"Inflation Is Still Winning" - The Fed Raises Rates for the First Time Since 2023

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Patrick Bet-David (0:30)

The Federal Reserve raises the rates. Everybody said, Kevin Warsh goes up on the stage. He took maybe five seconds. He says, the Federal Reserve has decided to raise the rates a quarter of a basis point. The market within minutes loses a half a trillion dollars of valuation at the time. It's recovered ever since. Lots of topics, lots of people started talking, what's going to happen next?

Jeff, when you first saw this, were you surprised? And was this the right move?

Jeff (0:55)

No, and no.

Patrick Bet-David (0:56)

You're not surprised?

Jeff (0:57)

No, no.

SPEAKER_1 (0:58)

But you don't think this is the right move?

Jeff (0:59)

No, it wasn't the right move.

SPEAKER_1 (1:00)

Okay, tell me why.

Jeff (1:01)

There's a couple of reasons. First of all, the reason the Fed actually did raise rates is simply because they don't know.

They're basically saying, we think what's going to happen in the short run is that consumer prices are going to go up, which they already have due to energy prices. We're worried that they could spill over into other prices and become broader inflation.

Patrick Bet-David (1:19)

Inflation went up to what? 5.3, whatever the number was.

Jeff (1:23)

4.5, depending on which measure you're talking about, the CPI versus the PC. They look at the PC deflator, which has been a little bit higher than the CPI. But they realize that an energy shock doesn't necessarily become inflationary. In fact, historically, it doesn't. So when you look at their summary of economic projections, which is the material that comes out with the press conference, what they actually model and what they're actually expecting is that consumer prices will go up in 2026 and then decelerate in 2027

So if that's the case, you ask, why the hell would you raise rates? If you actually think that there is no inflation problem next year other than energy prices, why would you raise rates? And the answer is, they're not actually confident in their projections. They think that this is going to happen because this is what normally happens. However, they also remember what they said in 2022

So basically, Kevin Warsh is taking out a somewhat of an insurance policy. It's more of a symbolic insurance policy than that. We're going to raise rates because we think this is a one time increase in energy prices. And once the oil prices go back down lower, we won't have an inflation problem. We don't know for sure. Because I don't want to be Jay Powell and be criticized heavily by basically everybody for not doing something, we're going to proactively raise rates to make it look like we're on the ball here about an inflation problem. But we don't think we have, but we might actually have. So it's a combination of things. So is it the right idea? Is it the right tactic? No, of course not. They're just basically saying we're not really confident that what we think is going to happen is going to happen.

Patrick Bet-David (2:47)

Well, what are you at with that?

Will (2:48)

It's pretty laughable that they're thinking we might not have an inflation problem later on and thinking that, oh, it's going to get better and everything's going to slow down. I mean, you're talking about 5% inflation. But when you look at the numbers on just basic consumer goods, I mean, there's inflation on things with beef and coffee and normal things that people are using. That is much higher than just a 5% increase. So I see this getting a lot worse before it gets better. But to me, the real question is I'm an anti-fed guy. I think the Federal Reserve has been bad for America since its inception.

You had the second central bank of the United States, which was shut down, and then they made the Federal Reserve. And for me, I just don't understand why we have 12 people who are deciding, essentially, the economic future, economic reality of a $30 trillion economy. It makes no sense. And it's the same thing, because Trump is talking about 1% interest rates. I wouldn't want Trump to be in charge of this either. Lowering it to 1%.