The Fed Just Confirmed the Money Printing Pivot!

Interest Rate Cut and End of Quantitative Tightening [00:04]

• The Federal Reserve concluded its meeting by cutting interest rates by a quarter point, setting the Fed funds rate at 4.0%.
• A more significant decision was the conclusion of quantitative tightening (QT), with the reduction of its aggregate securities holdings ending on December 1st.
• This marks the end of the Fed's balance sheet runoff.
• The sequence of events is predicted to be: interest rate cuts, followed by the end of tightening, and then a return to money printing in 2026, leading to a resurgence of inflation.
• This strategy is driven by the Federal Reserve being in a corner with no other options.

The Fed fund's interest rate is now at 4.0%.

December Meeting Uncertainty and Committee Views [01:31]

• The next Federal Reserve meeting is scheduled for December 10th, where a decision on further interest rate cuts will be made.
• Prior to the press conference, there was a 92.8% chance, according to the CME Fed watch tool, of another rate cut in December.
• However, Fed Chair Jay Powell stated that a further reduction in the policy rate in December is not a foregone conclusion and that a decision has not yet been made.
• There were strongly differing views among the 19 participants on the committee regarding whether to cut rates in December.
• Some Fed participants believe they are currently at a necessary level for interest rates.

And at a time when we have tension between our our two goals, we have uh you know strong views across the committee and as I mentioned uh there were strongly differing views today and uh the takeaway from that is that we haven't made a decision about December.

Impact of Government Shutdown on Data and Policy [04:42]

• The Federal Reserve states it is data-dependent, particularly on labor market and inflation data.
• A government shutdown has resulted in a lack of government labor market data, raising questions about its impact on the December decision.
• Powell indicated that the shutdown makes it more difficult to make a move in December and that the Fed will collect every scrap of data available.
• He likened the situation to driving in fog, suggesting a need to slow down if data is unreliable or unavailable, implying a possibility of increased caution.
• The Fed hopes to have a better flow of data by the December meeting but will proceed with its job regardless.

You know this is a temporary state of affairs and you know we're going to do our jobs. We're going to collect ev every scrap of data we can find, evaluate it, and think carefully about it.

Inflation Commitment and Tariff Impact [07:33]

• The Fed remains absolutely committed to returning inflation to 2%, a commitment seen as credible through longer-term surveys and market pricing.
• Powell expects tariff inflation to continue but anticipates it will be moderate and transitory, with prices plateauing after an initial rise.
• Tariffs work their way through the production chain and eventually to consumers, with effects from previously implemented tariffs already visible.
• While specific products may see significant price increases, the overall impact on inflation is projected to be modest, perhaps adding two to four tenths of a percent before stabilizing.
• Once the last tariff is in place, it represents a one-time price increase, and measured inflation is expected to return to non-tariff inflation levels.

But if you put tariffs in effect and they've been coming into effect consistently in, you know, February, March, April, May, and that's all happening. So that'll continue to happen for some time, probably into the spring.

Transition to Money Printing and Public Sentiment on Inflation [09:55]

• The Fed is moving into a new phase, starting with stopping money tightening and then progressing to money printing, though the timeline remains vague.
• The pause is expected to last "for a time," indicating a strategic vagueness as the Fed anticipates a breakdown in the financial system that would necessitate money printing.
• The balance sheet has declined by $2.2 trillion over three and a half years of shrinking, falling from 35% to about 21% of nominal GDP.
• In December, the Fed will enter the next phase by holding the balance sheet size steady for a time.
• Public unhappiness with inflation is linked to sustained high prices from 2021-2023, not just recent price increases.
• It will take time for real incomes to rise and for people to feel better about the inflation situation.

As real incomes rise it will feel better over time but that's going to take time.