NEW FED STIMULUS WARNING | FREE MONEY + INFINITE SPENDING

What's up, you guys? It's Graham here. So today, I'm going to be pulling a Meet Kevin and posting a brand new video within hours of a market update. And today, that update comes from none other than Jerome Powell, who is the chairman of the Federal Reserve. By the way, quick reminder to J-Pal: smash that like button until it turns blue because today this message signals the outlook of the next few months of our economy.

What banks are paying you for interest, and what this means for all of us moving forward. It was a quick background for anyone not aware: the Federal Reserve is the almighty power that influences some major aspects of our economy, which I'm going to be describing right over here at my desk.

First, they monitor and manage the inflation of our currency. So if they see that inflation is low, which means the value of our currency remains relatively unchanged year by year, they would be able to essentially lower interest rates. This means money is now cheaper to borrow, which means more money is going to be flowing back into our economy. That increases business growth, allows people to reinvest, and that in turn helps our entire economy prosper.

However, if they see that inflation is increasing too quickly and the amount of borrowing is starting to get a little bit out of control, they could choose to raise interest rates, which restricts the amount of money flowing into our economy. This means people borrow less, and that in turn means the value of our money does not become completely worthless.

Just imagine it like the Federal Reserve trying to regulate the temperature of bath water to exactly 90 degrees; when it gets too cold, they'll turn up the heat, and when it gets too hot, they'll dial the heat back and then turn on some of the cold. Well, that's exactly what they're doing with our economy, except instead of a lukewarm bath, it's the strength of our dollar, and instead of hot and cold water, it's high and low interest rates.

Second, the Federal Reserve also regulates banking activities and makes sure that they operate within a strict set of guidelines. That means that the Federal Reserve can require banks to keep a certain amount of cash in reserves and that they comply with regulations. They're also going to be monitoring banking settlements, so anytime you move money from one account to another or you write a check to somebody, they're gonna make sure it's all accounted for.

Third, they'll provide banking services and other policies to ensure financial stability within the markets. That means if some banks are having liquidity issues, the Federal Reserve can step in to help out. If some banks are having issues offloading their loans, then the Federal Reserve can come in and promise to buy those loans.

Within the last few months, the Federal Reserve has stepped in a lot. Here's an outline from CNBC showing you just how much the Fed has intervened in the markets in the last two months. They began by cutting interest rates out of nowhere by half a percent. This spooked a lot of investors who thought to themselves, "Wait a second, why are they doing this out of nowhere all of a sudden? Do they know something that they're not telling us? Are they worried about something happening? Should I be worried about it?"

And now we know the answer to that was a yes. They were preparing us for today. Then, after that, they reduced interest rates by another 1%, down to almost nothing, meaning that they wanted more money flowing into the economy because otherwise, if people stopped spending, that could send us into a very quick recession.

Then shortly after that, they promised to facilitate lending between different institutions and help provide more liquidity to businesses that needed it the most. Within a week later, the Fed announced that they would be buying an unlimited amount of corporate bonds to keep the market stable during a time where no one else was buying corporate bonds.

They did this in a move to keep our markets from completely collapsing during a time where everything was pretty much seized up. After that, they also stepped in with credit programs for businesses in need of money. They also made that money more accessible for people banking with Wells Fargo, which, by the way, it's probably not a good idea to bank with Wells Fargo anyway.

Then, they ventured into buying junk bonds from companies who have been recently downgraded because of the illness. So, as you can see, the Federal Reserve has pretty much swooped in, made sure everything didn't completely crumble apart, and they say they'll do anything in their power to make sure we get through this okay, the other side as stable as possible.

But now, today, it provides an interesting look into how the Federal Reserve is intending to proceed moving forward. And now, this is what's being done: Jerome Powell said that interest rates will remain unchanged near zero, and it will employ its full range of tools to support the US economy as the illness continues to wreak havoc.

He also said they'll keep buying Treasury and mortgage bonds to help keep rates low and to ensure the companies can continue to lend easily. In other words, all this means is this: the Federal Reserve has made it very clear that they're gonna be doing anything in their power and everything they could possibly do to make sure our economy does not completely fall apart.

They'll step in if they feel like things are really getting too bad. Like if banks can't offload their loans, the Federal Reserve will step in, buy those loans, give banks more liquidity, and that way banks can continue lending. Or if banks don't have a reserve requirement, they'll have more money left over to use elsewhere.

If more money is flowing into our economy, even more people could stay afloat longer until we recover. And finally, if more people smash that like button, then it helps the algorithm after all. At least in the short term, it would be a lot more devastating if people didn't have any money, businesses shut down, people were perpetually out of work, they ran out of money, they went to the bank to try to get a loan, and banks aren't lending.

Then people can't make their payments. That would be a lot worse than the Fed injecting and intervening with more money up front. In a way, our economy is a bit like a college student with a really bad spending habit who keeps that spending habit and doesn't want to improve it because they know, you know, no matter what happens, if things get really bad, mom and dad are gonna step in to help.

It's kind of like what the Federal Reserve is doing, except on a much bigger scale. And give it all that, it does bring up the concern of eventual inflation or deflation because if so much money is pouring into our economy at the same time as people are losing jobs, eventually that money has to come from somewhere, right?

So even though this concern was addressed by a reporter during the press release, even dissipate that we might see any kind of deflation, even for a very short period, that would require a Fed response if we get a negative print on CPI or PCE.

How should people think about that? During the global financial crisis, there was a concern that we might see deflation, but it didn't happen. Inflation expectations tended to move down a little bit, as it will when demand is weak, but inflation expectations did not move strongly down. Here in the United States, I would say as long as inflation expectations remain anchored, then we shouldn't see deflation, and the Federal Reserve is strongly committed to maintaining 2% inflation over time.

So we'll be there to work on that eventually. In my opinion, as some guy on the internet, I just think at some point, something needs to change. My thought is that at least at this point, we shouldn't have too big of a concern over inflation because the markets are so uncertain.

A lot of people are out of work; they're not spending money, either stuck at home, and because of all of that, there's no real upward push in prices. But one day when people's confidence comes back and they go back to work, and all of a sudden they have some money to spend, then at that point, I would begin to worry that maybe inflation could rise, at which point I have a feeling the Federal Reserve would step in again to make sure it doesn't get too out of control.

Until then, I would say deflation is likely going to be the biggest concern, and that happens when our cash becomes more valuable the longer we hold on to it. So we hoard cash and not spend it because prices keep falling. That's really bad for the economy. I have a really in-depth video about this, so they've made about a few weeks ago.

So if you guys are interested in learning more about that, I'm gonna link to that video down below in the description. During the press release, it was also brought up that the Federal Reserve is essentially propping up the stock market with these fiscal policies.

There is a disconnect; it appears between the markets and the economic outlook right now. I know you said that this isn't the time to worry about moral hazard. Are you worried with the size of stimulus that you and Congress are putting into the economy? There could be financial stability problems if this goes along.

And to that, I'll paraphrase what Jerome Powell said by saying something like, "That's not our main concern right now, and it's more important to make sure the businesses are able to stay afloat and keep people employed than worry about the stock market becoming disconnected to reality."

He has a point. Keeping our economy alive is gonna be a much bigger concern than stock prices. But I think it's also equally as important to acknowledge that yes, by keeping businesses afloat and giving them as much money as they need to, they've inadvertently propped up the stock market with money that will one day either have to be repaid back through higher taxes or potentially inflation.

And no, thankfully it doesn't look like the Federal Reserve is gonna be dropping interest rates into negative territory, which is basically another word for saying instead of you paying interest on your loan at the bank, they will literally pay you to borrow money. Likewise, instead of earning one-and-a-half percent with a bank, you would have to pay the banks to hold your money.

Something like this would really push people to go and spend their money, invest it, do anything with it except hold it within a bank account. But we're not there, and that seems highly unlikely to ever happen.

All in all, here are my thoughts: I'm glad they're leaving interest rates unchanged, and I'm glad they're keeping it that way for quite some time. It's good for the economy to know that if things ever get too bad, the Fed is willing to do anything in its power to maintain stability.

So overall, we do have a bit of a safety net in case things get worse. Only time is going to tell exactly how this plays out, but they made it very apparent that their number-one concern is making sure everything is okay first.

Then once all of this blows over, we could address the inflation and any other impacts this has later. It's a bit like a kid saying, "I'm not gonna clean my room today, I'm gonna clean my room tomorrow." And then tomorrow comes, it's like, "You know, I'll clean it tonight." And then tonight comes, "Like, I'm tired, I'll do it in the morning."

And here's the thing: there's never gonna be a perfect time to go and clean the room, so I think it's at least worth addressing these concerns now up front and start thinking about how we could solve this long-term.

But again, it's safety first, economy second, stock market third, and smashing the like button fourth with the YouTube algorithm if you have not done that already. So with that said, you guys, thank you so much for watching. I really appreciate it.

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One of those stocks could potentially be valued for $1400. So if you want a stock potentially valued up to a lot of money, make sure to use that link down below. Let me know what two free stocks you get. Thank you so much for watching, and until next time!