Today we're
going to talk about the Federal Reserve and how they've raised the rates
or the ninth time. More specifically, who are the losers
and who are the winners going to be from the federal funds increases
and where is it, Haddie in 2023? And make sure you stay till the end,
because I'm going to talk about why I still believe it's
going to last for a while. So a great graphic is the Federal Open
Market Committee member projections for the appropriate target
level of the federal funds rate at the end of each specific year
going from 2022 all the way to 2024, And each
dot represents a committee member. Prior to this week, the federal funds rate was four
and a half to four and three quarters. This week they raised it again
amidst all the banking issues, another quarter point,
which now brings it to 4.75 to 5%. What I want everyone to understand
is that in each committee meeting, they've raised rates unanimously nine times without any contention
and says this represent that's all of 2023, as you can see here. What I really want you to focus on all the members projections for 2023,
because all of them believe that rates need to continue to go up
even more to combat inflation. They hit the Federal Reserve's target of
2% inflation, which is now well over 6%. So why do I put a chart up like this? Because the Federal Reserve's
own committee members projections are
that they're going to continue to have to bring interest rates up
even more in 2023, and you should not expect rate
cuts in 2023. So the Federal Reserve
is between a rock and a hard place because inflation affects everyone
and everyone is in trouble right now with the rising prices, rising
interest rates slow the economy down, which is exactly
what the Federal Reserve's trying to do as they try to lower inflation,
which helps everyone put on your seatbelt, folks,
because you're going to continue to see rate increases through 2023
until the inflation rate comes further down to the 2% target
that the Federal Reserve has publicly said to everyone
that it's trying to accomplish. But for this video, I want to focus on
who are going to be the losers and who are going to be the winners. The first thing is
if you're sitting in a lot of cash or you're a saver,
you're definitely going to benefit. Make sure that you're taking advantage
of some of these banks that are offering three, four and even 5% savings
rates to try to get your deposits. But of course, you've got to be careful
which bank you're part of your deposits in, especially with what just happened
in the last couple of weeks. The second winner is going to be
the lenders that have variable rate debt, not fixed debt, because that is exactly
what got a lot of these banks in trouble. As these interest rates have gone up, It's benefited lenders
that have variable rates, but it's also hurt
the borrowers of those exact same loans, bonds are also a good thing
to get into right now because the bond market is somewhere
between three and a half and four and a half percent,
depending on when you buy them. The rising bond market is exactly
how some of these banks got in trouble because they bought the bonds
when they were cheap. Now they're higher. And when the depositors wanted their money
back, they had to cash in those bonds and take the losses
which they didn't have. Now, the dollar, that's a little more controversial
because some people are going to say we're printing all these dollars
is making the dollar go down. And if you look at the D, x,
Y, which is the indicator for the dollar, you're going to see that that's true. But historically, as interest
rates have gone up, it's actually strengthened the dollar. So this is something to watch, not just
in the short term, but in the long term. And I believe that the government
is trying to make a stronger dollar. The other side of that, of course,
is it hurts exporters because U.S. companies products are more expensive
to the entire world. Now, I put inflation here as a winner,
even though it's over 6%. But this is exactly
what the Fed's trying to do. And we're hoping that it will tamper
and lower inflation for everyone because it's creating havoc
for people day to day. Living on the loser side,
we should definitely continue to see lower auto sales, lower real estate
sales. People with credit cards are now over 20%. I've heard as high as 30%
for credit card debt. And of course, the home equity
line of credit that are typically variable are also going to be higher,
as you would expect are primarily around borrowing costs
as the cost of interest goes up or the borrowing costs
spending goes down in these categories, or they hurt people
that already have variable loans. So we should see a continued drop in sales
for autos, a continued erosion in the real estate
market, as we're already seeing across most of the United States. Credit card debt will continue to go up
because that's a variable rate. And people who have credit card
debt are now going to be paying more for the exact amount of debt that they had
before because the rates have gone up. The home
equity line of credits are also variable and we're seeing these now over 7%
when they just a year ago they were somewhere in the mid thirties
mortgage rates, even though we've seen them go down just in the last week,
are going to continue to be a problem as people try to buy a home
that's going to push them more into rental housing,
creating more of a demand in that area. Oh, the first chart I showed you
that the Fed committee themselves believe that are going to continue
to have to raise rates into 2023. And I really like this headline, which is the Fed has given Americans
a harsh lesson and a lag time. And you guys all know that. I've talked a lot about lag,
where you drop a pebble in the water and the processional rings, take a while
to get out to the edge of the lake. This is what's happening right now
with interest rates. And it's summarized best in this one
short statement about monetary policy. It says Monetary policy takes time to work
through the economy. Some estimates say
that it could take about a year or might even need up to three years
to have much impact on inflation. After all,
wages are often dictated by contracts and rates are set for a year
or more in advance. Raising rates
increases the cost of borrowing, which reduces investment, which is what
the Fed's trying to do, lowers hiring and wage growth,
which is also what the Fed's trying to do and eventually increases unemployment
before inflation comes down. It's far from an exact science,
but that is the theory. So what we're just seeing now is just
a little bit of inflation going down, but we are not seeing unemployment
go up like they had hoped. The quarter point increase
was not surprising to me. And the fact that the Federal Reserve
still believes that they need to raise rates through
2023 is certainly no surprise. So in the chart down below here is a
five year chart of the federal funds rate. And as you can see, it's somewhere
in about March or April of 2022. The Federal Reserve
first started to increase rates. Of course, that's only 12 months ago. And the chart to the right shows how
it's increasing and where we are today. Most economists believe that it's 1
to 3 years before these rising rates start to impact the economy and lower inflation
the way that the Federal Reserve wants. What's mostly important to note here
is that right around here, inflation was at 9.1% in June of 2022. As you can see, the Federal Reserve continue to raise the federal funds rate
during this period of time. And of all of those raises,
it's still at 6.4% today. So this truly is a lesson in a lag. And we are definitely going
to see a slowing economy in 2023 and we might even see more in 2024. So this is the year for you to build up
cash and get ready for when prices actually start
to really significantly lower, because I don't really believe
we've seen anything yet. For those of you trying to figure out where
all this is heading, you can join us at Limitless
this year on June 15th at the 17th in Scottsdale for Limitless,
just go to Limitless Explode. And I actually have Joseph Wang,
who used to work at the Federal Reserve, is going to be talking about this. He has a book called Central Banking
one on one, and he's going to explain this in more detail, but more importantly,
hopefully tell us where all this crazy nonsense is heading
so that we can better make decisions and our purchasing and acquisitions in
late 2023 and hopefully 2024.
