URGENT: Federal Reserve Freezes Rates, Stocks Decline, Housing Falls

What's up, Graham? It's guys here, and we've got some pretty serious news. After hitting some of the highest interest rates that we've seen since 2001, the Federal Reserve has officially made their decision today to pause the rate hike for the month of September. Although, unfortunately, this only appears to be temporary. After all, recession indicators are still flashing red.

After some rather significant warning signs, mortgage demand has fallen to levels not last seen since 1996, and Americans today are more worried about running out of money than they are of death, which is saying a lot, especially with one survey predicting that people could run out of money as soon as October.

So, given these recent changes, let's discuss exactly what's going on, what the Federal Reserve just said, the implications throughout the entire market, and then what this means for you, because there's a lot going on that most people are not talking about. Although, before we start, as usual, if you appreciate me scrambling to get this video out within hours of the news, it would mean a lot to me if you hit the like button or subscribe. That's it.

And as a thank you for doing that, I will do my best to respond to as many comments as possible, so thank you guys so much. And also, a big thank you to ShipStation for sponsoring this video, but more on that later.

All right, now before we go into some of the biggest dangers of the market when it comes to rate hikes, one of the single biggest factors is what's going on with inflation. Recently, prices are still continuing to rise. That's because on September 13th it was revealed that overall inflation across all items rose by 3.7 year over year, up from the 3 percent that we saw back in June.

So what's going on? Well, in terms of the categories that saw the largest price increases, at the top of the list we got food. Surprisingly, frozen vegetables are up 14.7 percent year over year, salad dressing is up 12.1 percent, uncooked beef is up 10.7 percent, and chewing gum is up 9.4 percent. We also have car insurance, which is up 19 percent from a year ago, likely because both labor and materials are 17 percent more expensive today. If you need to repair, shipping fares are up almost 10 percent, which our sponsor ShipStation is able to help bring down.

And here's the biggest one: rent of a primary residence is up 7.8 percent, which makes up a third of the overall inflation reading. On top of that, gas prices are also up 10.6 percent in the month of August, and this combined with rent has led to one of the biggest jumps in inflation that we have seen since the peak of June of 2022.

However, even though this sounds absolutely disastrous, the Federal Reserve prefers another inflation metric when it comes to determining the rate hikes, and that would be core CPI. This purposely excludes more volatile categories like food and energy, which could be a bit more seasonal. And when you take those items out, this number actually went down from 4.7 in July to 4.3 percent in August, which was largely in line with expectations.

Because of that, though, it's really housing that's pushing up inflation beyond the Federal Reserve's target. In fact, according to the chief economist of bright MLS, excluding shelter from CPI would have resulted in an annual increase of only about one percent, implying that the Federal Reserve would have already hit their two percent target if not for those meddling landlords continuing to raise their rent.

Okay, jokes aside, in terms of when this might eventually come back down, it's said that rent growth has slowed considerably, and median rents nationally fell year over year in August. However, it takes months for those aggregate rent trends to show up in CPI measures, so even though this explains why we're seeing some rising prices.

While we're on the topic of housing, let's talk about what's going on in the markets because there is a lot to break down. On the surface, national housing prices have increased overall by two and a half percent from a year ago. Although when you account for mortgage rates having increased, your monthly payments are 19 percent more expensive than a year ago, meaning it's really costly to buy a house.

According to CoreLogic's recent report, the annual re-acceleration reflects six consecutive monthly gains, which drove prices some five percent higher compared to their bottom in February. They also go on to say that the 11 states that saw the largest home price declines were on the West. But since many of those markets have inventory shortages, that trend may be short-lived, and recent buyer competition will cause prices to heat up again.

It should also be no surprise that one of the main reasons housing prices are so high is simply because of a lack of inventory. After all, mortgage rates are so high that anyone with an existing loan doesn't want to sell and get rid of it to just get a new one at a more expensive rate.

Now, the good news for buyers is that inventory is slowly building up on the market, albeit really slowly. But the bad news for sellers is that fewer homes are actually getting sold. Now, surprisingly, this does not mean that sellers are lowering their asking prices; in fact, the opposite is actually happening with fewer price reductions than a month prior.

Why is this happening? Well, it's theorized that sellers who don't get their price are simply taking their home off the market and then waiting for a better time to list, maybe next year. It's also suggested that we're not going to see many price reductions until the entire housing market really deteriorates, which is just not happening right now.

Of course, in terms of where this might go in the future, it's suggested that because inventory is lower today than it was a year ago, that's an indication that home prices for 2024 will be roughly flat compared to now. Though that's not the only part of our economy that's seeing an absolute frenzy because we also have car prices.

Look, it's no surprise the cost of automobiles is getting out of control. Since 2012, the average new car has increased from thirty thousand dollars to more than forty-eight thousand dollars, outpacing inflation by a wide margin and leaving a lot of people to wonder how much longer could this possibly go on for before prices come crashing down.

Well, as of right now, the average new car payment is coming in at a whopping 729 dollars a month during a time when the average American is running out of money. But the good news is that those prices are beginning to decline, with today's prices coming in six percent less than a year ago.

On top of that, a recent report from UBS found that global car production will exceed sales by six percent this year, leaving an excess of five million vehicles that will require price cuts to get sold off. This also suggests that prices could begin to decline by the end of 2023 or early 2024. And depending on the manufacturer you're buying, this could already be happening.

Like for example, with Tesla, in the beginning of September, they drastically reduced the price of their cars by a long shot. And when you compare today's prices with earlier this year, it's pretty shocking. For example, the price of a new Model X was a hundred and twenty thousand dollars in January. Now it's eighty thousand dollars. The Model S used to be a hundred and four thousand dollars; now it's seventy-five thousand dollars.

An August report from Kelly Blue Book also found that new EV prices dropped about 19 percent from June of last year, showing us that prices are finally beginning to normalize. Although before we go to the latest Federal Reserve announcement and what this means for you, there's one more inflationary measure that needs to be discussed, and that would be upcoming consumer sales.

That's because online retailers are already gearing up for some of the busiest months of the year, and when it comes to shipping, there's a bit of a problem. First of all, not only are shipping costs significantly higher today than they were prior to the pandemic, but for all of you entrepreneurs, or for anybody who runs an e-commerce business, as I'm sure you've seen, it's incredibly challenging and time-consuming to keep track of all of your orders. Thankfully, our sponsor ShipStation is there to help.

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And now, with that said, let's get back to the video. All right, now in terms of the latest Federal Reserve meeting and what just happened, here's what you came for. Like I mentioned earlier, the Federal Reserve decided to pause the rate hike for the month of September until they could get a more definitive direction of how bad inflation really is.

This means their stance is largely going to remain unchanged until their next meeting on November 1st, at which point there's a small chance that we might see another 25 basis point rate hike if it's needed. They also anticipate that housing, which makes up the largest portion of that index, will be coming down over the coming few months as new leases are priced at today's rates, which is less expensive for the first time in years.

In fact, the chief economist at Realtor.com said that this is yet another sign that rental-driven inflation is likely behind us, even though we might not see this trend in official measures until next year. It's also clear the Federal Reserve understands this and that they're anticipating this in future meetings, which means we could be near the end of our rate hikes, assuming, of course, that we don't see any drastic changes over the coming few months.

Now, don't get the wrong idea, because as of right now it seems unlikely that they're going to be lowering interest rates anytime soon, at least not until inflation is well below the two percent target for quite some time. In terms of when this is, the market's not pricing in the likelihood that this will happen until September of next year.

And if you don't believe me, here's the proof. So in terms of what this means for you, the market, and your money, here are my thoughts for what it’s worth. Earlier in the year, Michael Burry mentioned that in the past, inflation appears in spikes, it resolves, fools people, and then comes back, with the chart showing that since the 1940s inflation has never just appeared once and then disappeared.

In fact, in every circumstance through today, inflation will decline, people celebrate by spending more money, and then it reappears for as long as a decade. It's also worth noting that even the White House did an analysis on inflation in post-World War II, and they determined that in almost every case, inflation took several years to normalize from the peak, and it's never suddenly flatlined.

So even though we are seeing some good news with inflation declining, we're not entirely out of the woods just yet. Like remember how I mentioned earlier that there were these recession indicators? Well, the inverted yield curve, which has correctly predicted the last seven recessions, has officially been inverted for the longest time ever in history at 212 days.

Because of that, the market is pricing in the belief that the Fed will be forced to lower interest rates to stimulate the economy, and if they could successfully do that before something breaks, then there's a chance the inverted yield curve could be wrong. Now, another aspect to consider is that according to Business Insider, prior yield curve inversions have taken as long as 18 months before a recession hit the economy.

For example, there was an inverted yield curve that occurred in July of 2006, but a recession wasn't official until December of 2007. At that rate, assuming we fall into historic averages, we wouldn't see a recession until the middle of next year.

PIMCO also seconds this, saying that the risk of a global recession over the next 12 to 18 months is close to a coin flip, and financial markets are underestimating the chances of one in the United States. Though obviously, only time will tell, but the good news is that according to a recent analysis, there's virtually no evidence that the U.S. economy is contracting, even though this chart is currently predicting the chance of a U.S. recession at 60 percent by this time next year.

Regardless, it is clear that Americans are running out of money, and the latest survey found that consumers are spending beyond their means during the last quarter of 2022 and the first quarter of 2023. In other words, Americans now have the same money today as they did prior to the pandemic, and all of that excess savings that was previously accumulated is now gone.

What do you mean? I have a hundred dollars? Not anymore, you don't. Poof! But in the big picture, inflation is still coming down when you exclude food and energy and housing, which arguably makes up most of inflation, and means inflation isn't coming down a meaningful amount.

But that's besides the point. Most likely, the Federal Reserve is going to keep interest rates higher for longer. There is a small chance we might see one more rate hike before the end of the year. The market is not pricing in any more rate hikes until the middle of next year.

And as far as what you could do about all of this, here's my take. I don't believe in timing the market. I don't believe in buying or selling to try to get it perfectly. Most of the time, if the market's going up or down, it's kind of like flipping a coin—heads or tails.

Sometimes, of course, you might get it right, but in the long term, it's unnecessary, and more people end up losing money than making money. That's why I personally prefer to continue dollar-cost averaging into the markets on a regular basis, regardless of what happens and despite whatever the Federal Reserve says.

Studies show that doing this long term generally yields the highest results. However, I would also like to hear your thoughts about what's going on down below in the comments section. I do my best during the first day to read and respond to as many comments as I can, so if you see this and you want to write something, feel free. Most likely, I will see it.

So thank you guys so much for watching. As always, feel free to hit the like button and subscribe. And don't forget that you can get some free stocks with all the way up to a few thousand dollars when you make any deposit using the paid affiliate link down below in the description. Enjoy, thank you so much, and until next time.