Inflation is Rising Again — Here's What the Fed Will Do

[00:00:00] Speaker 1: In today's video, we're covering the true rate of inflation, what this means for the Federal Reserve, and of course, that's going to impact you and me. So on Thursday, the PC inflation report came out. The rate of PC inflation came in hot at 4.1%. Core PC inflation, which is what the Federal Reserve uses as their preferred measure of inflation, came in at 3.4%, which is the highest it's been in nearly three years. So this is a historical chart of PC inflation to show you where we stand. So this is a 10-year chart from the Federal Reserve. Pre-pandemic, I mean, we're typically in the 1% to 2% range. So the government and central bankers, they thought, you know, oh, inflation is so low, you know, 1% to 2%. We have a lot of wiggle room to print money, so let's print trillions of dollars. You know, what could go wrong? And this is what could go wrong, and this is what did go wrong, and we've never recovered, because you have to remember that this is the rate of inflation. If you want things to go back to where they were then, you know, to make up for it, then we would need negative inflation. So in other words, we would need deflation, and that never happens. And as you can clearly see, you know, no surprise, the rate of inflation never went negative, you know, to make up for it. So what I've outlined shows that prices still continue to rise, but they're just going up at a slower pace compared to 2021 and 2022. But there's still prices are still going up at a much faster pace than pre-pandemic. And this right here is when they raised interest rates and stopped the money printing in order to fight inflation. And of course, yes, that helped to slow down the rate of inflation. But here's the thing. The markets could not survive without the ongoing money printing. There was dysfunction. The financial plumbing of the system was malfunctioning because liquidity was drying up. And this is when they started cutting interest rates again. They restarted the money printing. And then of course, we got the energy shock. So inflation started accelerating again. And now we're back at 4.1%. And I just want to clear up any confusion. This is not to be confused with CPI inflation, which is at 4.2%. And that's just another way of measuring inflation. But again, the Federal Reserve prefers to go off PC inflation. Either way, if you think about it, it's at the highest it's been in three years, whether you're looking at CPI or PC inflation. Now, let's take a look at what this means for interest rates. The next Federal Reserve meeting is going to be on July 29th. So here are the odds, according to the CME FedWatch tool. There's a 69% chance that the Federal Reserve maintains the interest rates at the July meeting. There's a 31% chance that the Federal Reserve raises interest rates by a quarter points in July. But listen, I just want to speak to you honestly and just openly. My opinion is that these odds of a rate increase are just way overblown, especially when you have President Trump in the mix. So listen, I saw these odds. I got excited because, well, if these were the odds, then I would take that bet. So I want to share with you what I did. I wanted to go bet on this, that they're going to maintain interest rates in July. If you're going to give me those odds and payouts. There's a bunch of platforms where you can make these types of bets. This is just one example. I don't want to say the name and give a free promotion. But then, okay, so on this site, they're saying that there's an 84% chance that the Federal Reserve will maintain interest rates in July. And that means that if you correctly predict it and win, then the payout is going to be much smaller since they're saying that there's an 84% chance of the Federal Reserve maintaining rates rather than a 69% chance. So my conclusion was, no, I'm not going to bet on it. Like if you're going to give me those odds and that meager of a payout. But I mean, if I had to, then this is the one that I would go with. That's just my opinion. But listen, most people, they're going to go to the CME as the true odds. But I want you to think about it. If you go by these odds, then it looks scary, like a higher probability that they're going to raise interest rates. So the stock market is scared. Like it's definitely a headwind. But once this goes down to more realistic odds, I believe that the market's going to breathe a sigh of relief and it's going to be, you know, no longer a headwind, but rather a tailwind for stocks. Okay. So we have CPI inflation at 4.2%. We have PC inflation at 4.1%. PC core inflation is at 3.4%. But a good question is what is the real rate of inflation? Because you have to remember that CPI measures the rate of inflation of the cost of living, which is extremely vague. You know, PC inflation strips things out. PC core inflation strips even more things out. Now, let me tell you this. You know what would be better to measure the true rate of inflation? If we just take a look at the M2 money supply, how much money is out there? You know, how much money has been printed? But let's just focus on 2026. So I'm just going to zoom in on this section for you. And what we see is that in five months, end of December to end of May, the money supply has grown by 3.13%. But you have to remember that it grew by 3.13% in just five months. Now, if you annualize it over the course of 12 months, then the rate of inflation is at 7.51%. So you want to know what's crazy. You know, at least this is just my opinion. Again, social security recipients will probably get a cost of living adjustment of something around what? 3% next year. However, the true rate of inflation is at 7.51%. So if you think about it, this is like a clever strategy by the government to shortchange social security recipients by using the CPI measure. Like in my opinion, this is very dishonorable. But listen, I want to share with you more of my opinion about the situation. I believe that the rate of inflation is understated by the CPI reports and the PC reports. Again, just my opinion. You know, to me, I believe that's pretty easy to do, you know, to get the output that you want. If you're the one deciding the calculation and a good portion of the data is surveys, not actual price comparisons. And then you have the de-escalation of the Iran war and the energy prices are coming down, right? You know, fuel prices, they're going to follow downward, not just gasoline. We're talking about diesel, we're talking about jet fuel, et cetera. And the CPI and PC rates of inflation, they're most likely going to come down to over the next few months. So you have President Trump who got Warsh the job as the new Fed chair and Trump wants lower interest rates, especially with the midterm elections approaching. And you have Warsh pushing for other measures of inflation, you know, such as trimmed mean inflation, which makes the rate of inflation appear even lower than CPI or PCE. So no, my opinion is that I doubt that the Federal Reserve is going to raise interest rates in July. But to me, it's just, you know, I find it interesting how far they're willing to skew the data. You know, the M2 money supply, how much money is out there is expanding at a rate of 7.5%. PC inflation is at 4.1%. Core PC inflation, which the Federal Reserve likes to go off of, you know, no surprise, because it's lower, is at 3.4%. And what Warsh is promoting is trimmed mean inflation, which is at 2.4% because it removes any outliers. And if you watched my previous video covering the Federal Reserve's press conference, then you saw what the media missed, that the Federal Reserve changed their goal of getting inflation down. You know, it was originally their goal was 2.0%, but now it's at 2.9%. And guess what? If they use trimmed mean inflation, then they've already reached their targets. Like congratulations to the Federal Reserve, like, you know, goal achieved. And then you have core PC inflation that should be coming down. It's already close to their 2.9% targets. Then is the Federal Reserve really under pressure to raise interest rates given these circumstances? You know, if they've reached their goal with trimmed mean and they're close to their goal of core PCE, like, is that a ton of pressure? Like, I don't think so. Like, I'm skeptical of a rate hike. Again, just my opinion. But in reality, if you believe that the cost of living is just rising faster than your income, I'll tell you, you're not the only one. Despite these low inflation figures reported by the government, the truth is that wages are not keeping up with inflation. Well, if you're looking at the real rate of inflation, which is 7.5%. Now I want you to see this. This is how much wages have been growing since 2022, but I've highlighted 2026. In January, wages were growing at a rate of 3.7%. February at a rate of 3.8%. March, 3.5%. April, 3.6%. And in May, 3.4%. Now, if you take a look at the chart, the M2 money supply growth is growing at a rate of 7.5%, right? And look at the chart. 7.5% doesn't even register on the chart. So this is why more Americans say that they can't keep up with their bills. Why millions of Americans can't afford a home. Why social security recipients are struggling even more and more each year. It's because each year we're getting shortchanged and that shortchanging accumulates and compounds every year. Again, if you feel like something is wrong, I'm telling you, it's not just you. And this is why. Income is not keeping up with inflation. In a separate video, we're going to review the Federal Reserve's balance sheet because Warsh, as the new Fed chair, was supposed to go in there, stop the money printing. He was supposed to shrink the balance sheet. You know, obviously that would have some serious consequences on the economy, that the financial plumbing of the system, and of course the stock markets. So it's good, obviously good to pay attention to these things. And listen, if you want more honest and exclusive financial content, I encourage you, please come check out our investing community on Patreon. So I'd love to have you there. I'm going to leave a link for you down below. Thank you so much. And I wish you a very nice day. Take care.