inflation report because it was a lot worse than many people expected. See, all of this begins with what’s called wholesale inflation. This is an inflation index that measures the cost of goods before they’re sold to the general public. And by tracking this, 

we’re able to see how much prices are increasing every step of the way with this latest report giving us notsogoodness. In September, it was found that wholesale prices increased nearly half a percent month over month, which was

twice as high as expected, and mainly driven by the higher cost of food and energy. For example, the cost of diesel and grains increased by nine two and six 2% in a single month. And that in turn leads to the cost of everything else going up alongside with it. But second,

 we have to talk about the most recent inflation numbers across everything else, because here’s where things get interesting. As of Thursday, October 13, inflation came in year over year at eight 2%,

 which is a clear signal that conditions have yet to improve despite the Federal Reserve’s best attempts at bringing prices down. But in terms of the exact numbers, you’re going to want to hear this. 

Even though we saw a slight decline from August, it’s shown that the vast majority of these gains refueled primarily by the increase of housing, food and medical care, which were each up almost a percent month over month. 

We also saw 1% increase in utility services, a zero 7% increase in new vehicles, and nearly 2% higher transportation

costs. On top of that, core inflation, which excludes volatile food and energy prices, was also up six 6% from a year ago, which is the largest twelve month gain since August 1982. 

Overall, these numbers signal that even though we’re not seeing as much inflation as we did the month prior, prices are still continuing to rise throughout broad categories, and much of that will continue to be impacted by global turmoil and higher energy prices, which both threatened to push up these numbers even further. 

The FED Just Broke The Market

That means that there’s currently a 97% likelihood that the Federal Reserve is going to increase interest rates by another 75 basis points in November 2. 

And it also means we’re likely to see another similar rate hike in December unless inflation begins to come down. But in terms of what this means for the future of your money, the markets and inflation, here’s what you need to be made aware of. 

Because between the US. Dollar crisis, rising energy prices and tax cuts, there is a lot to discuss.

Although before we go onto that, even though the Federal Reserve is expected to deliver another big rate hike in November, 

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The FED Just Broke The Market

That means you’re able to save more money on every single transaction during a time where everything else is costing more. And they allow you to set up an automatic recurring deposit so that you can dollar cost average

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 let’s get back to the video. All right, so before we break down the problems with the most recent inflation report, there is a side effect that’s beginning to gain a lot of attention, and that would be the US. Dollar crisis. See,

 as it is right now, the US. Dollar serves as the reserve currency for the entire world. This means that every country trades in U. S. Dollars because of its resiliency,

stability and global acceptance. After all, imagine getting paid back in Colombia and Pesos only to then try to figure out how to convert that back into your native currency would be a hassle and take a lot of time. 

So instead, we have a reserve currency that everybody has agreed to transact with. However, here’s where things begin falling apart. Because inflation has become a worldwide problem, countries are constantly looking for the best places to park their money. And because the United States has raised their interest rates the fastest and is seen as the most stable.

The FED Just Broke The Market

 Everyone is buying up the US dollar. Simply put, countries are abandoning their own currency in exchange for buying safe haven government backed US. Treasuries. And that means even though our money is losing value to inflation here in the US. It’s increasing in value relative to the rest of the world. Why is this a risk,

 you might ask? Well, without getting too complicated, Bloomberg explains that countries could choose

to limit their exposure by shorting the US dollar as a hedge. And that means that if the US dollar continues going up in price, other countries would have to sell off their own assets to pay for those losses. And so far, that has happened near the end of every quarter in 2022. I

n addition to that, a higher US dollar means that our own exports also become that much more expensive. After all, €1 used to buy a dollar 20 worth of American goods, but now it only buys you $0.97. So everything for the rest of the world is more expensive than it was previously. 

Although, in terms of how our latest inflation report is going to affect these numbers, here’s what you have to consider. What most people don’t understand is that even though the stock market changes direction in a matter of seconds, 

rate hikes will not have an immediate impact on inflation. It’s not like Drone Powell could just say, hey guys, here’s a 300 basis point rate hike, 

nstead, it’s a lot more like turning the knob on an oven where it’s going to take some time to achieve the desired results. In this case, each rate hike is probably not going to have an impact on prices for at least another six to twelve months, with even the Fed vice chair saying that policy actions to date will not have their full effect on activity in coming quarters. So this is not a quick fix. It’s also not likely that inflation is going to return back to 2% any time soon, because even with rate hikes,

 there are still pressures that are keeping prices high. Because of that, most estimates say that we could fall back to 2% inflation sometime between late 2023 and early 2025, with BlackRock estimating that it’s more likely to happen by 2026. Now, 

another point worth mentioning is that employment is also a lagging indicator, and with jobs continuing to increase, it’s likely that the Fed will continue raising interest rates before employment

begins to decline. After all, the Fed wants to stop the heightened growth, they want to reset the housing market, and they want demand to slow down. So there’s a chance they don’t properly calibrate their rate hikes, and by the time we find out about it, it’s already going to be too late. 

Because of that, there’s certainly a lot of comparisons being drawn between 2008 and today. But in terms of what we do know, number one, some of the largest funds are beginning to stockpile cash. From my perspective, 

this makes a lot of sense, because why would you go and take the risk in equities when you could get a riskfree guaranteed four 3% return by buying us Treasuries with no work whatsoever? 

It seems as though a lot of people are taking the wait and sees approach while they keep an eye on the Federal Reserve and inflation. So until these come down, we could continue to see. A lack of growth to the housing market is falling. Like I mentioned earlier, the Housing Sentiment Index is near an alltime

historic low as fewer and fewer people believe that now is a good time to buy. As of today, we’re back at the same confidence level that we saw in 2011, which in hindsight actually would have been a pretty good time to buy. 

The FED Just Broke The Market

But now there’s the concern that rates are going up, monthly payments are getting more expensive, and values have to come back down. Three, the bank of England is in trouble. 

They recently came on record warned that households will face a strain similar to the pre 2008 crisis as their markets begin to crumble. For them, higher interest rates will decrease business activity

, higher prices will lead to less spending, and foreign investment will slow as people begin to sell off their assets. This could probably be a video in and of itself, but as of today,

 the central bank is no longer backstopping bond purchases, which is likely going to lead to a lot more volatility, and four, expect higher unemployment. To me, the writing is on the wall that as companies scale back,

employees are going to be the first to get cut. So I’d use this as an opportunity to make yourself as indispensable as possible and then keep an emergency fund just in case something were to happen. 

But overall, in terms of my own thoughts, even though the inflation report was bad, I have a feeling a lot of other investors were just relieved that it wasn’t worse, and that’s why the market is behaving the way it is.

 It’s also worth noting that everything we see today is a lagging indicator that was based on information acquired a month ago. So what’s happening now is going to take another month to play out. 

However, one thing is clear I’ll be shocked if we don’t get another 75 basis point rate hike in November. So in the short term, we could see a lot more volatility. Of course, in terms of what you can do about it,

 honestly, nothing makes sense. And even though people are calling for the S Amp P 500 to fall another 20%, anything could happen, and we have no idea how much exactly is priced

So the best course of action to me is simply to keep an emergency fund on the sidelines, stay employed and continue buying in as usual. This way, if we see a surprise Santa Claus rally, you don’t miss out.

 But if the market goes down, you get to lower your cost basis. It’s also a good idea to double down and make as much money as you can now while asset prices are falling, 

Golden Bihar
Mahi is the Author & Co-Founder of the He has also completed his graduation in Computer Engineering from Delhi


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