URGENT: Federal Reserve Pushes Rate Cuts, Prices Rise, Market Hits All-Time-High!

What's up, Graham? It's guys here, and you got to pay close attention to what just happened. As of a few hours ago, the Federal Reserve decided to once again pause any rate cuts for the foreseeable future. As a result, we are okay.

In all seriousness, there's the concern that inflation is not going away anytime soon because prices are no longer going down. Jobless rates are slowly beginning to rise, and bubble talks are beginning to surface with the stock market continually hitting new all-time record highs. But hey, at least on the bright side, you could still eat cereal for dinner to save some extra money, right? No? No takers?

Anyway, with the stock market pricing in fewer and slower rate cuts than before, let's discuss exactly what's happening, what the Federal Reserve just said, how this is going to impact you, and then finally the implications this is about to have across everything from stocks to real estate to bitcoin to even how much you get paid in the savings account.

Although, before we go into that, I just want to say that I put a lot of work trying to get these videos out, usually within about an hour of when Jerome Powell goes live. So if you appreciate that, all I ask for in return is that you hit the like button and subscribe if you haven't done that already. It helps out tremendously, and as a thank you for doing that, I'll do my best to respond to as many of your comments as possible. So thank you guys so much, and now let's begin.

All right, so in terms of what's going on and why the Federal Reserve was just thrown a massive economic curveball, let's discuss the boogeyman of inflation. Look, it's no surprise the Federal Reserve's entire goal is just to get inflation to return back to their 2% target without sending the entire economy into a downward tailspin.

But in terms of why they want 2% specifically, the answer is because they totally made it up! That's right! This entire 2% policy was the result of an off-hand remark in the early 1990s from New Zealand who said that they wanted to target 1% inflation and then rounded up the 2% to give a margin of error without much economic data behind it, and boom! The 2% policy was born.

Now, in terms of when the United States adopted these policies, was it A) 1990, B) 2001, or C) 2012? Yeah, you can see where I'm going with this. It's C) 2012. Basically, this entire 2% policy is barely old enough to watch a PG-13 movie, and this is what's dictating our entire monetary cycle at this point.

Although, before we talk about just how unbelievable the entire inflation system really is, let's talk about the latest data because it's surprising. See, when it comes to inflation data, there are two different ways to measure the price of goods and services, with the first being to track the price of everything. As you can see, when you track the cost of all items, inflation did increase from 3.1% to 3.2% year-over-year, mainly driven higher by the fact that some categories just aren't coming down.

In terms of these specifics, we could see that energy prices increased by 2.3% in the month of February. Food stayed the exact same, increasing 4% month over month, which is the same as shelter, also up 4%. Finally, services are up half a percent, with transportation rising 1.4% in the last 30 days.

But separate from that, we also have core CPI, which purposely excludes more volatile categories like food and energy since those could be a bit more seasonal. Because of that, this has become the preferred measure of inflation to determine whether or not prices are coming down. Although, in terms of what we saw, core CPI came in higher than expected at 4% month over month.

The problem here is that, for the most part, inflation isn't going away. Instead, some categories are only increasing, and since May of 2023 month over month, it's only trended higher. This has resulted in rate cut expectations being lowered significantly, and in a way, I guess this is something that Michael Burry previously warned about. He said in the past inflation appears in spikes, it resolves, fools people, and then it comes back.

With a chart showing that since the 1940s, inflation never just occurred once and then disappeared, it's also worth noting that even the White House did an analysis on inflation post World War II, and they discovered that in almost every case, inflation took several years to normalize from the peak, and it's never flatlined within a year.

So, with a little bit more context, what we’re seeing right now is completely normal, although we're not out of the woods quite yet, especially with everything going on with the stock market. Look, it's no surprise the overall market has been on an absolute tear, having already increased close to 10% this year alone, with the number of stocks hitting 52-week highs—in fact, I pointed this out back in January.

But as you could see, in all but one case in 2007, all-time highs led to even more all-time highs one year later. Besides the 1960s and 1970s era of stagflation, 3, 5, and 10-year total returns were also positive. This suggests that, based on history, the most likely outcome is that stocks continue to post record profits, or at least more likely than they are to go down.

However, in terms of what's happening today, a lot of the recent momentum is all thanks to one simple term: AI. Like, just consider this: Bank analysts have reported that 67 stocks in the S&P 500 that are related to AI have surged by an average of 45% since the end of November of 2022 when the first iteration of ChatGPT was released.

To make matters even more impressive, year-to-date, the average S&P 500 AI stock is up 3.7% compared to a gain of 1.1% for the non-AI stocks. In a way, this is worrying quite a lot of people who think that this is a sign that the market's in another spectacular bubble that could burst at any moment and then drag the entire market down with it.

So, is there truth to that? Well, we should first mention that in terms of the S&P 500, since it's weighted by market cap, the largest companies make up the biggest portion of the index. Because of that, just seven stocks are responsible for the majority of those returns, with this graphic showing just how significant it really is.

Now, in terms of specifics, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—also known as "The Magnificent 7"—drove 87% of the world's stock market gains in addition to making up 33% of the entire S&P 500. For reference, the last time we saw stock market dominance like this was back in the 1970s, 50 years ago.

Back then, they had a group called the Nifty 50, which included Polaroid, Sears, and Eastman Kodak, which drove the late 1960s bull market. After that, there were the four horsemen of Microsoft, Cisco, Oracle, and Intel that pushed the market higher during the tech boom. Even though we have a similar 7 today, in terms of whether or not we're in a bubble, experts seem to believe that no, we're not.

As Forbes reported, unlike previous ideas that were fueled by rampant speculation of cheap money, today, the leaders in the generative AI boom are largely profitable companies. None of them are money-losing publicly traded stocks, and borrowing money to buy stocks and/or fund companies is less of a factor now.

To complicate those matters even further, of "The Magnificent 7," just Nvidia, Meta, and Microsoft are responsible for the majority of those gains. So when it really comes down to it, thank Nvidia and Mark Zuckerberg for delivering better results than Kate Middleton's Photoshop skills!

Anyway, in terms of what this means for the rest of the market, good news: More than half the companies in the index are higher than they were when the S&P 500 reached its previous peak in January of 2022, suggesting that the rally has more room to run as those stocks begin to catch up, bolstered by greater optimism over the outlook for the economy.

However, in fairness, The Wall Street Journal does reference some of the risks of today's market, even comparing it to a company like Cisco in the early 2000s. Back then, its price-to-earnings ratio of 126 in the year 2000 was clearly overblown, although the issue wasn't being in a bubble, but selling networking equipment to firms that were. When the digital rush ended, Cisco's profit and growth suddenly halved.

This echoes the fact that sure, companies are making money now, but should the market pull back, that could have some pretty big ripple effects throughout the entire economy. Although all of this really pales in comparison to the biggest talk of them all: Bitcoin.

Since the beginning of January, prices have already gone up from $44,000 to $72,000. So what's going on? Well, it seems like Bitcoin is suffering from the same thing as the housing market, which is a lot of demand and not enough supply. The one factor that's contributing to that upward pressure is the Bitcoin ETF.

This works by essentially creating a publicly traded holding company that you could buy into that has exposure to and tracks the price of Bitcoin without you actually having to go and physically buy Bitcoin yourself—or basically, in really simple terms, you're buying into a fund, and that fund owns Bitcoin.

So when you buy into the fund, you own a corresponding amount of that Bitcoin's value. Even though that somewhat defeats the purpose of Bitcoin of total ownership and control, you have to admit it's very convenient, very easy, and evidently very popular. With ETFs, you can now easily get direct exposure to Bitcoin in a Roth IRA, a 401k, and HSA, and a stock market account. It's way easier than buying and transferring to an external wallet yourself.

Now, the downside, however, is that you're not actually going to own the Bitcoin yourself. You can't take direct custody of the Bitcoin, and most of them charge a 0.2% to 0.25% annual fee. But you pay for the convenience, and like I said earlier, that convenience is paying off a lot.

In less than 2 months, BlackRock's ETF passed Michael Saylor's entire stockpile in less than a week. The entire market saw a $2.7 billion inflow of capital, and with only 450 Bitcoins mined per day beginning in April, there might just not be enough Bitcoin to go around without the price going up.

As Yahoo points out, since the beginning of February, ETFs have been purchasing an average of 3,500 to 4,300 coins each day. That's considerably more than the 900 coins being created each day by the Bitcoin network over the same period. Because of that, price predictions for Bitcoin have been all over the place.

The asset manager of 3IQ says that its mid to high-range price target for Bitcoin this year is between $60,000 and $180,000. Next year, it anticipates an eye-popping target of $350,000 to $450,000. Another analyst also arrived at a $150,000 price target by assuming $10 billion inflows for 2024 and another $60 billion for 2025. Well, Kathy Wood believes that one million Bitcoin could happen around 2030.

However, I will say that others are still quite skeptical, like Jamie Dimon, who compares Bitcoin with smoking. At the end of the day, objectively, it's still very risky and highly volatile. We have already seen several 80% drops over the last 7 years. So if you buy in, just expect that anything can happen.

Although, speaking of the fact that anything can happen, before we talk about Jerome Powell's latest announcement, let's talk about what's happening with the housing market. As Jerome Powell said, the housing market is in a very challenging situation right now, and interest rate cuts alone won't solve a long-running inventory crisis, which for anyone wondering amounts to a shortage of 3.5 to 5.2 million homes.

But even when interest rates do eventually come down, Jerome Powell was quick to point out that we're still going to be back to a place where we don't have enough housing. That's partly the reason why the top markets right now are going to be the Northeast and Midwest, where prices tend to be lower and more affordable.

For example, Realtor.com forecasts that, in Toledo, Ohio, existing home sales will surge 14%, and home prices will rise 8.3% this year. Rochester, New York, is also positioned for above-average home price gains of 10.4%. On the other hand, more trendy neighborhoods will fall significantly, like Austin, which is projected to decline 12.2%, St. Louis at an 11% drop, Dallas at an 8.4% decline, and Denver at a 5.1% decline.

Although, nationwide, there is some good news in the fact that inventory is beginning to rise. According to Zillow, new listings are up 21% in February compared to last year, and they rose 20% from January. This is also evidenced by the fact that more homeowners plan to sell their home in the next 3 years, possibly with anticipation of interest rates eventually going back down.

In addition to that, some areas are starting to see more price reductions, with the largest coming in through Florida, Louisiana, Tennessee, and Texas—basically, the areas that saw the biggest price growth are also the same ones seeing the most selling pressure.

Now, in terms of rent, well, that's an entirely different story. Zillow found that rents are now up 35% from last year, lifting the income needed to comfortably afford a typical rental to $78,000 a year. Apparently, while new apartment construction and inventory remains elevated, the increasing population is absorbing these units enough to keep vacancy rates close to pre-pandemic norms.

It's also worth mentioning that single-family home rents are increasing higher than the average at 4.8% as Millennials begin having families. This is also likely to have an impact on inflation later this year since shelter makes up a third of the overall index.

And in terms of what Jerome Powell just said, here's what you came for. As we already expected, they're going to remain tough on inflation until they're sure it's calming down and staying down for good, but the path isn't as simple as people want it to be.

That's because every quarter the Federal Reserve releases what's known as their summary of economic projections, which basically encompasses their overall expectation on employment, inflation, interest rate hikes, and other metrics associated with the economy. In terms of what happened this morning, you're going to want to hear this.

According to their projections, they forecast core inflation coming in at 2.6% by the end of the year, dropping to 2% by 2025, and finally ending at 2% by 2026. In addition to that, they also believe that the unemployment rate is going to increase slightly to 4% this year and then remain relatively flat throughout the next two years.

In terms of what this means for interest rates, they're still expecting the full three rate cuts this year, ending at 4.6% and then slowly tapering off until eventually, they reach a long-term federal funds rate of 2.6%, which of course is a bit higher than expected.

Of course, they're also grappling with another ominous signal that people are only beginning to talk about now, and that would be the banking crisis. Yeah, again, in this case yesterday, CNBC pointed out that out of 4,000 U.S. banks, 282 institutions have both high levels of commercial real estate exposure and large unrealized losses from the rate surge. This includes banks whose commercial real estate loans made up over 300% of capital and firms where unrealized losses on bonds and loans pushed capital levels below 4%.

Jerome Powell even acknowledged this by saying that commercial real estate losses are likely to capsize some small and medium-sized banks. This is a problem we'll be working on for years. I’m sure there will be bank failures, and yeah, that's not a great sign.

In addition to that, like I mentioned before, studies have found that stocks tend to drop after the Fed begins cutting rates. In this case, it's not the rate cuts themselves that force the market to drop, but rather the Fed only tends to lower rates when something breaks, and that's why the market reacts negatively.

Perhaps that could occur during a banking crisis because the Fed keeps rates higher for longer. But then again, I'm absolutely clueless. I know nothing about the markets. Do not listen to me whatsoever. I'm just a random guy on YouTube.

Anyway, besides that, they've reiterated that they want inflation to return back to their 2% target, and that means we're likely not going to see a substantial rate cut anytime soon, at least until inflation subsides.

So, in terms of what you could realistically do about this, number one, avoid these mistakes. A recent survey found that 80% of Americans have financial regrets, and part of that stems from the fact that 48% of those people don't have enough money to last three months if they were to lose their source of income. This means their top regrets include not having a big enough emergency fund at 28%, not investing aggressively enough at 25%, and not buying a house when they were younger at 22%.

In addition to that, more than half of Americans said that good financial advice helped them manage their budgets. In terms of what that advice is, there seems to be three universally accepted strategies, with the first being live within your means. By and large, this was the one factor that everyone overwhelmingly agrees with, regardless of age.

But I say we take it one step further and change that to live below your means, which would allow you to save the difference. For example, if you make $60,000 a year, do your best to pretend that you only make $45,000. All of a sudden, those savings are going to start to really add up, and you'll put yourself way further ahead by doing this.

Second, in terms of other good financial advice, this survey found that establishing credit was also ranked near the top of the list, with 85% saying it was very important to maintain a good credit score. Seventy percent of people even said that it's never too late to begin building your credit and that it's important to have credit cards early in your life.

Of course, if you do that, just be sure that you don't spend more money on a credit card than you would paying cash, and always pay off your card in full by the time it's due. That way, you're never going to have to pay a dollar of interest.

Finally, third, 75% say that owning a home is a great way to build wealth. Of course, in terms of managing this effectively, 69% say that buying a fixer-upper is a smart financial move if you're handy. Sixty-eight percent say that a large down payment is better than a large mortgage, and 60% reiterate that refinancing your mortgage when rates decline is a good idea.

Now, as a real estate guy myself, I agree with all of these. I've always advocated for people to go and buy a home that's a slight fixer. This includes things like paint, floors, kitchen, bathroom, landscaping—name it! Definitely don't take on any structural or foundational issues, but if it's purely cosmetic, usually those are things that could be done within about a month or two. They're pretty easy. Most contractors know exactly how to do it, and hopefully, you'll be able to save some money instead of going and buying something that's fully done.

Lastly, as far as the down payment is concerned, at these interest rates, it shouldn't come as a surprise: A larger down payment is going to save you a lot of money over the lifetime of the loan, and if you could refinance to save money in the future, do it—especially if you're going to be in the home at least another 7 to 10 years.

So overall, in terms of my thoughts on the Federal Reserve meeting today, I have a feeling that we're going to see fewer rate cuts than expected, and they're going to be smaller than expected. I understand that there's been the belief that we'd have three rate cuts this year, most likely at 25 basis points each.

But I can't help but think that we're not going to get our first rate cut until July, at the very earliest realistically September. Then after that, they're going to want to wait a few months for more data to come in before cutting again, if necessary. And then that puts us to December.

This is because they've made it clear that unless inflation meaningfully declines, and it seems to be on a permanent decline, they're not going to lower rates, and I believe them when they say that. Just think of it this way: If they lower interest rates during a time where inflation is still sticky, they risk their entire plan, and if inflation goes back up, they'll look like idiots.

On the other hand, if they hold rates steady, then nothing really happens because the economy is strong, the job market can handle it, the stock market is doing quite well, and unless something breaks, they don't have an incentive to really lower rates as fast as people want them to.

But then again, I know nothing. I'm a random guy on YouTube; you shouldn't be listening to me. And I want to get your thoughts down below in the comment section. I'll do my best to read as many of them as I can.

So thank you guys so much for watching, as always. Hit the like button, subscribe, and until next time!