The Federal Reserve has enlisted an unlikely ally in its war against inflation. And the central bank is using it to issue a stealth rate hike on the rest of us…

For the past 12 months, Federal Reserve Chairman Jay Powell has waged an unrelenting campaign of rate hikes to bring down stubbornly high prices.

His latest salvo came last week during the quarterly meeting of the Federal Open Market Committee meeting.

During the meeting, Powell announced the Fed will hike its benchmark interest rate by 25 basis points. It’s the Fed’s ninth rate hike since March 2022.

Over that span, the Fed has raised rates from an upper bound of 0.25% to 5%. It’s the fastest and highest series of rate increases since 1981.

Right now, inflation is up 6% year-over-year. The Fed’s target rate is 2%.

So Powell still has his work cut out for him.

Since the start of the year, I’ve been warning that the Fed’s aggressive rate hikes would eventually break something.

And we saw the first cracks emerge earlier this month in the banking system…

So far in March, three major U.S. banks have collapsed.

Abroad, global banking giant Credit Suisse nearly buckled under. Rival Swiss bank UBS acquired it in a $3.2 billion shotgun wedding arranged by the Swiss National Bank.

We also saw a coalition of 11 major banks – including JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and Goldman Sachs – deposit $30 billion into First Republic as a show of faith to help reverse a run on that bank.

So why has there been so much panic in the banking system?

It all comes back to Jay Powell. He’s been their worst nightmare.

The Enemy of My Enemy

The Fed’s series of aggressive rate hikes have hammered the value of long-duration bonds because as rates rise… Bond prices drop.

Banks own $4 trillion worth of these long-term bonds. They’re reportedly sitting on anywhere from $620 billion to $1.3 trillion worth of unrealized losses on them.

Like the 2008 Financial Crisis, these unrealized losses are creating a contagion in the banking sector.

Below is a chart of the Financial Select Sector SPDR Fund (XLF).

The exchange-traded fund holds 75 financial firms, including Bank of America, Wells Fargo, JPMorgan Chase, and Goldman Sachs. So it’s a good proxy for the U.S. banking system.

As you can see, it’s fallen off a cliff…


You’d think Powell was the banks’ worst enemy right now.

But despite the pain he’s causing the banks… He’s enlisted them in his fight against his worst enemy: inflation.

A Stealth Rate Hike by the Fed

A byproduct of all these losses on bank bond portfolios will be a slowdown in lending activity as the banks seek to keep capital buffers high and new loan risk low.

Here’s a key line from Powell’s speech on Wednesday…

Events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses.

When banks dramatically reduce the availability of credit, it’s called a “credit crunch.”

During a credit crunch, banks significantly tighten their lending standards. Loans become much tougher to get.

And interest rates go higher as banks demand more money for the perceived higher risk of making loans in a credit crunch environment.

This, of course, increases borrowing costs for almost everyone.

That makes it harder for people to buy cars and homes… or for businesses to hire new employees or expand.

It also means we’ll likely see more bankruptcies in industries that rely on easily available cheap money.

Again, the banks are tightening lending standards because it will allow them to shore up their balance sheets and reduce risk. But it’ll also slow down the U.S. economy, making a recession more likely.

Powell is smart enough to recognize that this credit crunch could do his inflation-fighting work for him.

So while the Street is rejoicing that Powell may have just one more rate hike left in him… He’ll be the one having the last laugh.

Because, according to some initial analyst views, a credit crunch could be the equivalent of a 1.5% rate increase.

It’s like a stealth rate hike.

Powell is putting the onus on the nation’s banks to slow down spending for him – and therefore bring inflation under control with fewer rate hikes by the Fed.

That’s why I believe Powell sounded a lot more dovish on Wednesday. He signaled the Fed won’t impose many more rate hikes if tightening lending standards slay inflation.

That’s a big if.

All of the above goes out of the window if inflation remains stubbornly high.

Powell is determined to get it under the Fed’s 2% target rate. He’s ready to unleash the hounds of hell to do it.

And if he does, it’ll create much more volatility in the markets…

How to Prepare for a Stealth Rate Hike

Even if Powell only hikes interest rates once more this year… As I showed above, his plan to enlist the banks to do his dirty work for him will have the same impact as increasing interest rates.

This is the reason why I’ve been putting all my excess cash… business earnings… dividends… and rental property income into 90-day Treasury bills.

On big rally days, I’ve been selling calls against some of my positions to take advantage of the recent wild option premiums.

And on big down days, I intend to sell puts against well-capitalized blue-chip stocks I want to own for the long term.

Another beneficiary of this banking crisis is bitcoin. It’s up 70% since January, making it the best-performing asset so far this year.

And it’s no surprise why…

Bitcoin is no one else’s liability. As long as you custody your own bitcoin, it’s free of counterparty risk.

In addition to that, it’s impossible to dilute bitcoin’s value beyond its preprogrammed creation schedule.

While bitcoin is set to be a huge beneficiary of this banking turmoil… And I expect it to go much higher from here…

It’s NOT going to give you the chance to turn $1,000 into an entire nest egg… all while paying you month after month after month…

I believe there’s a “buying panic” coming to crypto… And it’ll occur in a tiny subsector of the crypto market.

And if you don’t own these tokens, you’ll get crushed. But if you do, you’ll have the potential to make a killing from this coming buying panic.

Unlike most cryptocurrencies, these tokens are programmed to pay you monthly income on top of capital gains. And they’re set to benefit from a surge of activity coming as early as next month.

To prepare you for this coming buying spree, I held a special briefing last week called The Crypto Panic of 2023. And for a limited time, you can watch the replay right here.

But you must act soon. This event could occur any day now. So make sure to watch my replay right here before it’s taken down.

Let the Game Come to You!

Big T