The Federal Reserve (the Fed) executed a silent coup this year.
Fed Chair Jerome Powell and President of the New York Fed John Williams successfully replaced the London Interbank Offered Rate (LIBOR) with the Secured Overnight Financing Rate (SOFR) here in the U.S.
SOFR is now the benchmark interest rate for dollar-denominated loans and derivatives. That means it influences other dollar-based interest rates.
LIBOR previously held that role. And the key here is that LIBOR was heavily manipulated. We know that definitively thanks to one of the investigations into the 2008 financial crisis.
So for as long as U.S. rates were tied to LIBOR, European banks had some influence on monetary policy in the U.S.
In other words, the Fed was trapped in a box. If it tried to raise rates while LIBOR was still the benchmark, the European Central Bank (ECB) and the large European banks could have manipulated LIBOR lower.
That would ensure long-term rates could not rise too much, regardless of where the Fed set its target rate. Thus, the Fed wasn’t in the driver’s seat.
That’s why what happened this year was a silent coup. The Fed was determined to raise rates. And ousting LIBOR was the only way to do it.
Of course, this begs the question – why?
For over a decade now the Fed itself has cut its target rate to near-zero every time the U.S. stock market got the sniffles. Why the sudden change of heart?
Well, there’s a major power struggle happening just beneath the surface right now.
The Fed is owned and controlled by the New York banking interests. Their wealth and power is predicated upon the state-capitalist structure and the strength of the American economy.
Yet, the old-world European powers have set out to replace the capitalist model entirely. They want to install a grotesque form of neo-feudalism. That’s what their “Great Reset” agenda is all about.
They call their model “stakeholder capitalism”.
This may sound like a friendlier version of capitalism on the surface. But really it comes down to a key question. Who are the stakeholders?
Well, it’s them. In their vision, their organizations control everything. Sounds a lot like communism to me.
That’s why we are seeing so much commentary from the World Economic Forum (WEF), the World Health Organization (WHO), and the Centers for Disease Control (CDC). These institutions are beholden to the old-world European powers who control the ECB.
And a big pillar of their “Great Reset” plan is to make central banks the ultimate arbiter of everything when it comes to money and credit. That necessarily means that commercial banks need to be toned down or eliminated completely.
That’s what retail central bank digital currencies (CBDCs) are all about.
With retail CBDCs, our bank accounts would reside at the central bank. And that would give the central bank full control over our money and our transactions.
Then, when we need a loan, they are the folks we would have to go to. That’s huge.
Suddenly the European power structure would have direct control over which projects and activities could get financing, and which couldn’t. This alone would give these crazy people almost total control over the western world. More on that tomorrow.
But this plan requires the commercial banks to be neutered or eliminated. That’s the key.
And that’s why the Fed is fighting back. It’s fighting for the survival of the commercial banking system itself.
This is why we can be sure that the Fed will continue raising rates well in 2023 and beyond.
Yesterday the Fed raised its target rate to 4.5%. The market expects that number to peak at 5.1% next year… and then fall to 4.1% by late 2024.
The problem is, these projections are based on consumer price inflation (CPI) expectations. But the Fed raising rates has absolutely nothing to do with inflation. That’s just the cover story.
By raising rates, the Fed is draining the Eurodollar market of liquidity. That puts a ton of pressure on the ECB.
In fact, this forced the ECB to raise its own target rate this week. It’s a battle of survival.
So I would bet on the Fed’s target rate going to at least six percent. Probably seven. And then it’s going to stay in that range.
The big takeaway here is that the days of dramatic rate cuts and easy money are behind us.
And that means the Age of Paper Wealth is over. The Fed won’t backstop the equity markets every time there’s a downturn going forward.
That means we better have a sound asset allocation model in place. Anyone whose money is parked exclusively in stocks and funds will struggle mightily in the years to come.
For more information on how to build a strategic asset allocation model, and which assets we need to have exposure to, just go right here: