Money Rehab with Nicole Lapin - What’s All This News With the Fed?

Episode Date: October 4, 2021

… and what is “the Fed,” anyway? Today, Nicole takes to the streets to see how well we really know the Fed. Plus, she tells you everything you need to know about what’s up with the headlines. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. The Fed has been in the news quite a bit lately after a highly anticipated meeting on several

important financial updates. Some of these updates will affect you, and I'll unpack that for you today. But first, I have a hunch that many of us might just be smiling and nodding when we see the Fed in the headlines. Let's be real. How many of us actually know what the heck the Fed is? I took to the streets to ask folks how well they really know the Fed. The Fed? They do. They're important. It's money stuff. Definitely important. Something big for sure with money. Am I close? The Fed as in the feds? Like suits, kick down the door, raids, that kind of fed? The Fed handles the country's money policy, and they also handle managing the country's money supply.

Okay, so we seem to get that the Fed has something to do with banking, but it's otherwise shrouded in some mystery and misunderstanding. Yes, the Fed is the central bank of the United States, but it's greater than that. It is the system that is in charge of the national economy at large. Specifically, the Fed has five main responsibilities. I'm going to give it to you the jargony way. The Fed actually describes their own responsibilities, but then I'll break it down after. Just a warning, though, this is run-on sentences galore. The Fed conducts the nation's monetary policy to promote maximum employment and stable prices in the U.S. economy, promotes the stability of the financial system and seeks to minimize

and contain systemic risks through active monitoring and engagement in the U.S. and abroad, promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole fosters payment and settlement system safety and efficiency through services to the banking industry and the u.s government that facilitate u.s dollar transactions and payments i'm gonna get so light-headed promotes consumer protection and community development through consumer-focused supervision and examination, research, and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations. So what the fuck does that mean? Well, basically,

the Fed makes sure that the U.S. economy is healthy. Explaining this shit isn't that hard, is it, guys? But as you can imagine, what is hard is actually doing the difficult work of keeping the U.S. economy running. So hard, in fact, that when the Fed was created, the architects of the system established three large entities to make sure all the responsibilities were met. Yes, we do love divvying our government bodies up into three in this country, don't we? Well, the three entities in this case are the Federal Reserve Board of Directors, the Federal Reserve Banks, and the Federal Open Market Committee. With the Fed, there is a lot of minutiae and paperwork and bureaucracy that you do not need to know.

But there are a few things that are helpful to know. First of all, the Fed is always supposed to serve in the public best interest, not the best interest of private companies or a small elite fraction of the nation's population. And how do we make sure they're always kept honest? Well, one of the branches of the Fed, the Board of Governors, is the agency that answers to Congress. By reporting to Congress, this agency is put in front of citizen elected officials and therefore is kept accountable. But the entity that is the most newsworthy, at least right now, is the Federal Open Market Committee, or FOMC. The FOMC has two very, very big jobs.

First, creating monetary policy. And second, managing the country's money supply. For example, in the early days of the pandemic, the Fed lowered the Fed funds rate to make it easier for banks to borrow money. And that trickles down to us and makes rates lower for mortgages and whatnot. Recently, the Fed meant to discuss the most pressing matters of the economy. I gotta tell you, the financial world is obsessed with these meetings. They watch them so closely because these meetings can initiate policy changes that have huge effects on the economy.

And what is particularly sensitive to changes in monetary policy? If you're guessing the stock market, you are correctamundo. Some investors groan when it's time for the Fed to meet because if there's bad news, and let's be real, there's been a lot of bad news in the last two years, the stock market tanks. Similarly, the stock market is very sensitive to changes in the Fed funds rate. The rule of thumb is typically an announcement of a lower rate makes the stock market happy. So I'd recommend to any money rehabbers that are nerding out on investing, be very aware of the timing of these Fed meetings because the stock market will likely show some movement up or down around these times. Now, there are some big questions that the Fed is debating, which is why the financial world is watching these meetings so closely. First, paying back the government for pandemic triage.

We're actually creeping toward the two-year mark of life with COVID-19. And what a long two freaking years it's been. Well, to counter the economic downturn we've experienced over the course of the pandemic, the Fed has been working their magic to try and prevent more economic hardship from happening. However, in the most recent meeting, the Fed talked about shifting gears from pandemic relief programs to earning back some of the money they spent to provide financial stability to all of us. As part of this switching gears, the Fed suggested that the Fed funds rate will be raised in the next year, which is a very big deal because the Fed has consistently lowered rates. You know this when you see the interest rate, that diddly squat

you're going to get when you open a savings account. Second, the Fed is seriously considering starting a government-backed cryptocurrency. Before y'all get really excited, because it's the government, it's of course going to happen very slowly. Before making any decisions, the Fed wants to do a full blown study and research and all the things. You better believe that we'll be covering, though, any updates on government crypto here on Money Rehab. For today's tip, you can take straight to the bank. Another key point coming out of the Fed's meeting is that the government is anticipating that the rate of inflation should reach 4.2% in the first quarter of 2021 before falling to 2.2% in 2022. So while we may see some higher prices around the holidays, it seems like we can be

hopeful that in 2022, it will be a new year and new lower prices. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic,

and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.