What the Fed’s Broken Confidence Means for Wall Street – And Your Money

[Inside Wall Street with Nomi Prins]( What the Fed’s Broken Confidence Means for Wall Street – And Your Money By Nomi Prins, Editor, Inside Wall Street with Nomi Prins The Federal Reserve lacks confidence. With ongoing doublespeak in their statements and speeches, this is apparent. See, when the Fed releases its policy, it includes a statement that details the reasons for its decisions. And in its most recent release last week, the Fed mentioned the possibility of cutting rates twice. But while the Fed noted that job gains have “moderated,” it also said the economy was expanding at a “solid pace.” Some speculate that could give the Fed reason to hold off on cutting rates. The Fed also said it would assess incoming data, outlooks, and risks before any change of rates. And while the media buzz was focused on when rate cuts would happen, you should know that such a tepid statement showed the Fed’s lack of confidence and conviction. Now, as a former Wall Street banker who’s spent the past three decades following Fed statements, data, and posturing… I’ve learned to cut out the noise. What I was listening for was something else… in the form of real evidence that the Fed was backing off its current policies. But more on that in just a moment. First, let’s unpack the Fed’s lingo. Translating Fed Speak If you’ve been following Inside Wall Street, you’ll know [I don’t expect rate cuts until the second half of the year](. So, you were already ahead of the mainstream when the Federal Open Market Committee (FOMC) – the Fed group that sets monetary policy in the U.S. – held its first meeting of 2024 last week. At that meeting, the FOMC kept rates at 5.25-5.5%. But interest rates are not the Fed’s only policy tools. The Fed also distorts the economy through quantitative easing (QE) and quantitative tightening (QT). With QE, the Fed loosens the flow of money. With QT, it restricts it. Wall Street thinks of it as turning the money-printing taps on or off. The Fed uses QE to buy bonds from the big banks using money it prints. This increases the banks’ liquidity. QE is how the Fed’s book grew by nearly $5 trillion in the wake of the pandemic. After the pandemic, the Fed switched to QT. That means it’s been working those levels down. Its balance sheet now sits at $7.6 trillion, down from $9 trillion at the pandemic peak. Through QT, the Fed chose to let the bonds on its book mature while not buying new ones to replace them. The Fed announced it would do this last March. That’s because if it sold its bonds into the market too fast, the value of those bonds would sink quicker. But when you manipulate money, there’s a price to pay. And that’s what we saw last year. Recommended Link [7-Figure Trader Exposes His “Overnight Profits” Secret]( [image]( Jeff Clark is a 41-year trading legend… Who has profited from every crash since 1987… Generating millions of dollars in profit for his Wall Street, celebrity, and pro athlete clients. [He’s helped over 170,000 everyday people close returns of 100%, 239%, and 373% in as little as a few days.]( Even during America’s most brutal crashes – like 2008… When he famously declined a live interview with CNBC on how he – not only – predicted the 2008 crash… But how he helped everyday people double their money an astonishing 26 times… Jeff largely kept his strategy a secret… But today, for the first time, he’s agreed to come forward, sharing [the details of his closely guarded trading breakthrough.]( [CLICK HERE for Details.]( -- Manipulating Conjured Money Has Real Consequences As the Fed raised rates and then kept rates high, the world of finance felt a real squeeze. Banks were the first to crack. [We wrote]( about the three large banks that failed last year. They were Signature, First Republic, and Silicon Valley. They went under because the value of the Treasury bonds they held fell on the back of the Fed’s rate hikes. As those Treasury values dropped, depositors took their money from their accounts out of fear their bank(s) would go bankrupt. The banks couldn’t raise enough money selling their Treasuries to cover the depositors who were running for the door. Now, as rates remain higher for longer, more regional banks could begin to feel the squeeze again. Credit card delinquencies and net charge-offs (losses for banks) have risen. And, as we saw when Citizens Bank failed in November, Fed policies can lead to real, negative repercussions, especially for regional banks, that can take some time to play out. The Fed is aware of this. And it’s concerned about the shock it could send throughout the global financial system if it does not achieve the “soft landing” it wanted. This is why my research shows that the Fed will wait until the second half of this year to cut rates. But before then, the Fed could still deploy some form of QE to protect faltering banks. That would mean more money printing before rate cuts. It could even mean stopping the QT policy of not replacing bonds that mature. As Chair Jerome Powell said at the end of his discussion in January, “That’s why we keep our options open.” He also warned that it’s not likely that the Fed will get enough confidence by March to move rates. Now, with the Fed holding rates steady, the next signal comes down to what Powell said to reporters last week. The Real Story Behind the Fed’s First Meeting of 2024 After the January FOMC meeting, Powell stressed the Fed’s focus on its dual mandate. Remember, that mandate is to ensure maximum employment and price stability. For the Fed, “price stability” means bringing inflation back to its 2% goal. Powell warned that “inflation is still too high” and “the path forward is uncertain.” But, on the flip side, he said it will be appropriate to dial back policy constraints “sometime” this year. Those two statements are not only in conflict with each other but show no real conviction. This matters because Powell said the Fed won’t cut rates until it has more confidence that inflation is moving to a sustainable 2%. He noted we’ve had six months of “good” inflation data but questioned whether it sends a “true” signal. But the real kicker came in two parts. And this is what the markets and Wall Street are watching… First, Powell said the FOMC is getting to a point where questions begin to focus on the trillions of dollars on its balance sheet. He said there were some Fed officials behind closed doors raising the issue of turning on the money-printing taps again with QE. And that they would begin more in-depth discussions at their March meeting. Second, and more importantly, he said he sees rate cuts and the balance sheet (or QE) as independent tools. This is a big deal. It signals that QE could come before rate cuts. That means the Fed’s balance sheet could grow again before cuts happen. What This Means for Wall Street and Your Money Now, markets like two things above all. First, they want cheap money to flow into financial investments and send shares of companies higher. Second, they want certainty over the Fed’s timing. It helps them understand how to time getting cheap money as fast as possible. That’s why rate-cutting cycles coincide with stock market increases. And that’s especially true for the tech sector, where companies often rely on cheap financing. That financing is cheaper when interest rates are lower. We saw this play out in the last two rate-cutting cycles. When the Fed cut rates in 2008, the tech-heavy Nasdaq-100 Index rose by 22% the following year. The S&P 500 gained “only” 8%. Something similar happened when the Fed cut rates in 2020. Over the following year, the Nasdaq went up 50%, while the S&P 500 gained “only” 27%. I expect we’ll see something similar this time around. And the best way to take advantage of the Fed’s eventual pivot to looser monetary policy is to buy the Invesco QQQ ETF (QQQ). It’s a fund that tracks the Nasdaq. But I don’t suggest diving into QQQ all at once. Instead, invest in increments or by “averaging in.” That means you allocate your investment into four different parts. That way, even if negative events hit the markets or data arises that shifts the Fed’s timing, you can still profit from rate cuts or QE as they approach. Think of it as a heads you win, tails you still win scenario. That’s one way to play both sides of the Fed going forward. Regards, [signature] Nomi Prins Editor, Inside Wall Street with Nomi Prins --------------------------------------------------------------- Like what you’re reading? Send your thoughts to [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: Inside Wall Street Feedback). MAILBAG Nomi recently [shared an excerpt from her latest book, Permanent Distortion](. This reader hopes that moving forward, the government can take its lessons learned to act more effectively… This article is filled with sadness that the central banks in the U.S. and Europe literally saved their major banks from ruin by loose lending at nearly zero percent as Main Street collapsed. This caused higher rates of unemployment for workers in all sectors of the economy as well as bankruptcies of large, arrogant economic institutions such as General Motors and financial firms such as Citibank and AIG. Recalling 1928 to 1933, a deflationary depression was possible in 2008 without extraordinary Fed actions. In fact, commercial paper became impossible to sell, which nearly caused the collapse of major and minor corporations in the U.S. and Europe. Temporary inflation was the result of the creation of a lot of money, easy credit, very low interest rates, and the Fed buying all mortgage-backed securities (MBS). This increased bank reserves and eliminated the problem of valuing those MBS which contained a lot of foreclosed homes. So, the Fed, acting as the bank of last resort, lent its money to banks that were in trouble and might default if its depositors had let fear manifest and there were bank runs. Sadly, no one thought of imposing a two-year moratorium on bankruptcies caused by home equities being wiped out because mortgage debts had become much greater than the values of many homes at fair market values. During such a moratorium, the Fed could have reduced Fed funds rates from more than 5% to zero, which would allow homeowners time to refinance their mortgage debts at low rates with low and manageable monthly payments. Instead, the government helped the banks and big businesses while it let homeowners suffer bankruptcies until 2012. Maybe next time the Fed and federal government will do better. – Marc H. Do you agree with Marc that the Fed let down homeowners during a time of need? Do you see the Fed’s lack of confidence in any other aspects? Write us at [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: Inside Wall Street Feedback). IN CASE YOU MISSED IT… [LIVE DEMO: Watch Elon Musk’s AI go 65 miles per hour]( “I don’t talk about it much, but I make AI make me money. Most “experts” have no idea how AI really works. I’m different because I used [what Harvard calls the “Super Platform driven by AI” to make over a million bucks in 2022.]( That’s why I’m so excited to show you this [incredible live AI demonstration]( I just filmed. It involves Elon Musk and speeds over 65 miles per hour.” – Colin Tedards [Click here to reveal the shocking 2-minute demo.]( [image]( [Rogue Economincs]( Rogue Economics 55 NE 5th Avenue, Delray Beach, FL 33483 [www.rogueeconomics.com]( [Tweet]( [TWITTER]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. Rogue Economics welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. To contact Customer Service, call toll free Domestic/International: 1-800-681-1765, Mon–Fri, 9am–7pm ET, or email us [here](mailto:memberservices@rogueeconomics.com). © 2024 Rogue Economics. All rights reserved. Any reproduction, copying, or redistribution of our content, in whole or in part, is prohibited without written permission from Rogue Economics. 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