Is the Fed Done? What You Need to Know for Your Portfolio

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Michael Zuber (1:00)

Alrighty, folks, we are truly lucky at One Rental At A Time. We get to talk to the one and only Taylor from Life Goal Investments. Yes, the CEO himself, somebody that's worked with the top 1% of the 1% in the world, and we get him for about an hour each week. Taylor, we're gonna talk about the Fed. We're gonna talk about raising rates, what's next. We'll talk about the 5% treasury and why that's a mark you are looking at.

We are gonna throw in the AI bubble, maybe some circular financing. GDPNow for Q3, shocking number. And we're gonna talk about oil and the crypto winter.

So let's get it started. The Fed raised rates last week, which is something I called for months ago. Also, I would say had a hawkish statement and dot plot, but curious what you thought last week with the Fed raising rates.

Taylor (1:49)

Yeah, yeah. It was something that, as of two weeks ago, you could see coming, you being me, I could see coming. Whereas before that, I was not on the Fed hiking rate campaign.

But it was one of those things where the bond market just backed them up into a corner and forced them to do so. They made the move ahead of time, and then the Fed just followed through as they were supposed to.

I look at it and I say, like, hey, we actually don't have an inflation problem. We have an oil problem. You back out oil, and CORE CPI is at 2.4. Like, yeah, we're that far away from the target, but we're right there. It was just this ripping of oil that took place that caused inflation to look as nasty as it has, but more broadly speaking, it had been trending downwards. So I wasn't necessarily in the camp that we needed to be more restrictive on this economy, but the bond market spoke, and rightfully so. They followed the instructions of the bond market, and they made the move they needed to make.

Michael Zuber (2:46)

Were you surprised that it was unanimous, 12-0, the vote?

Taylor (2:52)

No, because of what the bond market did. But if the bond market didn't...

What's so interesting with the bond market is, what they're pricing is the real rate of bonds, is what's blown out, because if you look at the 10-year treasury, we've been on a one-way march from the beginning of this year at four and a quarter to five percent.

And reality is, if you look at inflation, inflation typically is a big driver of the 10-year treasury. The inflation expectations, five-year, five-year forward, which is the next, we move forward five years, and then the average for the next five-year period of time is in the low twos. So it's not like the market thinks that there's significant inflation coming. What they're doing is they're blowing out the real rate, which is effectively the market's saying, hey, how much desire do we have to own this government's treasury paper that is in $40 trillion of debt? And all the other G7 countries in the world are in debt. So there's this competition for who can raise debt the fastest, and do we want to own that anymore? And that's what's calling into question. That's why interest rates have backed up to the degree that they have.

Michael Zuber (4:00)

So let's talk about the rates rising so quickly, because I think you're absolutely right. That's the market kind of forced their hand.

You know, I'll say that. And they had to move, right? Or else they just would have been out of lockstep. Actually, let me ask you this question first. Let's just go in the time machine and say they didn't raise on Wednesday. They gave some lip service to this or that. You know, they had a story, but they didn't raise. Let's say it was 12-0 the other way, or even 9-3 like it was at the previous meeting, but they stayed put. What do you think would have been the reaction to the bond market?