13:30
What's up you guys? It's Graeme here. So, this is pretty crazy. For the first time ever in history, the new chair of the Federal Reserve is openly calling for what he says is going to be a complete regime change at the institution that controls the cost of money in America. And if he follows through, this could reset everything from the Fed's balance sheet, how much it intervenes in the markets, the way they calculate inflation, and even the way interest rates affect your savings, investments, and mortgage. That's why we really got to break down exactly what's happening, why Kevin Worsh could wind up raising interest rates instead of lowering them, and how these changes are about to affect the very fabric of our
economy. Because believe it or not, this is the first time in 75 years that the former Fed chair, Jerome Powell, won't be stepping down from the Federal Reserve. And that means what happens next is going to determine whether or not your money keeps working for you or quietly loses even more of its value to inflation. Although, before we start, I'll make you a deal. For every like and subscribe this video gets in the first 24 hours, I will do a push-up. Yeah, that's going to take me a very long time to do, but I got to get in shape for summer. And as a thank you for the motivation, here's a picture of a waffle. So, thanks so much. And also, big thank you to Surf Shark for sponsoring this video. But more on that
later. All right, so in terms of what just happened and why this is becoming such a major issue, we have to talk about the Federal Reserve. See, for those unaware, the Federal Reserve is comprised of a small group of people whose entire job is to keep our economy stable. They do this by influencing interest rates, printing money, or siphoning it out from the economy, and ensuring that our dollars don't completely lose purchasing power due to rampid inflation. Essentially, whether you realize it or not, their decisions quietly influence every single part of your financial life. We're talking savings rates, investments, mortgage rates, auto loans, whether businesses are hiring or firing. And as of the
other week, a brand new person is now in charge, and that is Kevin Worsh. However, here's where things get very unusual. The Federal Reserve chair is appointed by the president for a 4-year term, and it's customary that when the new Fed chair goes in, the other one steps aside. Except this time, Jerome Powell said he's not leaving. Instead, he's staying as part of the Federal Reserve. In fact, the last time this happened was back in 1948 when President Truman personally requested that the Fed chair stay on a little longer. Except this time, nobody asked. Jerome Powell just said he's not going anywhere, citing what he called unprecedented legal attacks. This means for the first
time in three quarters of a century, we have a new Fed chair at the same time that we have an old Fed chair. both with very different philosophies about what they expect to happen next. That's not normal. This is objectively the most unusual transition of leadership that any of us have ever seen. And that also means we're going to find out very soon whether or not they reset the economy or bring back the exact inflation problems that everyone thought was finally over. So, in terms of how these changes will directly impact you and your investments along with Worsh's new plan to change our entire monetary system, we need to talk about his four-part reset. Now, here's where Kevin Worsh gets genuinely
interesting. He's repeatedly said that he would be implementing a regime change shortly after getting appointed to the Federal Reserve. And during one of his recent Senate hearings, he laid out a very specific plan, starting with number one, aggressively shrinking the Fed balance sheet. See, as of right now, the Fed is currently sitting on $6.7 trillion dollars worth of bonds and mortgage back securities that they purchased during COVID and the 2008 financial crisis as a way to pump money into the financial system to keep it from collapsing. But Kevin Worsh thinks that this is too large. And he said, word for word that you could take down the balance sheet, a couple trillion dollars over time, and what you would
then do is turbocharge the real economy. Basically, his logic is that a smaller Fed balance sheet means less market distortion, lower inflation risk premium that investors pay when they think there's going to be less money printing, and that means there's potentially room to lower interest rates even further if investors believe that inflation is under control. But critics say that shrinking the Fed balance sheet and taking money out of the system could actually cause the stock market to fall while causing interest rates to rise at the exact same time, which is why investors are already beginning to panic. On top of that, we have number two. He says, "No more warnings." Now,
this one is really unique because for the last 14 years, on a regular basis, the Federal Reserve issues what's called a dot plot, which shows where each voting member expects interest rates to go over the next few years. Now, literally every single hedge fund, mortgage lender, and investor uses those projections to determine the pricing on their own products. But Kevin Walsh wants to get rid of that entirely and also reduce the number of annual meetings from eight down to four. Why? Well, he thinks a Fed that talks less and acts more is healthier for the economy. But once again, nearly everyone else says this makes it impossible for the markets to be able to adjust to new information. And we would most likely
see as a result way more abrupt sell-offs and rallies, especially when paired with number three, a change to inflation. In this case, drone Powell's Federal Reserve used what's called core PCEES, its primary inflation gauge, which stripped out food and energy because those could often be more volatile. But Kevin Worsh wants to switch to what's called trimmed averages, where you basically just drop the most extreme price changes to get a cleaner read on underlying inflation. Again, this might be for the purpose of making inflation look less than it actually is, which would allow them to cut interest rates even further, but it doesn't build a lot of confidence, especially with number four, earned
independence. See, here's the thing. Jerome Powell treated Federal Reserve independence as something sacred. It was a non-negotiable. You were just going to do it no matter what. But Kevin Worsh says that independence must be earned by hitting targets. And in terms of what this means, no one really knows, but it is causing a lot of people to question his intentions, especially when he was appointed by Trump, who really just wants lower interest rates. Or at least that's just the theory. So, in terms of what this means for you, your wallet, and the market, along with Kevin Worsh's new plan to reset the entire economy, here's what you came for. Because this could be the difference between another
market boom or another cost of living crisis. Although before we go into that, there is one more risk that most investors are not pricing in, and that's safety. For example, anytime you log into your brokerage, move money, or check your account balance on public Wi-Fi, you're exposing your data on public networks that you don't control. Like, think about it. You could spend years or decades compounding your investments only to have your accounts, passwords, or sensitive information exposed in seconds, especially during a time when identity theft is skyrocketing. This is why something as simple as your internet connection could become your weakest link. And our sponsor, Surf SharkVPN, is there to help. For those unaware, a VPN works by
encrypting your online data, protecting your personal information, masking your IP address, and preventing hackers from identifying your city, country, and download history. Or basically, a VPN works by swapping the real location of your device with the new one, giving you the ability to virtually travel anywhere around the globe. This means anytime I'm out of the country, I could swap my location back to the United States so that everything works normally. Or if I'm in the United States, I could virtually travel to a spot that streams brand new shows, movies, or content that isn't available locally. Even better, but Surf Shark's clean web feature also blocks ads, trackers, malware, and
fishing attempts, allowing you to surf the web safely. Plus, they don't track, store, or monitor what you do online. This means there's no connection or activity logs, so that you could rest assured your activity is private. Literally, without exaggeration, there's no reason not to use a VPN anytime you're online as an extra layer of protection. So, if you want to get started, just head to surf shark.com/gram and use the code graham at checkout to get an extra 4 months for free. They also have a 30-day money back guarantee, so there's no risk to try it out and see what you think. Again, there is no reason not to use a VPN anytime you're online, so go to surfark.com/gra to sign up and learn more. Thank you so
much. That link is also down below in the description. And now let's get back to the video. All right, so in terms of Kevin Worsh, his new monetary reset, and the regime change expected to go into effect in 2026, there is one more risk to the economy that almost no one's talking about, and that has to do with interest rates. See, here's what most people get wrong. They just think Trump wants lower interest rates. He appointed Kevin Worsh, and therefore we're going to get a ton of cheap money any day now. Except that's not how it works. In fact, even if the Federal Reserve does lower interest rates, they only impact short-term borrowing. And the rates that actually impact your daily life, I'm
talking savings accounts, mortgage rates, auto loans, investments, and so on, are impacted by something entirely different. The bond market, and right now, that bond market is in shambles. Why? Well, these long-term rates are completely dictated by market supply and demand. And if investors think there's going to be more inflation and more volatility in the future, they demand higher compensation upfront for the additional risk. This means even if the Federal Reserve decides to cut rates tomorrow, your borrowing costs only fall if long-term investors believe that inflation is going down. And right now, they do not. In fact, as of right now,
the market's beginning to price in the likelihood that Kevin Worsh is going to raise interest rates as his first policy move, mainly because inflation is growing out of control. The stock market is feeling more wealth creation than we have ever seen before in history. And the only way to maybe get ahead of it might just be to crash the stock market, remove all the free money from the economy, and then start over from a clean slate. or basically investors are out there looking at the current market landscape and they're thinking to themselves, we've got higher oil prices. Inflation isn't fully priced in. And now the Fed wants to change the way they measure inflation, which is going to
probably result in more inflation. So whatever Kevin War says or does, we don't believe it. It's probably full of crap. That's why as of now, borrowing costs are remaining elevated and uh interest rates are not going down. At this point, the Federal Reserve's only job is just to gain trust. And if they don't have that, it doesn't matter what they say or do. Investors will price in the risk of what they believe is most likely to happen. So if they think inflation is coming back, deficits are getting worse, and the Fed is becoming more political. They're going to demand higher yields until they believe they're fairly compensated for the risk. And this means higher mortgage rates, weaker
housing, lower savings, and more expensive government debt, which impacts everybody. So, in terms of what this means for you and what's most likely going to happen over these next few months, here's what you came for. And we should start with the biggest losers. Unfortunately, this next year is going to be extremely difficult, especially for first those with debt. For example, credit cards, auto loans, personal loans, business loans, variable mortgage rates. All of that gets more expensive when rates stay higher for longer. Like, keep in mind that the average American carries thousands of dollars in credit card debt at rates already above 20%. That number is not going down anytime
soon. On top of that, mortgage rates are now hitting 7% again. So, first-time buyers or anyone getting debt today is getting screwed. Second, growth stocks might suffer. Look, here's the math that most people don't consider. When interest rates rise, future profits become worth less in today's dollars. That means high multiple tech stocks, AI plays, speculative names, anything priced on earnings years from now gets repriced lower because today's rates pay more. Third, housing stays frozen. Keep in mind that mortgage rates are already hitting multi-deade highs. Worsh's plan to reduce the Fed's balance sheet includes selling off the mortgage back securities, which are literally the
assets that back home loans. So, for anyone waiting for housing to get more affordable, you might be waiting a little longer. Leading us to fourth, the government loses. The fact is higher Treasury yields means more interest on the $39 trillion national debt. Bigger interest payments mean bigger deficits. Bigger deficits mean more borrowing, which means higher interest rates, which means even higher deficits. However, not everything is doom and gloom. And there's also some very clear winners from this. And the biggest winners in my eyes are savers. In this case, if you have money sitting in a high yield savings account, a CD, or you go and buy Treasury short-term, this could be a
great time for you. Like, the 30-year Treasury is already above 5%, the highest in nearly two decades. So, for anybody who wants a safe, stable return without the risk of the stock market, this is pretty good. Even though long-term treasuries are expected to underperform stocks, but that's a subject for another video. Short-term, this is good for savers as well as number two, banks are also winning. In this case, higher interest rates and higher inflation means that banks could charge more for long-term loans while paying out less for short-term deposits. This means more profit for banks, and this is already showing up in their stocks. And finally, third, this could be split in terms of how people interpret this, but the dollar is
getting stronger. Now, even though some people want a weaker dollar because it means stronger global exports, a stronger dollar means that when you go and buy overseas, your dollar goes a lot further. Or when you go and travel, you could buy a lot more for theoretically a little less. So, in terms of how this is likely going to affect you and my own thoughts about what's going on, here's what you came for. Because this could be the biggest policy change in decades. Honestly, here's my take. I tend to think the coverage around Kevin Worsh has been a bit dramatic on both sides of the equation. Like the reality is he inherited an economy with 3.8% inflation, $106 oil, a divided Federal
Reserve and a bond market that's already calling his bluff. On top of that, the market's not pricing in rate cuts anymore like we all thought a few months ago. Instead, it's beginning to price in the chance of a rate hike. And none of this regime change rhetoric is going to change the numbers unless inflation meaningfully comes down. That's why I tend to think that anyone who's waiting around for cheap money to come back is probably going to be waiting for a lot longer than expected. Now, in terms of whether or not any of this was Kevin Worsh's fault, my take is kind of like on the one hand, he did enter the Federal Reserve in the middle of oil prices spiking from the conflict in the
Middle East. That is completely outside of his control. But on the other hand, the market doesn't believe that he's going to be tough on inflation and they think that with him in control, prices are just going to be going crazy and they don't believe anything he says. So, he isn't necessarily helping the situation, but he's also not to blame for it either. That is why I'm just largely watching this from the sidelines to see how this plays out while also keeping about 20% of my portfolio in cash on the sidelines earning between 3 and 12 to 4%. Obviously, I'm continuing to just dollar cost average because I'm just a random dude who has no idea how this is going to play out, especially if
AI continues to dominate. But beyond that, I'm definitely not betting on lower interest rates coming anytime soon. And I'm definitely not overleveraging on anything that's dependent on interest rates coming down anytime in the next 12 months. I tend to think that the investors coming out ahead from this are simply going to be the people who stay diversified, keep some dry powder on the sidelines just in case, and don't panic sell if and when things eventually do turn around. On top of that, the next Fed meeting is going to be on June 17th. So, if you want to keep up to date on that, make sure to subscribe because I will be posting any updates as they come up. So, with that said, thank you so much for watching.
And as always, if you want bonus videos every single week, along with early access to videos just like this, feel free to join as a channel member. And as an extra perk to that, I'm going to be doing subscriber audits where I go through your finances and just rip them apart if you're not saving enough money. So, if you want to see those, again, join as a channel member, trying out those concepts, and I respond to all of your comments. Really appreciate it. Thank you so much and until next
