NerdWallet's Smart Money Podcast - Drained Retirement, Maxed Credit Cards. How Scam Victims Start Rebuilding

Episode Date: September 17, 2026

When a parent sends their retirement savings to someone they met online, learn how to help them recover – without letting it happen again. What do you do when a parent has spent most of their retirement savings on a romantic partner they’ve never met? Hosts Sean Pyles, CFP®, and Elizabeth Ayoola help from a listener whose father, in his 70s, drained his retirement accounts and ran up massive credit card debt paying someone he met on OnlyFans. Sean shares what happened when his own father lost $150,000 to a crypto scheme while isolated during the pandemic, and Elizabeth talks about being scammed herself and her mother handing money to a stranger promising crypto returns. They get into the shame that keeps victims silent, the chat agencies that mean the person answering may not be the person in the photos, the red flags that show up before money moves, and why a parent who’s lonely is a target long before they’re a victim. Plus, we talk with an economics professor about the Federal Reserve’s decision this week to hike a key interest rate, and what it could mean for your loans and savings accounts.  If you’re worried a parent is being scammed, you can access free guidance at the AARP Fraud Watch Network Helpline.  Enter for a chance to win a $250 Amazon gift card — and help us improve our show — by taking our listener survey! Find the survey and official sweepstakes rules here: https://docs.google.com/forms/d/e/1FAIpQLSettbeI0yDf8tLt_Q772StVJoWs_Gm-pWa-gSn2fdWEc0XcOw/viewform?usp=sharing&ouid=102666646608198254961  Subscribe to our podcast’s free email newsletter for bonus content and more from our hosts at https://smartmoney-nerdwallet.beehiiv.com/  Want us to review your budget? Fill out this form — completely anonymously if you want — and we might feature your budget in a future segment! https://docs.google.com/forms/d/e/1FAIpQLScK53yAufsc4v5UpghhVfxtk2MoyooHzlSIRBnRxUPl3hKBig/viewform?usp=header Smart Money’s YouTube Channel: https://youtube.com/@nerdwalletsmartmoney To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend. *The show notes were created with the assistance of AI. They have been reviewed by our editorial team for accuracy and quality. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's episode is brought to you by Vinted. Sean, do you have clothes in your trunk that you've worn but have no idea what to do with? You know what? I do not because my car is super clean right now, but I'm betting that you do, Elizabeth. I sure do, Sean, unfortunately. And I've been wondering what to do with these clothes. And then I found out about Vinted. So they're like this secondhand marketplace app and their mission is to make secondhand your first choice. Yeah, Vinted helps their members find great deals and easily. sell the clothes they no longer wear, and that helps give quality items a second life again and again. And it helps the planet, too, and we care about the planet, don't we, Sean? We do. Well, Elizabeth,

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Good luck. You work hard over decades to build your retirement nest egg. But what happens if you meet someone online, fall in love, and end up giving them hundreds of thousands of dollars, while jeopardizing your own comfortable retirement. Now imagine that happens to a parent. What, if anything, can you do? Welcome to NerdWallet's Smart Money Podcast,

where you send us your money questions, and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm his fabulous, fantastic, awesome co-host, Elizabeth Ayola. Did you like my self-introduction there? Yes, because every single word of it was accurate. You are so fabulous, Elizabeth. Oh, thank you.

Oh, my God. Well, okay, now that I'm getting over myself, we have a money question for you guys today, and here is the question. My dad is in his 70s, and we found out that he lost basically all of his money to an online girlfriend he connected with on only fans who lives overseas. Regardless of whether she is real or the whole thing is a scam, he is now starting over financially with fully depleted retirement savings and massive credit card debt. Are there financial planners that specialize in this type of scenario? Resources for seniors that have lost all their money? He is still able to work and owns two homes with mortgages, but digging himself out of the enormous financial hole he has gotten himself into

will not be easy. Thank you. Signed, devastated, but trying to help. Matt, I so feel for the listener because it's really heartbreaking what their father is going through. And as we'll get into in a little bit, I've experienced something similar. So when I saw this email come through to the podcast inbox, I knew we had to tackle it because there's so much going on. And it's so difficult to help your parents when you're kind of in this role reversal of, you know, kind of parenting them. But, Matt, it's just, it's a tough one.

It is. And I have a little story of my own. I have been scammed several times in my life. And it is a terrible feeling. Gosh. Well, we're going to take on the listeners question ourselves. And like I mentioned, this really rang true. to me and hit kind of close to home because my own dad experience to kind of similar scam a few years

back. Okay. So I can do two things here, Sean. I can pretend to be surprised or I can be surprised all over again because I have heard this story and it's wild. So which would you prefer? I want you to do what feels most authentic to you, Elizabeth. I would say do a little bit of both. You know the story, but some listeners might not have heard it. So act super surprised on their behalf. It's one of those stories that you listen to over and over and you find something new to be shocked about again. So here we go. Sean, what happened with your dad? Well, we actually made a podcast series a couple years back all around scams. And in one of the episodes, I interviewed my dad for the whole story. So if folks haven't listened to that, I recommend going back deep into our archives.

I believe it was spring 24 and check out our three part or four part scam series. And one of the episodes does have my dad. Right. So basically he met quote unquote a woman, someone pretending to be a woman, at least on Facebook. And they messaged him and said, hey, like, look at this great car that I have. Oh, oops. All of a sudden, my car is in an accident and I need some money. And by the way, I actually have a bunch of money to pay for this fancy car and get it fixed because of this crypto scheme of making money.

And wouldn't you like to make some money, too? Whoa. What a rabbit hole. Yeah, it's all a little convoluted, but that's kind of how it goes. And this was in the pandemic, mind you. So my dad was pretty isolated living alone in Los Angeles, looking for some connection and also a way to make some money that seemed really easy. That's always a red flag. A way to make a lot of money is super, super easy.

Just watch out for that. And so he ended up investing $150,000, quote unquote, investing it into this crypto scheme. and when he began to think something fishy was going on, of course, they just ran away and he never got his money back. Devastating. That is not a little bit of money. $150,000. Some people don't save that in their lifetime. You're absolutely right. And unfortunately, that wasn't the only time he experienced something like this in the same stretch of time. And it was really a matter of him being isolated. It took him a while to actually. come out and talk with me about this because there's so much shame associated with being scammed.

You feel foolish. You feel like you were the one who's completely responsible for this when in fact these scammers are trained professionals essentially. It's their full-time job to get your money from you into their accounts. So that's just a hard part to overcome too. It's just the shame. I think people who do romance scams are a special type of evil because they pray on something that every human wants.

Connection. Love to feel like they belong to someone. I just feel like that's such a terrible thing to try to weaponize. Yeah, we hear all the time now about the loneliness epidemic, especially prevalent among men and older men who are maybe a single and living in an isolated way. All it takes is one text message of someone saying, hey, how's it going this weekend? Or a little message into your DMs on Facebook or Instagram,

and you strike up a conversation because you want someone to connect with and they make it seem like you're really interesting. They're responding to you 24. and then next thing you know, they're asking you for a little bit of money here or there, or they give you some sort of money-making opportunity. And because you're just really looking for someone to trust and to talk with, you can be really susceptible to that. And unfortunately, we know that romance scams are on the rise.

There's a stat that I saw on the Associated Press that said that more than 49,000 Americans lost over $1.3 billion to romance scams last year. And that was a 14% increase from the year before. So this is a really big issue. I don't want to say it's surprising because obviously there are so many layers to this. But there's so much information, especially more than when I was younger, out about scams. There's so many resources. So it's very telling that it's on the rise versus on the decline.

And what's really telling to me and interesting is that this parent met the quote unquote girlfriend from Onlyfans. Now, Elizabeth, have you spent time on this interesting. platform only things. I have not, Sean. I have not spent time on the platform and I'm not judging anybody who has, but I have been curious about the platform because once upon a time, someone I know, I won't say any name, was curious about feet picks. So there was some curiosity. There's a lot of money to be made in feet picks. Yes. I could go down a whole rabbit hole of this, but one of my husband's old co-workers used to make a lot of money selling photo. of his calves. Just as calves, he never even had a face pick, but he had a dedicated following

of people who just loved those gams. So yeah, it's a very interesting platform. I know. I'm kind of jealous. Like I got some great legs, so maybe I could make some money from that. But anyway, I digress. What really was interesting to me is I was digging into what's going on on Onlythans and how people are making money or making connections or doing both at the same time is that a bunch of accounts are actually run by what are called chat agencies. So you might have a profile of someone and they actually are not the ones communicating to you when you are paying to talk with them. It could be some random person who looks nothing like who you think you're talking to, but they've just hired a team, basically kind of like a call center of people who were just there

to communicate with you and make you feel special for a premium. How is that legal? Okay, let me not say, how's that legal because you're paying for the service. But that's That's so wrong. I feel like that's deceptive, no? Yeah. And I mean, at this point, apparently these chat agencies are pretty common. So I would hope that people know what's going on, but maybe they're just buying into the fiction of communicating with this picture. To me, at that point, just go chat with an AI chat bot. At least it's free. Oh, don't even don't get me started about that.

I remember a data point coming into my email talking about people falling in love and being in relationships with these chatbots and the number is on the rise as well. So that was shocking to me. Yes, yes. Well, one red flag to look out for if you're chatting with someone on OnlyFans or on Facebook or Instagram is if they suddenly want you to hop over to a different platform like WhatsApp. We know a lot of scammers use WhatsApp to communicate because it's a little bit easier when they're working internationally. So yeah, just be wary of sort of redirects like that when you're talking to someone online. And also just be wary of any stranger you're striking up a relationship with over the internet because there's likely a whole lot of projection going on. into that dynamic anyway. But that's a whole different story again. Sean, okay, so what are some general scam tips that someone like the listener or viewer, I hope you watch too, the listener's dad

or even your dad could apply to not get scammed again? The first thing I want to underscore is just that every single person, you and me and our producer tests who's listening, everyone listening to this or watching this, is vulnerable to scams. And defalling for a scam, no matter how savvy you are.

In fact, if you think you're too savvy to get scams, you actually could be more likely to fall for a scam because you think that you won't fall for something like this. So scammers rely on creating the sense of urgency. So sometimes you might get a call from someone who's alleging to be maybe a sheriff at your local police department. And they're saying if you don't send them a bunch of money today, then you'll be arrested. And because they sound like an authority figure, they might actually be impersonating someone who's in your actual town. If you go and try to Google them, you think, okay, I better do this because I don't want to go to jail today. And then they keep you isolated.

You can be on the phone with these people for hours. and hours. And if you try to reach out to someone else, they'll tell you not to do that because that's not allowed to because they also really want to keep you alone and just in communication with them. So again, urgency and isolation are two big things to look out for when you might be talking with a scammer. The biggest thing for me that has saved me from many scams is it's understated, but just trusting your gut. Taking that moment to pause and trusting your gut, because as you're saying, when these scammers come with their urgency, what happens? Your nervous system kind of goes out of whack. and you're like, oh my God, I got to act right now.

But if you just take one minute, even a day to pause and do your background research to check to make sure the person you're receiving the message from is a real person, you could save yourself a lot of money and heartache. And at this point, I don't really trust most inbound communication if I don't already have an established relationship with the person I'm talking with. So even if it's like my quote unquote bank calling me or a student loan servicer, I'm not going to be answering that phone call. and if I really need to talk with them,

I will call them directly to a number that I can find online or on the back of my credit card or something because we know that scammers can spoof caller ID. So it might look like it's your mortgage servicer or someone from your investment company calling you, and it just might not be. And with the rise of AI, it is so difficult to trust any communications you're getting right now.

So that's just another reason to be extra cautious. In that scam series I mentioned earlier, we did an episode where we talk with a woman whose daughter was like fake kidnapped, basically. The scammers cloned the daughter's voice, and they think they did it just from a few seconds of audio on a social media clip. And this woman thought that her kid was kidnapped, and it was a horrible situation.

And we know that, you know, in the two years since we did that series, the technology has gotten only better. So deep fake videos are really easy to do. One thing that I've established with my family is a safe word. So if they do get some kind of urgent communication, from me. And Elizabeth, this could be a good idea for you too because there's so much of your audio and video out there given our jobs. Having a word so that if something does happen, we can pause and say, okay, maybe you did actually get into this car accident, but before I go

and why are you a bunch of money to get out of the situation? What's that safe word? And if the scammer can't come up with it, that's how you know it's not actually a real thing that's going on. I really, really, really love that. And that's something I can definitely easily apply and share with my friends and family. So it's hard enough to protect ourselves from scams, but protecting your parents is a whole different level of difficulty because, like I mentioned earlier, there is sort of this role reversal where you want to keep your parents informed but not be parenting your parents or make them feel like you're coddling them or talking down to them. But it's just a really important thing to do. How have you approached this with your family, Elizabeth? You know what? That's a

good question. And maybe I need some accountability here myself. So I remember my mom messaging me, or telling me a few years ago that, hey, have you heard about this crypto stuff? I gave my money to someone and I didn't get it back. They told me they were going to invest in the crypto. But you know, an interesting theme I noticed with my parents is because they're fully functioned adults, they do things and then they tell me about it after. So they never ask my opinion or say, hey, what do you think about this? Even with things around money?

I mean, I would hope they would come to you for that. No, they don't. They don't. That's a different story. I don't even think my parents fully understand what I do, but we're not going to talk about that right now. But no, they don't come to me for advice on any of those things. So I think something that I could do better at is actually sending them these resources and information

because they love to send me a fake AI video about someone who got kidnapped five minutes from me. But I should send them real sources and real resources they can use to be able to spot a scam from a mile away. Yeah. On my end, what's been helpful is just having ongoing conversations around scams, especially since I've done some work in this area trying to help people avoid scams. I'll send my family articles about recent scans that have happened and just keep the conversation something that we generally return to often so that they're aware of what's going on and that way they know what to look out for. But I try not to make it like, okay, watch out for this because you could fall for it. And I think it's kind of the implication, but I try not to be too patronizing about it. Yeah, I think that's a good approach.

And then, Sean, from my understanding, both of us have parents who are single. And I think this is an important thing to highlight as well because they all. because they are vulnerable to romance scams, like the listeners, parents have experienced. Something that I'm thinking about is getting our parents put in scenarios where they can get that connection that they may desire, that are safe. So maybe that could be like getting a pen pal or letting them join a community club. How do you kind of encourage them to get in communities so they can get that connection and not be as vulnerable because they're so lonely? I think it does come down to having a lot of conversations like this. Like with my dad, I've asked, hey, like, how are you getting out?

What's your social life look like now? And he was able to join a church in his area and it's been a good source of community. And my mom similarly has a great group of friends out in Portland. They call themselves the sisterhood of the traveling tie-dye, which is the cute thing. Yeah. And so encouraging our parents to really develop these deeper relationships later in life I think is helpful. but we all know that it can be really hard to make friends as an adult. So just having that conversation, asking them what's going on in their lives,

and kind of gently nudging them in the direction of reaching out to people, especially if they're living alone, is really important. But let's be real, Sean, in some situations, some people don't want to be saved. You can tell them all these things, you can poke as many holes as you want, and they love the connection or the fake connection that they're getting so much that they don't want to see the truth. So in those scenarios, what are some ways that you can help protect your parents' finances especially if they're just giving away money and is getting out of control.

Well, there's actually a lot that you can't do because your parents are the ones in control of these accounts, right? So it's technically totally within their right to send everything in their retirement accounts to someone and only fans and rock up a bunch of credit card debt. That's the unfortunate reality is that there's a lot that we cannot do to stop our parents from doing things like this. But giving them resources is something that can help. So one tool that I like to suggest is the AARP's Fraudwatch Network Helpline. That's a number that folks can call on a website that people can visit to get resources about scams. So if you are thinking that your parent might be scammed or talking with a scammer, you can send them that information.

And hopefully they'll be able to see some sense and in connect with this tool. But it's just a tough situation because you're not the one in control of their bank account. Well, Sean, the damage has been done. done. If you can't prevent your loved one from spending money on a scammer, what are some ways to maybe recoup what's been lost? Unfortunately, it's going to be really hard to get money back from a scammer. That's just the bottom line. We've talked to the scam experts a lot on smart money, and that's something that comes up again and again. It's just going to be a really tough thing to do, especially if the money has been wired or the credit card charge has already gone through.

But that doesn't mean there's nothing you can do. There are actions you can take to recover from scams, it's really worth filing reports. So the Identity Threat Resource Center and the Federal Trade Commission are two places that people should be filing reports. Also have your guard up if you have been scammed, and especially if we've talked about it online, there are a lot of threads on Reddit where people share their scam stories. After that, sometimes scammers will actually reach out to scam victims and pose a scam recovery resources and make you pay money for quote-unquote like scam mitigation. And then guess what you've been scammed again? So if Romance scams are a certain type of evil.

Scam recovery scams are maybe even a more complex, insidious kind of evil because you've already been scammed and you feel so bad about yourself. And then these people are taking advantage of you. Yet again, you know, in terms of getting money back, it's just likely not going to happen. You could try to reverse a wire transfer, but just, again, have realistic expectations that it's likely not going to happen. So heartbreaking. But life has to go on.

The bills still keep coming in. So what are some ways to the bulk of the listener's question that their parent can maybe start rebuilding their finances, especially if they're on the older side? A first step to take would be hopefully stopping the financial drain. The tough part with our listener's question is that the dad doesn't think that he was scammed at all. So there's a chance that he could keep sending money to this person online. And honestly, we do need to acknowledge the fact that this might not be a scam. It could be a real person on only fans abroad. and the dad is just sending a bunch, a bunch of money to this real person.

Yes, they're probably being taken advantage of. That doesn't mean it's necessarily a scam, though. And there's a difference there. Why didn't I think about that? And I don't know if that makes it none of this is better or worse. But then truly, if the dad is paying for a service, how can you tell your dad to stop paying for the service? Yeah, it's not the smartest financial move to drain your retirement savings.

Yeah. But if that's what they want to spend their money on, that's what they want to spend their money on. I mean, that's the cost of connection for their dad. And that's a sad truth. But again, it may not be a scam. I think that it could well be just based on the amount of money that he sent. At the very least, it's some troubling behavior. And it could actually be a sign of other health issues.

One thing that stands out to me is when I've talked with scam experts about parents and elderly people sending money to strangers online, is that if this is a big change in their behavior or maybe a pattern of troubling behavior that's emerged, it could be a sign of some kind of cognitive decline, which is a whole other conversation to have, but that could be something to be aware of and maybe begin to set of some doctor's appointments to help sort out. So in terms of the dad rebuilding his financial life, he's going to want to get out of this credit card debt. I don't know what the interest rate is on this debt, but it's probably pretty high. So maybe he could get a balanced transfer credit card for some of what he's owing to get that down to a lower interest rate. That would help somewhat.

One thing that really stood out to me as a potential hopeful opportunity is the two. two properties that he has. We don't know if they're rental properties, but if they're not, they could easily become rental properties, I imagine, and that can be an important source of income to help rebuild some savings and pay off this debt. I'm sorry to be extreme here, but I just think, well, where is the limit if we can't get Dad to stop sending money to Onlyfans? Because it's not bizarre for someone on this trajectory to even sell a property to fund this, I don't want to call it an addiction, but to fund this habit. Something else that comes to mind as well that dad can do, since dad is still working, is contributing to retirement accounts. And because of their

age, they can also utilize catch-up contributions. So if you can't get that to stop spending, at least get dad to keep saving and investing so there's more money coming in. And something else I want to focus on in our listeners question is whether there are financial planners who can help scam victims specifically. And I'm not aware of a lot of planners who have a specialty in scammers per se, But financial planners, their bread and butter is helping their clients save for retirement and leverage their wealth and expand their money. So that can be something that they could work with a financial planner on. I would hope that this parent actually has already been working with some kind of financial planner. So maybe they can get in contact with them.

But also, it seems like the listener wants to be more involved in their parents' financial life. So there are a few ways they can do that. One is to become what's called a trusted contact person on financial accounts. So if a financial institution suspects that the account holder is the victim of a scam or a financial fraud, then they would actually reach out to this person, which would be the daughter in this case. Similarly, you could actually look into having shared accounts with your parents. That way you can monitor what they're spending their money on. That could be an invasion of privacy for some parents. They might not want to kind of relinquish that control or sense of autonomy. But that is an option. Again, you have to tread really delicately in how you have this conversation and not try to have your parent feel like they're being patronized to, but that's something that people could look into. So shared accounts are a tool that you could leverage, but not every parent is going to be open to that. I'm also thinking about a power of attorney. I know the dad would have to consent to his

daughter being the power of attorney, but what about that option? With the power of attorney, you can manage someone's assets on their behalf if they are unable to do so. The parent has to be a sound mind when they're signing off on this. And there usually is some sort of event that springs the power of attorney into action like they're mentally incapacitated. So if the father is still able to navigate the bank accounts and navigate to Onlyfans, that might not be a tool they can use quite yet, but maybe further down the road, that might be something they want to look into. And in fact, actually now might be a really good time to set that up and have that conversation while the parent is of Soundmind. And it does make me also wonder whether the dad has an estate plan in place. Do they

have a will? Do they have a trust? What's going to happen to their assets when they pass? Will it be given to this only fans person? Who knows? Yeah. And that is something I was thinking about too in this conversation is just the emotional toll. The listener and any of their siblings, if they have them, are probably mourning whatever potential inheritance they might have had. Because this big financial shock of draining retirement accounts and racking up all this debt can have huge implications in terms of generational wealth and what's being able to be passed on. And that's also really stressful to grapple with on top of just seeing your parent do things with their money that you think are really risky and unwise. It's so stressful. And I encourage the listener of viewer, if you are listening to this

episode to, you know, seek out a healthy way to express any frustration that you're feeling, whether that be therapy, close friends and family. I'm sure you're already talking to someone, but this can be a very heavy thing to deal with, especially because you just can't stop it. So I'm wishing you all, all, all the love. Yes, I agree. And one last thing I want to throw out is that there are resources for seniors who have lost all of their money, like government benefits in particular. We know there have been recent restrictions on SNAP benefits, but they're still available. People can also potentially get help covering things like utilities.

And we don't really know what the listeners' father's whole financial picture is like and whether they actually be eligible for these. But it's still something to look into. What a sad topic. I don't know. A bit of a bummer, but at least there's something that people can do. I mean, again, so much of this comes back to having those conversations with your parents regularly. And this is something that you and I have talked about, Elizabeth, as our parents are aging, is how we can be there for them financially. And this involves things like making sure they do have an estate plan set up,

what their beneficiary designations are like, what they want to have happen after they pass, and how to stay safe from scammers while they're still around. Prevention is the best cure in this scenario. So I will be texting and calling my parents after we finish this and telling them not to open up anything spammy and send them some resources. So really the bottom line here is to have these conversations with your parents. So hopefully you can prevent them from getting scanned going forward. Up next, this week's money news where we dissect a hot topic.

Interest rates are going up. So let's find out what that means for your finances. Don't you wish you could just hit skip on the worst parts of your life? You know the same way you can skip an ad? I get it. I'm Siaia and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out.

Somehow things usually get worse before they get better. Apparently, that's how I roll. So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. All right, let's get to our weekly Money News Roundup, where we break down the latest in the world of finance. be smarter with your money. Our news colleague, Anna Hilhouski, is here with the latest from the Federal Reserve. Yesterday, the Fed's Open Market Committee raised what's called the Federal Fund Rate

by 25 basis points, which means that in all likelihood, interest rates are on the way up. Hey, Anna. Hey, Sean. Today I'm speaking with Brian Kutzinger, an economics professor at Florida Atlantic University about what the first rate hike in three years means for Americans and the economy. Brian, welcome to smart money. Great to be with you, Anna. Thank you. Now, a federal funds rate hike was the consensus expectation going into this meeting. But what do you think tip the Fed toward raising rates rather than holding? If you look at the recent price data and Chairman Warsh mentioned this during the press conference yesterday, he doesn't see the trend moving back to the Fed's 2% target quickly enough. He was careful to point out that he doesn't look at a

single data point because a single data point doesn't make a trend. But he emphasized during, I believe it was the Q&A specifically, that he just does not see the trend moving in the direction that he thinks it needs to be seeing for the Fed to get inflation back down to its 2% inflation target as quickly as he and the other committee members would like. Now, let's talk about how this decision fits with the Fed's dual mandate. Now, first, please explain for us what that is. And then was this move driven by inflation concerns, labor market strength, or something else? What was dominant?

The Fed has a mandate from Congress. It's actually a triple mandate, but no one ever talks about the third one. So it's stable prices, maximum employment, and moderate long. term interest rates. That's the one that is frequently never discussed. But the Fed usually emphasizes those two, the price stability side of the mandate and the full employment side of the mandate. Now, the way in which the Fed interprets that full employment or the maximum employment side of the mandate is not that we want to have zero percent unemployment or everybody in the economy working, including, you know, children and retirees and whatnot. But instead, what they're emphasizing or what they're looking at is

the maximum sustainable level of unemployment. Sometimes economists call this, the natural rate of unemployment. What they'll look at is their estimates of what that natural rate is, and then they'll compare that to what the current unemployment rate is. And if the current unemployment rate is meaningfully above what they think the natural rate or the rate of full employment is, then that would signal to them that, okay, maybe the economy is a bit weaker than we would like, and perhaps it needs some additional monetary stimulus. The price stability side of the mandate, basically just as the Fed should pursue price stability, but Congress has largely left that up to the Fed to interpret themselves. So in 2012, the Fed actually adopted an explicit

inflation target of 2%. Before that point, they did not have an explicit inflation target. But again, they imposed that on themselves. That didn't come from Congress at the Fed targets 2%. So what the Fed is doing when they talk about both sides of their mandate is they say, on the one hand, we're supposed to pursue price stability. And at the same time, we're supposed to pursue maximum employment. And so if we see that the labor market is doing quite well, and in fact, yesterday during the press conference, Chairman Warsh did point to the recent labor market data suggesting that it is doing quite well. The unemployment rate remains near the maximum level and remains relatively low. Then they're going to start looking at the price stability side of their mandate.

And they're going to start looking at, well, is it time to start raising rates and pulling back some monetary stimulus to try to get the growth rate of total dollar spending in the economy to slow down and therefore bring the growth rate of prices back down to the Fed's 2% inflation target. Following the decision, Fed Chair Kevin Warsh spent a lot of his time emphasizing the strength of the economy, kind of like you said, stronger hiring, robust credit, productivity, capital investment. Does that change how we should think about this rate hike? Is the Fed essentially saying that the economy can handle higher rates right now? Yeah, I mean, there's a couple different ways to think about this. So oftentimes, and for obvious reasons, if you're a consumer, you think of higher interest rates as being bad. And in some sense, you can see why, right? Like if you're going to go buy a car, you're going to buy a house.

And if you're financing it, you care about what that interest rates. rate is. But if you think about a technology like AI, what is this doing, right? AI is creating a massive demand for capital investment. And that's going to put upward pressure on interest rates. And I don't necessarily regard that as a bad thing. And so if the economy is doing very well, it doesn't follow that we should have low or relatively low interest rates. In fact, the more the economy is growing, we would actually expect rates to be rising somewhat. If you look at what Chairman Warshed, it's exactly that. He says, look, the economy is. doing quite well. There's really no concern here that monetary policy is being restrictive or

holding the economy back in any way. In fact, it might be too accommodative as evidenced by the fact that the trend inflation is not coming back down to where the chairman and the rest of the committee would like to see it. And so basically, I think what he's saying is, yes, the economy's doing well. We can raise rates a little bit here, see if that eases price pressures somewhat. And as long as we don't see a threat manifesting in the labor market to the other side of that dual mandate, then, okay, we might actually raise rates again at our next meeting. And in fact, if you look at the Fed watch tool from the CME group, does look like the market is projecting, potentially projecting another rate hike later this year. The October meeting, it's mixed, but by December we might actually

get another rate hike this year. Now on the consumer side of things, how soon could this hike actually show up in things like credit card, auto loan, and mortgage rates? It's an interesting question, because what the Fed primarily controls is not the long end of the yield curve, to use the jargon in economics. That is, they're not going after or targeting the rate on the five-year treasury note or the 10-year treasury note or the 20-year treasury bond. Instead, they're looking at the rate at which banks lend money to one another overnight, which is the federal funds rate. They have a lot more influence over that short-term rates rather than long-term rates. Now, that said, after the decision, I did go and look at what happened to, both the five and the 10-year note after the decision.

And those yields did go up a little bit, but not by very much. So for frame of reference, just after the Fed's press conference, the five-year yield increased by 0.051%. So very small, much smaller than the actual increase in the Fed's target for the federal funds rate. On the 10-year note, the increase yesterday afternoon was around 0.04%, right? So a very, very small increase relative to the 0.25% increase that we saw in the feds, in the feds target. So in terms of affecting car loans, home loans, and the like, I don't know that this decision has much of an effect. There, the primary factor driving rates higher for car loans and home loans and so on the line are two things.

One, an increased demand for credit for the AI buildout. So there's a real increase in demand for credit by the private sector. to build out to meet AI demand. And the other is the federal government borrowing more, right? So the federal government is essentially competing with private sector investors who are trying to borrow for AI build out and the related infrastructure that goes with it. And at the same time, the federal government is itself competing with those demanders for loanable funds. And that's going to push interest rates higher, even in a world where inflation is well in line with the Fed's target. So there, I think the primary thing that's making credit more expensive for consumers is not

so much monetary policy as it is real factors that are driving rates higher, the AI buildout and the federal government borrowing a great deal. And what does this mean for people who are putting money away rather than spending it? Could they see better yields on their savings accounts or CDs? Absolutely. In fact, it's funny that you mentioned this. As soon as I saw the decision, I went and looked at what the federal money market rate was on my account where my wife and I keep our rainy day fund to see if it had gone out. But of course it hadn't. You should expect to see this reflected in money market mutual fund type accounts, money market accounts, checking accounts, savings accounts, to the extent that these are paying interest, we should see these go up a little bit.

Before the decision, I think the federal money market rate that Vanguard was paying, for example, on VMFXX, which is their federal money market account, was like 3.63%, give or take a few points. I would expect that to go up a little bit in response to the Fed raising its policy rate, because again, that rate that Vanguard is paying on VMFXX reflects what's going on on the short end of the yield curve in the T-bill market, if that rate is going up because the Fed is pulling back some liquidity out of that T-bill market, you should see the rates on those T-bills rise. And so any account that you have that's a, again, money market mutual fund, money-market

account, checking account, savings account that used that short-term money market as sort of a baseline for the race that they pay, you likely would see these rates go up somewhat. One last big picture question. How much does yesterday's decision change the outlook for the economy and financial markets? The big picture here, I think, is that it opens the door to subsequent rate hike. So I think the decision to raise rates yesterday was the right decision, in my own view. The bigger picture is that it signals to markets that the Fed is likely to take further steps this year to continue to pull back some of that accommodation that you referenced earlier to try to get aggregate demand or total dollar spending in the economy back down to be in line with their own inflation target. I don't think it really signals anything about, well, what's the cost.

what's going on with the real U.S. economy, like Chairman Warshad, and I agree, I think the real economy is doing quite well. The primary problem that the Fed faces right now is how do they get total dollar spending back down to be in line with their inflation target? And the decision yesterday to raise rates by 25 basis points, I think opens the door to another rate hike either in October or December or potentially both if the FOMC, the committee that sets monetary policy does not see inflation come back down to their trend. And again, I don't think we're going to see it come back down. down to 2% this year. I think what they're looking at is, are we moving in the right direction so that by 2028, you know, inflation is coming back down to 2%. Now, that said, if you look at the Fed's summary of economic projections, because we got a release of projections yesterday, and those come out every other FOMC meeting, they do have inflation remaining elevated all the way until 2029. So it probably is going to take some time for inflation to get back down to the Fed's target, which signals to me that the Fed is likely to raise rates as we move forward. but I think they're going to be very cautious as they do so.

I don't think they want to overreact in the other direction and raise rates too quickly. They would rather just ease that accommodation slowly and maybe the proverbial soft landing. They might hear an economist use. I think that might be what they're trying to aim for. All right, Brian Cuttsinger, economics professor at Florida Atlantic University.

Brian, thanks for breaking that all down for us. Hey, thanks for having me, Anna. It was a real pleasure. Thanks, Anna. That's all we've got for this episode. Remember, folks, our job as nerds is to answer your money questions. So keep sending them our way. You can leave us a voicemail or text us on the nerd hotline at 901-7306373.

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