What A Quieter Federal Reserve Could Mean For Your Rates

The Federal Reserve doesn’t just set a number on a screen, it sets the mood for the entire economy. When the Fed changes how it communicates, it can change how investors price risk, how lenders set mortgage rates, and how businesses decide to borrow and grow. That’s why we zoom in on a major leadership shift and what it signals for monetary policy, interest rates, inflation, and long-term investing.

We walk through two Fed eras, starting with Alan Greenspan’s legacy and the old world of “Fed speak,” where markets often had to infer policy moves. Then we track how the Fed evolved into today’s high-transparency model with statements, press conferences, dot plots, and forward guidance, especially after the 2008 financial crisis and the 2020 crisis. From there, we get practical: new Chair Kevin Warsh shortens the Fed statement, removes forward guidance, skips submitting his own forecast, and launches five working groups covering communications, data, the inflation framework, AI and technology, and the Fed’s balance sheet.

We also connect the dots to real-life money decisions. We talk inflation pressures, how energy prices and uncertainty can influence rate expectations, and why the Fed’s balance sheet and quantitative tightening can affect bond prices, mortgage rates, and corporate borrowing costs. Finally, we bring it back to what matters most: keeping a steady portfolio and a clear financial plan when the Fed’s playbook shifts.

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Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may suit you, consult the appropriate qualified professional before deciding.  

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may suit you, consult the appropriate qualified professional before deciding.  

Transcript

Welcome And Why Money Matters

Speaker 0:02

Welcome to Money Matters with Greg, where we dive into the money conversation. You're live from Investment Planning. We cover it all with a fresh perspective. Join Greg and take control of your financial future. Let's get started.

Speaker 1 0:53

I'm Greg Farrall, CEO and owner of Farrall Wealth. It's a wealth management firm here locally in Valparaiso, Indiana, and broadcasting on WVLP here today at 103.1 FM. We'd love our WVLP family. I highly recommend everybody listen in on multiple different shows. You can find them at WVLP.org and many of the shows there. Listen in throughout the days. We are broadcasting at uh Thursday at one o'clock and then replayed again on Saturdays. And we also podcast uh anywhere you pod. You can find us Apple, Spotify, uh, YouTube, and then also on our YouTube channel, the show's Money Matters or Greg. We talk money on this show. And today we're gonna talk about how uh some recent changes in the landscape of the Federal Reserve are gonna affect you and how they might be able to affect you. So wanted to preface that. We're gonna talk about the past and the future in regards to the Federal Reserve. I just did a blog post on this. You can find this uh on find the blog post on ferrowalt.com. It's basically the skeletons of what we're gonna talk about today. And uh ultimately just kind of give you an update. The reason we talk about money on the show is to help you uh save some money, invest some money, grow your money, uh protect your money, and ultimately uh be very, very wealthy and ultimately in retirement. Walk towards sunset and enjoy a fantastic retirement because you've planned ahead, you've made the plan, all these things we talk about on this show as far as getting the the nuggets together, um ultimately the rocks, what we call, that you ultimately have to push and push uh out of the way in regards to your retirement and things that you need to be able to make sure that you're doing. We're trying to help with. So we have lots of guests on this show. You can find us on most of most of the shows through Wherever You Pod, but then also on the YouTube channel at ViralWealth. Um we have this will be a 189th episode, so we're working our way up to 200. Hopefully, we'll get that uh certainly done by the end of the year. Uh, I want to thank W VLP. I highly recommend as a community radio station that you uh help uh support them as much as you can. Uh you can check out more at WVLP.org on ways to be able to help. And certainly you can contact me as well. Greg at Farewellth is my email. Greg at fairwell.com is my email. And uh, I'd love to hear from you if you have any sort of questions or anything else you'd like to talk about in regards to topics on money and like to have me kind of review and whatever might be, let

Father’s Day And Community Shoutouts

Speaker 1 3:12

me know. Always looking for new ideas and great content out there. I want to just quick house cleaning, Happy Father's Day to everyone that was out there uh that is a great dad. I was lucky enough to have my three together for a few days over the weekend, and it was just uh it's a blessing. As we all know, as they get older, it's very difficult getting them all together. And that was uh quite a blessing. I really enjoyed that. I try to be the best dad I can possibly be and be a great dad all the time. And uh there's some uh great competition of great dads out there. I had one. So I hope you have a great dad. I hope you're being a great dad for sure, and uh happy Father's Day to all. I also want to thank uh all of the uh World Cup Europeans that have come into America and blessed us with their presence and their uh uh their updates. I tell you, it's been a joy. Uh it's been a something none of us, I don't think, really saw coming uh in regards to the happiness that many of them have portrayed about our our our our country and just the fact that we are trying to be the best hosts we can be. And uh hopefully they have a great time. I've really enjoyed Tartan Army. Big shout out, Freddie77 as well. He's another great follow. I highly recommend you follow him as he uh treks around trying to find his his host Germany. And also just as a fan, he's uh quite the follow. And many of them, I'm sure you've seen him at Bucky's all the way down to uh New Orleans and Texas, the West Coast, obviously Seattle. Congratulations to our USA men. Uh, they're doing great. And it's just been a joy to watch. It's been super fun to have sort of a respite from the sports world for the first time in a while. And I just wanted to throw that out there. Uh and then also uh we're gonna be running into the celebration of July 4th with the uh 250th anniversary of our nation. Very excited about that. There's a lot of America going on right now, and uh it's very positive, especially in the stock market as far as uh just moving forward here as far as the economy goes. We've had some really good solid growth numbers, which I've alluded to in the last couple uh podcasts. But today

Two Fed Eras And Why They Matter

Speaker 1 5:10

I wanted to do some sort of like talk about how important the Fed is and how the Federal Reserve is to you and what's changing in regards to the way it's been, the way it is. And uh that's really what I want to talk about today. So, two Fed eras. Let's just be super basic and simple. You've got Greenspan's legacy and the future under Kevin Warsh. So Kevin Warsh was just nominated and you know, basically passed. He's officially the new Fed uh chair. And Alan Greenspan, he always once said, I always remember this quote, he's Since I become a central banker, I have learned to mumble with great incoherence. And that is funny because this man was basically uh followed from 1987, 1997. Uh he's recently passed away at the age of 100, so rest your soul for sure. Served as the chair of Federal Reserve from 1987 to 2006, which is, you know, number of presidents, number of different uh administrations. And it's become one of the really the most influential uh economic figures of our 24 20th century. And as you really reflect on his legacy, just days after and weeks after Kevin Walsh was just chaired, he just chaired his first Fed meeting, you know, the parallels between these two leaders really highly like there's several changes in how the Fed might operate in the coming years. And that's what I want to talk about today. So the connecting the Fed's past to its future helps kind of clarify how investors should view monetary policy going forward. Greenspan leaves a very complex legacy, bookended by really a long period of stability after the crazy inflation of the 1970s and the early 1980s. So that's on the one hand. And then the housing bubble on the global financial crisis is really on the other. So throughout this timeline, it was undeniable that he helped define the role that the Fed still plays today. And I'm here to tell you it's changing. So that's why we wanted to be able to mention this today. And perhaps it's really no coincidence that Warsh's vision of the Fed echoes aspects of Greenspan's era, which favored less explicit communication. I mean, less explicit communication, fewer fewer policy hints, no hints, or former guidance. Like if you remember him with the briefcases, the CNBC made famous. They're all everyone wondering about what's what's in the briefcase, what's in the briefcase, you know. Uh that's what I basically grew up with. And then in the pits in the Chicago when we were trading, we would always have Greenspan Watch on uh on TV. And you really the belief that there's a narrower balance sheet and a narrower focus on core mandates is something to consider because that's the way it was. And Warts has certainly taken it sort of the same way because it's been the wild, wild west for a while. And we've been very I've been very open about how frustrated I've been with many Fed chairs and Fed uh chiefs openly out on X and openly out on different social medias and broadcasting comments and having press conferences. And yeah, look, it didn't happen during Greenspan. You know, and now it does. It happens all the time and it's annoying because they act like they actually have some sort of voice and they have some sort of, you know, they should work as a team. And uh, you know, they work for us and they should work as a team. So that's my opinion, and that's just not the way it's been for a while. So it's really important to remember that the economy and the markets have grown under different leaders at the Fed. Um this is not because this is purely because the Fed does not control many of the underlying drivers of the economy, such as like technological innovation, uh democratic, demographic trends. And so as a long-term investor, how should investors view the latest changes at the Fed while kind of keeping that history in mind? So when you're looking at this, um the economy has grown under Fed shares. It's important to remember that the Fed is not uh always operated the way it does today. And for much many of you are gonna know any know any different because Greenspan, he retired in 2006. So some of you as investors uh you know were born in the 2000s. Uh you don't know what this this is, it's just normal for you to see what whatever's been going on for a while. And really, for much of Greenspan's tenure, the central bank did not even announce its rate decisions publicly. They just changed. Um instead, the Fed would effectively operate in secrecy and markets were left to infer what would happen by watching short-term rates in the money markets. And now, when it did issue its communications, the language was difficult to understand, something that economists refer to as Fed speak. It was not until really 1994 that Greenspan kind of introduced the practice of issuing statements when rates changed. And even then the statement was extremely brief with little explanation. But as this practice really started to take hold, the Fed started including language that partly explained its business as its decision-making process based on the economic environment. Now, this continued to evolve over the next three decades. So over 30 years, the Fed's modern use of press conferences and dot plots and forward guidance was developed under Ben Bernanke, Janet Yellen, and Jerome Powell. Now, many of these policies were driven by economic crises. You've got including the 2008 and the 2020 crisis, during which the Fed really believed that communication was an important tool for restoring confidence in the financial system. Now, despite the many different views on how the Fed ought to operate, the account the like the different charts you see and everything else you'll see on our website on the blog, you'll see the charts that I bring up. The Fed leaders really have navigated, each navigated unique challenges and really set up their playbook for successors, hopefully. The economy has continued to expand over an extended period of time, despite different approaches to monetary policy and varying relationships with the White House. Now,

Warsh Shrinks Statements And Kills Guidance

Speaker 1 11:05

Walsh's approach marks a shift in communication. And that's what I want to talk about. So while the purpose of these communication challenges was all also to enhance transparency about how the Fed operates, Walsh and others argue that the pendulum has swung way too far in that direction. So at his first FOMC meeting in June, and this is telling for all of us, this is why I bring it up in this show, Warsh made several changes. The Fed statement was significantly shortened, removing much of this boilerplate language that's been there for years. Any forward guidance, quote unquote forward guidance, meaning the practice of signaling what the Fed might do at or future meetings, was totally removed. He totally took it away. Warsh also also declined to submit his own forecast to the FOC FOMC's uh summary of economic projections, a sign that he does not view these numbers as helpful at all. So that was different. So now that was all really important because that was basically three huge changes. Well, you know, he's coming in, he's able to do what he wants to do. He's the chief, so what do you do? But probably

Five Working Groups And AI Productivity

Speaker 1 12:12

most importantly is that Warz announced five working groups to study different aspects of the Fed operations of policymaking. So that's totally different. So five working groups. Now, inside these will include communications, the data the Fed uses across the economy, its inflation framework, the impact of AI and technology, and the overall balance sheet. So there's your five, and these are all in line with Warsh's previously published views on how the Fed should operate, is basically have five working groups study different aspects of Fed operation and policymaking. It makes a lot of sense. But again, for long-term investors, perhaps the most interesting area is around the productivity growth driven by AI. Now, as you'll see in the charts in the blog, when you go to FaroWalth.com and check it out under blog, the productivity of growth really has been certainly uneven across many decades. We can agree upon that for sure now. With this notable acceleration during the technology-driven expansion of the 1990s, dot com boom, dot com bust, productivity is very difficult to measure accurately in real time. And even small changes can result in big differences in overall economic growth because they really kind of compound over time. It's so much easier to obviously look back and see where things were and how things were going than obviously where we were in the moment, for sure. Now this matters because in simple terms, productivity allows businesses to produce more with less labor. So as a business owner, that's all you ever want is more with less labor, more productivity, more opportunity with less work or working smarter. Lots of different ways to put it, however you want. But while much of the AI discussion is rightfully focused on jobs and disruption, um, in the long run, productivity is what enables wage growth and rising standards of living to happen. So with AI comes a better way to live and a better better living standard. That's why it's the future. And that's why in adapting it, incorporating it into your life is definitely going to be something you're going to want to do because it will make your life better, hopefully, if you're used the right way. So technology can also help to keep inflation under control if it truly reduces the cost of producing goods and services. If it's it costs less to produce something, then there is no pass-on to the to the uh uh to the consumer, like was what what has been happening here as prices have been rising, ultimately those those those prices have been then pushed on to the consumer. So this all that so that's a lot, right? And again, shows money matters with Greg. I'm Greg Farrell, CEO and owner of Ferrell Wealth, it's a wealth management firm, financial advisor, and helping clients from all states, uh 25 states, uh manage their wealth. And these conversations we have with our clients, I like to bring to you here on the show. We're broadcasting at WVLP103.1 FM right now, and that's on Thursdays at one o'clock, and then also on Saturdays at one o'clock on a replay. Uh, we broadcast every week and uh thankful to have you here. We talk about money on the show, and today we're talking about the Federal Reserve's changing of leadership. So that's basically just the the rundown now. All of that that I just went over was a lot, right? So lots of changes, many things for us to all kind of digest and figure out as investors and uh as money managers. And this all has these all have significant implications on monetary policy. And that's what the Fed's in charge of. So in the near term, the Fed has been managing a challenging period of inflation, which has happened obviously with the ongoing war in Iran, but that still continues to create uncertainty around energy prices. However, recently we've dropped from over $115 a barrel to right around $73 a barrel. I don't know if you checked out your gas prices, but here in the state of Indiana, they are looking much better and I think looking much better across the nation as well, as we finally come to a resolution here and get this over with and basically bring home a lot of the oil because we are a net exporter as a nation as of today, and hopefully in the future. So we have the oil, might as well push it out, might as well sell it. So oil prices, in our opinion, are going to be trending towards sixty dollars a barrel, more than they are gonna be trending towards a hundred. So right now at 73, uh, we see downward pressure than we do, and then upward, just so you know, just following the news and following what's going on there on the geopolitical side of things. Certainly things look like there are more pressure on the downside than the upside. But the Fed has to watch all of this, and that's what we're talking about today. The latest Fed rate projections really show that the committee is totally divided on energy and divided on on rates. Well, like roughly half is expecting rates to remain at the current levels by year end, and the other half is expecting them to move higher. And the reason is is because we're doing well. Our economy is moving very, very uh is very healthy in regards to a number of things, in even in spite of things that are uh blocking us from gr growing. And that's you know, a number of things, including the including the war, which is hopefully soon to resolve. The

Balance Sheet Focus And Quantitative Tightening

Speaker 1 17:23

next thing that's very important is the Fed's balance sheet is remains in a focus. Now, interest rates are not the only Fed's only policy tool. As the the chart that I have in the blog, you'll see uh the Fed's balance sheet stood at less than $1 trillion before the 2008 financial crisis. And then it expanded dramatically during the several rounds of asset purchases that happened during the crisis. Now, in times of crisis, the Fed has directly purchased bonds at the open market. Now, that's primarily treasuries and mortgage-backed securities. And this provides liquidity to the financial system and effectively lowers interest rates, which is also why the Fed is sometimes known as a lender of last resort. Today, the balance sheet stands at 6.7 trillion. Now that's down from the peak in early 2022, um, that was nearly 9 trillion. So things have changed for sure. Obviously, there was an election there, there was a shift uh in regards to the balance sheet. There's also uh we're coming out of the financial crisis as far as COVID, uh, that and that has been certainly helpful. But we had $9 trillion on the balance sheet of the Fed just recently. And the way it looks now at 6.7, it's going down because Walsh is determined to get assets off the Fed's balance sheet as much as possible. Now, Walsh was the Fed governor during the financial crisis and supported these balance sheet expansions as emergency measures for sure. Now, he's also argued that the Fed should have been more deliberate about reversing this trend once the conditions improved. And this is what we find with anything that's given out to businesses or given out to people is you know, don't take it away. Ultimately, you have to take it away sometime, or it just continues ongoing. You can see a number of different government government uh programs that probably should have been squashed, you know, decades ago. But if you allow them to keep on happening, then you know people don't want them to go away, and then you need votes and all this other stuff that goes on with politics, which we try to stay out of. But reducing the balance sheet often is called quantitative tightening. Now, you're sure you're very familiar with quantitative easing, which is what we just went through. Quantitative tightening involves allowing the securities to mature without reinvestment. So they just expire, they're just done, they did their job, or you know, actively selling assets, if that's what you want to do. But there is a deadline, there is a timeline on many of these treasuries, and right now they're either selling them or they're just letting them expire. And now, how the Fed will change its communications, the policy making process and the balance sheet is not really fully clear at all. But I wanted to mention it because the policy changes could lead to tighter financial conditions. Interest rates might be raised, you know. It's it it could happen for sure, as much as we're everyone was talking about just lowering six months ago. The economy will dictate that, the movement, the data will dictate dictate that, and a new Fed share will dictate that. So for the long-term investments, this could really affect bond prices, mortgage rates, corporate borrowing costs, and a number of other things. But the fact that Fed may provide less guidance might reduce the Fed speak, which I'm all for. Like we I think we all are in the investment world. Like we don't need a Fed governor out of somewhere that we don't even know who they are or what they're doing, talking about smack of of something about they believe this or they believe that, and it moves the market. Like, you know what? It needs to, I think it needs to it. We always in sports used to talk about it stays in the locker room. In my opinion, a lot of these fed chairs need to stay in the locker room and and not be so vocal. But I know that's tough for them because they they have the ability now on socials to get to get uh clicks.

What It Means For Your Portfolio

Speaker 1 21:08

So, you know, this could also create a lot of uncertainty about how the Fed might react to any new developments. But the broader lesson in all this, as we close up here at the end of the show, is the broader lesson is that the Fed's approach to monetary policy is really not static. It's always moving. We know this. It has involved, it's been in responsibilities, uh, new research, political considerations, the judgment of individual chairs, for for goodness sake, as I mentioned. And for long-term investments, it's really investors, it's really important to remember that the Fed is only one part of the overall picture. Um, the underlying trends driving the economy, many of which are positive today, which I mentioned, are ultimately what allows portfolios to support financial plans, which is what we're here all about, is planning, making the plan, building the plan, and have following through. So the bottom line is the Fed's never evolved under different leaders over the past several decades. It's been the same. Now, while this is important to understand, maintaining this portfolio construction and financial plans is still the best way for investors to achieve long-term goals. It's going to be interesting. It's basically my whole point here. It's like, okay, there's a new sheriff in town. We'll see where this goes. I think there's some things that are going to be certainly improved. I think I've already seen a major, major moves, as I mentioned already. And so things are changing as to quote Bill and Ted's excellent venture. It's not every day I get to quote big Bill and Ted. There's something afoot of the Circle K. And you might want to keep watch because it might affect you financially. Uh, and happy to do that here and uh and sort of update everybody on what's going on with the Fed. So keep an eye on it. As a long-term investor, keep your eye on the prize and keep on investing. As we always say, um, you know, always be serving, always be learning, always be investing, and that you will equal a uh life fulfilled. So I hope you enjoyed today. Greg Farrell, CEO and owner of Ferrell Wealth, it's a wealth management firm here locally in Valparaiso, Indiana. You can reach me at 219-246-2516 as the office, as well as email Greg at farrowealth.com. I'd love to hear from you and really appreciate all the insights everybody has. Uh, you can also find us on Apple for our YouTube or for our podcast, Apple, Spotify, YouTube channel, you name it, and all of our socials are at FaroWealth. We'd love to hear from you. Thanks again for listening today, and I hope you have a very profitable and fantastic week. We'll see you.

Speaker 23:34

Thanks for tuning into Money Matters with Greg. We hope you gained some valuable insights today. Remember, your financial journey is personal, but you don't have to go it alone. If you enjoyed the show, be sure to subscribe and share. Until next time, here's to making your money work for you. Securities and investment advisory services offered through LPL Financial, a registered investment advisor, member FINRA SIPC.