Fed Rate Hike: Full Breakdown & Transcript

[00:00] What's up you guys, it's Grant here, and I don't know how to say this, but we are... Okay, now, in all seriousness, the unthinkable has just happened. This is a few hours ago, for the first time since 2023, the Federal Reserve raised interest rates by 25 basis points,

[00:15] officially marking the end of a rate-cutting era and raising the question that almost no one was prepared for. What if this isn't just a one-time rate hike, but instead the beginning of a new rate-hiking cycle?

[00:27] After all, inflation is now moving again in the wrong direction. The government is adding more than $2 trillion a year to the national debt. And worst of all, not even a bond market bailout is making a single difference. Or basically, the Fed might keep interest rates higher at the exact moment that the economy could least afford it.

[00:44] That's why we absolutely have to talk about exactly what just happened, the impact this is going to have throughout stocks, the housing market, and the entire economy, and then what you could do today to get ahead of it. because the entire strategy that investors have been using to try the last two years may have just stopped working.

[01:01] Although before we start, as usual, if you appreciate the breaking news videos like this, please hit the like button and subscribe. I have no idea if those metrics still work or not, but it's totally free, takes you a split second,

[01:13] and as a thank you for doing that, here's a picture of a dolphin. So thanks so much, and also a big thank you to Incogni for sponsoring this video. Facts, more in that later. Alright, so in terms of what's currently happening, We need to talk about the boogie man of the economy that somehow won't go away, and that would be inflation.

[01:28] To start, the Federal Reserve has a few ways to measure how much prices are increasing throughout our economy. And at the very beginning of the inflation cycle, we have what's called producer price inflation. For those that are aware, this measures the increase that businesses pay before it ever reaches you,

[01:42] kind of like the inflation coming down the pipeline. And unfortunately, the latest reading came in at 0.4% month over month and 5.4% over the last year. On top of that, we have the second and most important category they look at, which is CPI.

[01:57] It's the headline inflation number we all see. And as of a few days ago, this came in once again at 3.4%. However, here's where things get very interesting. As you can see from this chart here, the majority of that inflation simply came from oil prices.

[02:12] And in terms of where interest rates are going, there is one more metric worth discussing, and that would also be the labor market. The Federal Reserve really only has a few objectives. Number one, it's to make sure that prices don't skyrocket out of control.

[02:27] And number two, they want to make sure that people stay employed. And when it comes to those employment numbers, believe it or not, August payrolls rose by 162,000 jobs, which was more than double the expectation.

[02:39] All of that reinforces the fact that if the Federal Reserve wants to raise rates, they have more than enough room currently to do so without impacting people's ability to go and find work. That's why in terms of what happens next and the impact this is about to have on our entire economy, there is one more metric we need to talk about, and that would be the stock market.

[03:00] Now, I know this might sound completely counterintuitive, but when it comes to stock prices in 2026, bad news is actually good. Like, think about it this way. All the stock market cares about at this point is lower interest rates.

[03:14] And anything that leads to lower interest rates is good. This means weak job numbers. Good for lower rates, good for stocks. High unemployment, good for lower rates, good for stocks.

[03:26] Horrible economic data, good for lower rates, good for stocks. Again, it's totally backwards here, but anything bad means the Fed is more likely to lower interest rates to save the economy which is yeah good for stocks Now on the other hand if a lot of people are getting jobs it bad for lower rates bad for stocks If there good economic data it bad for lower rates bad for stocks

[03:50] If anything drives more demand in the economy, bad for lower rates, bad for stocks. We're officially just in an environment where down is up, left is right, and stocks just want another hit of cheap money

[04:02] just in case we need to be able to rally again. However, in terms of what's likely to happen next, There is some good news and some bad news. So, let's start with the good news first. At least throughout our U.S. economy, it appears to still be resilient enough to avoid a near-term recession.

[04:18] And throughout the forecast, 33% GDP growth by 2030 because of AI. And even though there's also a 10% chance of worldwide destruction, corporate profits are looking pretty good. But, here's where we get into some of the bad news.

[04:32] Historically, since 1930, once a new Fed chair takes office, The stock market tends to see an average decline of 16%. On top of that, September tends to be the weakest month of the year for stocks,

[04:45] typically ending the month lower than where it started. And bond yields are now at a point where they are seriously beginning to compete with stocks. Not to mention, some charts point to the fact that maybe stocks are pretty expensive for what we're currently getting.

[05:00] Or basically, the economy might actually be a bit too strong for the stock market right now, Because like I said earlier, more growth gives room for the state to keep interest rates higher for longer. At the same time, the inflation is still above target.

[05:14] Oil is back above $100. Treasury yields are approaching 5%. And stock prices already reflect a pretty optimistic outcome for AI. That is why, in terms of what the Federal Reserve just said, the risk this could have throughout our entire economy,

[05:28] and then most importantly, what you could do to prepare, here's what you came for. because this next move could catch a lot of people off guard. Although before we go into that, we talk a lot on this channel about the value of money,

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[07:34] there is one more aspect of our economy that is getting hit incredibly hard, and that would be the housing market. Even though on a broad scale, median home prices are still higher year over year by about 3%,

[07:46] surprisingly, we've just seen a surge of new listings over the last month with inventory now hitting a six-year high. Why? Well, just consider that over the last few months, mortgage rates have risen from a low of just under 6% in February

[08:01] to now closer to 7% thanks to rising oil prices and higher inflation. So fewer buyers are in the market, more sellers are antsy to lift before the end of the year, and with more inventory coming on the market,

[08:13] buyers have more to pick from, which can cause prices to fall. After all, over the last year, Austin, Texas is already down 8.1%, Clearwater, Florida is down 5.6%. Memphis down 4.1%.

[08:26] Oakland 3.9%. And other cities are seeing 2% to 4% declines. All in the last 12 months as more inventory makes its way onto the market. However, even though certain locations are seeing a price drop,

[08:38] that does not mean we're going to see a housing crash anytime soon. If anything, it's said that homeowners have record levels of equity, lending standards are sound, and inventory remains constrained. What we're seeing now is a normalization, not a collapse, as the market is dropped to new economic realities.

[08:55] For buyers and sellers, this is a market filled with opportunity and resilience, not instability or uncertainty. Although in terms of what the data says is most likely going to happen next, surprisingly, throughout history, there have only ever been a few times where interest rates went higher and housing prices went lower.

[09:14] In fact, as you can see from this chart here, in the majority of cases, interest rates go higher and home prices go higher. And if anything, home prices are more likely to go lower if interest rates go lower.

[09:26] How is this even possible? Well, when it comes to the housing market, interest rates are only a small component of what drives demand. And usually, when interest rates go up, it's during a strong economic environment that can support the rate increase, which is also good for housing.

[09:42] On top of that, when inflation is high, again, as you can see here, it's good for housing. But when interest rates go down, it's usually a sign that the jobs market is weakening, that our economy is slowing down, and that inflation is slowing down, which could drop prices.

[09:58] Even though most people think lower interest rates simply mean more affordable payments and prices go higher, but that's not always the case. Again, I know it sounds weird, but just like bad news is good for stocks,

[10:10] When it comes to the housing market, good economic data and high inflation is good for the housing market. So the better our economy does, the higher housing prices will remain, regardless of what interest rates build.

[10:23] Separately, if we wind up seeing a housing market decline, it is worth noting that that's not just because of interest rates by themselves, but rather broad economic data, kind of like AI wiping us all out, which is just important to keep in mind.

[10:37] So, the more you know. Anyway, in terms of what the Federal Reserve just said, what this means for you, and then what is most likely going to happen throughout the rest of the year, here's what you came for. The rate hike. Like I mentioned earlier, as of a few hours ago,

[10:51] the Federal Reserve unanimously decided to raise interest rates by 25 basis points. From their perspective, inflation is still high, employment is still strong, and the economy could actually handle higher interest rates without completely getting destroyed And look if stock prices fall in the process so be it It just is what it is In fact the market already begun to price in higher interest rates without the Fed

[11:17] even voting on an increase. And this is where things get really interesting. See, the Federal Reserve only controls short-term borrowing rates, basically the rates that banks charge other banks when they lend each other money. But these longer-term interest rates dictate mortgages,

[11:33] business loans, stock valuations, and the broader economy are largely determined by supplying demand on the open market, and those have been going up a lot recently. How? Well, those investors are increasingly concerned that inflation is growing out of control,

[11:48] so they want to be compensated for the extra risk, and in doing so, yields have to increase and prices fall. On top of that, other countries begin selling their U.S. holdings as a way to raise extra capital,

[12:00] pushing those interest rates up even further. That means the Federal Reserve didn't even need to raise interest rates for the market to do it for them. Now, separate from that, today was also what's called our Summary of Economic Projections Day,

[12:13] where the Federal Reserve shares where they anticipate rates to go in the future. And today, they actually anticipate another rate increase by the end of the year, and then they intend to hold them throughout almost the entirety of 2027.

[12:27] That's why in terms of what's happening and what you could expect for the future, here are my thoughts. Overall, I tend to think one of two things is going to happen. Either we enter a time where the national debt grows out of control,

[12:39] inflation increases, rates stay high, and the market goes through wild volatility. Or, as M. Swatik believes, AI soon lifts us into a new era of productivity where we can get so much done that we simply grow into our valuations

[12:54] and then some without there being any crash or major issue along the way. Like, according to their own modeling of the U.S. economy, If AI even just leads to modest gains, it's estimated to add several extra percent to our GDP every single year.

[13:10] And in the substantial or extreme case, our economy would be increasing by an extra 30%, which is massive. But the downside to this is that, yeah, this would have happened. They forecast that unemployment would increase by a lot.

[13:23] But the hope is that long term, everyone displaced would go into new endeavors and new opportunities that we haven't even thought about yet, even though there's a big hope if we're not all wiped out by then.

[13:36] Anyway, in terms of our economy throughout the rest of the year, honestly, all we're seeing right now is already priced in because the markets are forward-looking. They do not care what's happening today. They only care what's happening in the future.

[13:49] And that's why we have to pay close attention to inflation, oil prices, the conflict in the Middle East, and expect a lot more volatility until we see some type of resolution. I know that's not what most people want to hear, but it's also why you should be bracing for a lot more volatility and shoppiness in the markets.

[14:07] And oddly enough, sometimes that's also just the best time to be able to buy in. Like remember, you get the best prices when everyone thinks the economy is doomed, things are getting worse, and that everything is cooked. That was the case back in April 2025, earlier this year, and throughout 2022.

[14:23] So again, stick with your normal plan, dollar cost average into the markets. don't be afraid of volatility and no matter what hit the like button and subscribe if you haven't done that already so thank you so much

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