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POWELL SAYS RATES NEUTRAL: Why Are So Many Skeptical?

Breaking News Aug 4, 2022

Fed Chair Powell says the interest rates are now at “neutral.” We’re going to talk about what neutral is and what that means for the markets and for you.

CHAPTERS:
0:00 What is Jerome Powell Saying?
0:59 Central Bank Reaches “Neutral” Setting
3:36 Neutral Fed Rate “Indefensible”
9:20 Fed Trying to Slow Down Rate Hikes
13:00 Gold Does Not Pay Interest Rates
16:34 Do You Believe Their Lies?

TRANSCRIPT FROM VIDEO:
Fed Chair Powell, says the interest rates are now at neutral. We’re gonna talk about what neutral is and what that means for the markets and for you, coming up.

I’m Lynette Zang, Chief Market Analyst here at ITM Trading of full service, physical gold and silver dealer specializing in custom strategies. And let me tell you, you better have a strategy because the guys that are driving this bus, meaning the central banks and the Fed, they have no flipping clue what they’re doing. It’s a big experiment.

And frankly, I don’t want you to be the collateral damage, but let’s just go back a little bit to move forward. And back in May 17th of 2022 Fed Chair Powell after the FOMC meeting minutes, he came out and he said, we don’t know with any confidence where neutral is. We don’t know where tight is. We just don’t, particularly in this environment of higher inflation and very strong growth in a really tight labor market. So in May, they had no clue about where neutral was magically though. All of a sudden, even though the job market is tight and inflation remains much too high in July, this most recent meeting suddenly, they found where neutral was. “We would move expeditiously to get to the range of neutral. And I think we’ve done that now we’re at 2.25% to 2.5% and that’s right in the range of what we think is neutral.” Even though just a few months ago, they had no clue what neutral is now they know. And just so you know, our focus is going to continue to be on using our tools, to bring demand back into better balance with supply in order to bring inflation back down. And what he’s talking about there is the need for more unemployment so that people have less money, not the one percenter’s mind you, but the masses that, that they don’t have as much money to spend. And they don’t have the ability to demand higher wages. That’s what’s causing all of this inflation. It’s sure not all that money printing that they’ve been doing since 2008 and where all that inflation was held in those markets that they targeted for reflation stocks, bonds, and real estate and the air is now coming out of those bubbles, but, make no mistake, unemployment is growing, no doubt. And they are no longer giving forward guidance to the markets to Wall Street. So they will make these decisions meeting by meeting. Well, some people question where that level of neutral is.

One of my favorite people, I say that I don’t really mean that as you guys know, but Larry Summers who blocked oversight of the over the counter derivative market and his brilliance, he comes out and says, Summers says, pals call on neutral fit, fed rate indefensible. Isn’t that interesting? He just came out with that. Powell said, Wednesday, the Wednesday’s hike brought the policy rate to neutral, but the former treasury chief worries Fed has wishful thinking. They are, it’s all wishful thinking. They’re out of tools. They can’t really tamp down this inflation because it’s a different kind of inflation than the one that’s just created by their monetary policy and their fiscal policies. This is much different. So there’re still gonna go for the demand side of it. But the problem is really in the supply side, Jay Powell said things that to be blunt are analytically indefensible. Now there is this big brew haha going between summers camp and then the fed camp. So we’re gonna see who’s, it doesn’t even really matter who’s right or wrong in this because this is the end of the currency’s life cycle. And I’ll tell you, that’s what I’ve studied more than anything else I’ve been studying it since 1987. That’s a long time. And I can see these repeatable patterns. So all of this discussion, I mean, I gotta say, and the stock market going up and that market going up and you know, the truth of the matter is if there’s no value left inside of the currency, which officially there isn’t, I’ve shown you that purchasing power graph so many times, then the numbers mean absolutely nothing as well, but there is no conceivable way that a 2.5% interest rate in an economy inflating like this is anywhere near neutral. And this would be one of those times that I actually happen to agree with Larry Summers because as long as inflation is running hotter than the inflation than the, uh, interest rate that’s being charged, that’s loose policy, right? That is loose. Can they really raise it above the level of inflation? And remember they jury rig those numbers anyway, can they really? Do they really have the nerve to raise interest rates up that high? And even if they did, would it really work? I don’t think so. This is the end of the currency’s life cycle. It really is that simple Jerome Powell’s assessment on Wednesday that with the latest interest rate hike, the central bank had already reached a neutral setting where it is neither stoking nor restraining consumer prices. So if corporations can borrow money at zero, which we saw for many, many years, right? That is inflationary. That’s showing you that the value of that money is nothing. Now they’re trying to raise rates simply to be able to lower them again. And 2.5% even? That doesn’t even come close to the real rate of inflation. So even if the interest rates had a chance of tamping down inflation, they are so far off the mark. It’s ridiculous. And frankly, when I’m looking at this, I’m seeing some very similar things that came outta Christine Lagarde what last week? or something like that? Where, you know, they front loaded those interest rates. Now they got the Eurozone or yeah, back to zero by front loading those rates. And that’s what Powell is saying that he’s doing here too, is frontloading those rates. The Fed’s current target is now 2.25% to 2.5%. Summers said a neutral setting would be higher because it has to take into account where inflation is. I do not disagree with him. I do not disagree with that. Neutral is shorthand for the crucially important notion that the level of interest is consistent with monetary policy being neither contractionary nor expansionary so that it doesn’t inhibit growth in the economy, but it doesn’t push growth. But if the interest rates are below the level of inflation, then that means that the policy is still loose. Monetary policy is loose and it’s a big advantage for those that have the ability to borrow. I am not telling you to go out and borrow because debt works great on the way up, but it works like crap on the way down and it can take you with it. No doubt about it. It, so I’m not telling you to go borrow, but what I am telling you is that what he’s saying, that being attra in my opinion is completely inaccurate. It’s not, and the inflation will continue to rage and guess what? They’re gonna continue to be surprised. I’m so surprised. I’m so shocked. Yeah, this is hopium on steroids, honestly.

And then of course we have our good friend Mohamed A. El-Erian, who is, you know, I mean, I like him a lot. I like a lot of his work. I think he’s really bright. He’s extremely bright actually. But our interest rates at neutral markets certainly hope so. That’s really what the key is. So what the fed is trying to do is slow down on rate hikes. Now they’re committed to them. But since, during recessions, which I mean they’re also saying, we’re not really in a recession. Well, we’re in a technical recession. We’ve had two down months or quarters of GDP growth. So technically we are in a recession, but so there’s your hopium coming out again. But basically with the markets, they don’t want those interest rates to go up because they already, whether it’s the corporation or it’s the margins, people borrowing or entities borrowing to buy stocks or bonds or whatever else they’re buying with that free money. That’s, what’s pushed the prices up so much. And the markets want the interest rates to stay where they are or go down so that they can keep gorging themselves on this free money. And I think that will happen when the fed does a pivot, when there is enough pain in these markets and the fed does a pivot, I think they’re gonna print money to make what they did in 2020 look like chump change. And I think that we’re already at the beginning of the hyperinflation, it goes slow, slow, slow, then it goes fast, but you can see the prices going up all the time. Fed Chair Jerome Powell, dangled the idea that the central bank had already done the bulk of what is needed. Excuse me, to combat inflation. Let’s hope he’s right, because the markets are addicted to that plentiful cheap money. And they have a lot of debt that needs to be rolled over into a higher interest rate environment. And let us not forget all of those zombie corporations, meaning that they couldn’t even pay all the interest on the debt for at least three years. Forget about any principle. And because the banks did not wanna show those losses on the books, they just kept loaning them money so that they could meet their minimum payment requirements. Well in a rising interest rate environment, that doesn’t work so well anymore. So we’ve got this army of zombie corporations that are about to begin imploding, and we’re gonna see defaults like nobody’s business. Will the fed do an about face when that starts to erupt? Will it be too late when they do an about phase? When that whole piece starts to erupt? Would rising rates slow stop or would they be reversed? Because that’s what the markets want. They want free money again. So they’re hoping that the fed is slowing down those interest rate rises or stopping them or reversing them ideally for the markets, not in my opinion, but ideally in the markets, they will be reversed.

So how does all of this impact gold? Because interest rates here, let me show you this. Oops, missed it. Okay. Take a look. These are the overnight, the fed funds rates. So these are the rates that the government directly controls and you can see how much that’s jumped. And I mean, that’s like, it’s a hockey stick. It’s straight up. So the speed at which they change, the interest rates has really done a number on, well, look at it, the real estate market, as well as the stock market, the bond market is battling it, right? The 10 year yield went up above 3%. Now it’s a little bit more than2.5% So the markets see a recession coming. The fed doesn’t see that coming. Doesn’t that worry you? Doesn’t that worry you? These are the guys that are driving the bus. If they actually could tell you what they thought, you would make different choices. It is truly just that simple. So take heed from this because look, they raise them to lower them again. How much higher can they do? We’re gonna find that out. And so will the markets, but in theory, gold, doesn’t do so well in a rising interest rate environment because gold does not pay interest. Gold doesn’t have to pay interest. It’s the single safest thing that you can do. And that’s not just according to me, the Bank for International Settlements, it is the only financial asset, not one of two or one of five, the only financial asset that actually runs no counterparty risk. Bonds? You gotta see that the government is gonna pay, oh, well, the U.S. Government is gonna pay, cause they’ll just print the money that they need to pay you. I can remember thinking that when I first became a stock broker and I didn’t understand the language of the markets at all, even with all the training they put me through and I thought, okay, well until I understand this better, I’ll just work in government bonds cause the government can tax you and they can print the money to repay you. So, eh, you know, I can’t really burn anybody. But we were at a different point back in 1986 than we are today. We have virtually no purchasing power left, but in theory because people want that interest, they don’t want gold. Well, you have to make a choice in here because you either want Fiat interest that goes to zero, cause you could have trillions of it. But if it has no purchasing power, it means nothing. What would you really have and rather have the real money safety without counterparty risk. Give me gold. I don’t give a crap about these little bitty itty bits of interest, even at that, right? That’s nothing for the risk. You’re gonna risk your principle for a teeny bit of interest. And if you lose all your principle, what do you have to work with to rebuild on the other side of this? Nothing, absolutely nothing.

That’s why it is imperative that you have physical gold, physical silver in your possession to ride this storm out because it is gonna get a whole lot bumpier, a whole lot stormier. And I really want you to be protected. And I want you to have the ability to take advantage of the opportunities that are going present as these bubbles pop and the whole, the whole Ponzi scheme unravels. But if you haven’t yet, then you wanna watch Tuesday’s Headline News on JP Morgan, Debt and Gold. It’s really an interesting piece. And you know, people ask all the time, oh what’s happening with gold and blah, blah, blah and they still believe Wall Street lies. Well in this particular case, here’s one of the examples where they’ve been found out and now you can see the truth, you know, and stop believing those lies. And also make sure you watch yesterday’s Headline News on our Beyond Gold and Silver channel. I go through my mantra. I show you examples. So you can see the importance of each piece and why all of those pieces are in there. But if you have not yet started your gold and silver strategy, click that Calendly link below and then give us a call and make some time to set up your own personal customized strategy. You need it now more than ever. And if you’ve already started and you haven’t finished it, get it done. Get yourself in a position because it is crucially important to be as independent and self-sufficient as possible. Food, Water, Energy, Security, Barterability, Wealth Preservation, Community, and Shelter. Please do yourself a favor and get it done. Also, if you like this, please give us a thumbs up. Make sure to subscribe. You’ll get a lot more content like this. Leave us a comment. Give us a thumbs up and share, share, share, because no doubt about it. It’s time to be fully in position and cover all of your assets. The foundation is gold and silver, but you need everything too to sustain a wonderful, reasonably wonderful standard of living. So till next we meet, please be safe out there. Bye-bye.

SOURCES:
https://www.wsj.com/articles/transcript-fed-chairman-jerome-powell-at-the-wsj-future-of-everything-festival-11652821738#:~:text=We%20don’t%20know%20with,a%20really%20tight%20labor%20market

https://www.wsj.com/articles/transcript-fed-chief-powells-postmeeting-press-conference-11658955710

https://www.bloomberg.com/news/articles/2022-07-29/summers-says-powell-s-call-on-neutral-fed-rate-indefensible?sref=rWFqAg1Y

https://www.bloomberg.com/opinion/articles/2022-07-27/fed-meeting-are-interest-rates-at-neutral-markets-certainly-hope-so?sref=rWFqAg1Y

https://www.kitco.com/news/2022-05-17/Gold-price-hits-daily-lows-as-Powell-says-Fed-to-move-more-aggressively-if-inflation-doesn-t-come-down.html

Thumbnail Photo We believe that everyone deserves a properly developed strategy for financial safety.

Lynette Zang

Chief Market Analyst, ITM Trading

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