Rate Cuts Are Coming And Markets Are About To RIP

0:00Hello, everyone. Today, all eyes are on Jerome Powell and the Federal Reserve Reserve in Jackson Hole, Wyoming. The big boss gave a speech that peeked behind the curtain for what they plan to do with interest rates in September. And we got all the juicy details for you today. We're live from the desk at Man City Pompliano.

0:25Before we get into Jerome Powell's madness, we have 18 ,629 subscribers on YouTube. And I need your help to get to our goal of 1 million subs. So please make sure that you subscribe to the channel right now. Let's get into it. All right, ladies and gentlemen, today is the Super Bowl for investing nerds all around the world. Everyone was watching Jerome Powell and the Federal Reserve as they concluded the annual Federal Reserve Economic Policy Symposium all the way up in Jackson Hole, Wyoming. Now, this event brings together central bankers, economists, policymakers, and financial market leaders.

0:57It's been held every August since 1982. And I call it the Nerd Super Bowl because it has become the premier global gathering for economic policy discussion. In the past, we saw Ben Bernanke hint at the incoming unconventional monetary policy during the financial crisis. Jerome Powell back in 2020 explained that his framework was changing during that global health shutdown. This year's meeting has been noteworthy because it is widely thought to be Jerome Powell's last Jackson Hole event as Fed chairman. He's been under immense pressure from the president, from the White House, and from the broader public to cut interest rates.

1:29But Jerome Powell, he's passionately resisted all of those calls for monetary easing. Now, you gotta remember, this is the same guy who told the world in 2020 that we should expect interest rates to remain depressed near 0 % for an extended period of time. But then all of a sudden, Jerome Powell woke up, got out of bed, and he changed his mind in early 2022. Powell went on a spree of interest rate hikes that increased the cost of capital at the fastest pace in history. That wasn't good. So now Jerome Powell has a checkered past with following through on what he says he's going to do with interest rates.

2:01That past still has not prevented anyone from tuning in to Jerome's press conference this morning. In his remarks, Powell guided the market to a 25 basis point cut for interest rates in September. It's a big deal. He's finally bending the knee. Now this is a welcomed reprieve from Powell's previous position on the potential cuts. The labor market has somehow become the scapegoat for the Fed's pivot today. They're blaming the labor market for the change of tune. Here you can see Powell explaining the stability of the unemployment rate as a key contributor to his guidance. Take a listen. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside.

2:38A challenging situation. When our goals are intentioned like this, our framework calls for us to balance both sides of our dual mandate. Our policy rate is now 100 basis points closer to neutral than it was a year ago. and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance. Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance. Monetary policy is not on a preset course. FOMC members will make these decisions based solely on their assessment of the data and its implications for the economic outlook and the balance of risks.

3:25We will never deviate from that approach. All right. So as soon as Powell's comments came out, I spoke with my friend Jordy Visser. He told me that the labor market is now more important than inflation. Take a listen to Jordy's explanation right here. Well, I'm just looking as you're speaking, because everything you said would suggest that he's cutting and the markets responded that way. Stocks are up sharply and you have rates moving lower. I think the most important thing about this, Anthony, obviously, from my perspective, that statement about the jobs market has weakened, inflation is still on that side, regardless of whether they're admitting it, they're leaning towards the fact of the jobs market is more important than the inflation side at this point.

4:14And for me, with PMIs rising, all of the prices paid side rising, they will be easing into a situation where PMIs are going up. Now, we still have another CPI report and we have another jobs report. One thing that we haven't talked about on September 9th, I believe it is, there will be benchmark revisions for labor. And the estimates I've seen are anywhere from 500 ,000 to 900 ,000 job losses that will be added to what had happened between into March of 25, which, again, I think they're just leaning on the dual mandate towards the side of the jobs market. and I think moving rates lower at a time when we're already seeing the spending happening, it's a big deal.

5:04I'm going to say it's a big deal. Everything is a big deal when it comes to rate cuts, but in particular, when you already have a strong economy, cutting rates into an economy where PMIs are going higher, I think it's just going to help the market in a significant way into the end of the year. So if we're going to get an interest rate cut, maybe it should be bigger than 25 basis points, right? Go big or go home. And no, I'm not joking. I asked Jordy if Powell should do a 50 basis point cut. Here's what Jordy had to say. I do not think he should do 50. I think, honestly, this is him giving in to some degree, not to Trump.

5:39He's bending the knee, Jordy? Are you saying he's bending the knee? I think he's had enough people internally that have convinced him that the labor market is weaker than the inflation market is out of control. Remember, five months of CPI numbers came in lower than expected until last month. And the last report was not a big deal. The stocks went up sharply on CPI. They came down on a PPI print. So it wasn't even a CPI print. The labor market, on the other hand, had the second largest revision in the history of the data. So I think it's justified to do 25. I also think 50 would be a bad message to the markets, especially with PMIs going higher.

6:21All right. Maybe I got ahead of myself there a little bit. We'll see. I guess Jordy isn't ready for the big guns yet. But regardless, it appears Jerome Powell and the Fed are going to give the people what they want in September. A 25 basis point rate cut is coming. Cheap money's coming, baby. Stocks and Bitcoin reacted positively to this news. Stocks surged 80 points and Bitcoin gapped up from$112 ,000 to$116 ,000 in a matter of minutes. Now, this stance from the Fed is interesting because there are very strong arguments for cutting interest rates. Opening Bell's Phil Rosen writes that the simplest reason the Fed should cut rates in September is because the risks are asymmetric.

6:57It's easier to pause the cuts after you start them than it is to fix a broken job market after delaying the cuts. Phil says that we also have payroll growth collapsing, Consumer spending is softening. The labor market is more fragile than the 4.2 % jobless rate suggests. Core inflation is trending lower at 2.5%. And home affordability is a national crisis. It's very hard to argue against any of those points. Not only are they all true, but lower interest rates could have a profound impact on improving the situation. So regardless of what Powell does with interest rates in September, we know one thing to be true.

7:30History says if you take nine months in between policy moves, it's very bullish for stocks. Phil points out that the S &P 500 is higher 10 out of 11 times when the Fed takes between 5 to 12 months between cuts. That comes with data from Ryan Dietrich. So in a weird way, Jerome Too Late Powell, he may actually be setting up investors to have a bang-bang end to the year in their investment portfolios. If the rate cuts happen in September, as he's guiding towards, the market's likely to fly higher as cheap capital floods into every corner of the financial system. That'd be a good thing for a lot of investors.

8:04We live in an economy that's addicted to cheap capital. Our businesses need it to drive R &D spending and growth. Our citizens need it to afford homes, consume more, and generally have a lower cost of living. And our investors need cheap capital because asset prices are sensitive to the cost of capital. So lower rates are good for America. Are there long-term potential trade-offs? Of course. There's no free lunch here. But if given the opportunity to use monetary policy to grow our way out of the current economic disaster that the politicians have put us in, we got to take it. Let's go. Start acting.

8:37The politicians are never, ever going to stop spending money. Duh. They are allergic to it. They simply can't help themselves. If you give them a money printer, they're going to print money and drive the national debt to the sky. So the Fed has the opportunity to juice the economy by dropping rates. And as we discussed, there are some very obvious data points that are telling us rates should be lower. So big bad Jerome Powell had his big press conference today. He did a lot of talking, but there ain't no action yet. As the poet and scholar Marshawn Lynch once said, I'm about that action, boss.

9:07Let's see if Jerome Powell's old talk or if he's actually going to follow through on today's guidance. The entire nation is watching him. That's it for today's show. Hope you guys are enjoying it. Please remember to follow us on X and also subscribe on YouTube. Trying to get to a million subscribers over there. I'll see you guys live on Monday from the desk of Anthony Pompliano.