Fun with the Fed

[00:00:03] Speaker A: Can the Fed thread the needle here? They don't have a great track record, but maybe, maybe they get it right. So we're hoping. We're hoping. Stay tuned. Foreign. [00:00:29] Speaker B: Welcome to Lancapedia, episode five. Lance Browning, Tyler Texan of Income Solutions Wealth Management. Pleasure to see you, as always. Today we are going to talk about. [00:00:39] Speaker A: The Federal Reserve, everybody's favorite topic. [00:00:42] Speaker B: Gary, I was gonna say. Yeah, I mean, we're gonna scare. We're gonna scare away. I'm have to think of some type of a clickbait title for this thing that does not mention the Fed, because as soon as they find out we're talking about the Fed, everybody's gonna click off. [00:00:53] Speaker A: Yeah, it's bad enough you got to deal with me and then you throw Fed on top of that and it just makes it that much worse. But, yeah, so, yeah, so we're going to talk a little bit about the Fed today, and we title this Fun with the Fed. So episode five is going to be Fun with the Fed. And we'll talk about what the Fed actually is, what it wants, what it thinks, and maybe some possible outcomes here that we're. We're working towards. Okay. And so this is, this is great. This will be your, Your, Your tagline for the whole thing, Garrett. This may be your intro right here. So what is the. There's a guy by the name of William Miller, he was a former Fed chair in the 70s. So that's going to be pre Volker. Okay. Pre Paul Volcker. Okay. He said 23% of the US population thought the Federal Reserve was an Indian reservation, 6% thought it was a wildlife preserve, and 51% thought he was a brand of whiskey. So there you go. There you go. There you go the whole game. Yeah. [00:01:50] Speaker B: I think the last one might be the closest to the truth. [00:01:53] Speaker A: They're right. Yeah. No kidding. More truth than that then maybe we know. We won't admit. Yeah. And you know, and I've talked and we've talked and I've written extensively those of you that have followed it and kept up with stuff about our own opinion of the Federal Reserve. And as many of you probably already know, we don't hold the Fed in very high esteem at all. And you can probably tell, you know, a lot of stuff from, from what we've. We've talked about that. I'm just not a fan. And I'm. I'm pretty hard on the Fed, and quite honestly, they deserve it. I'm not as hard as Trump is. Okay. To qualify that remark. Okay. So I Don't hate him as much as the big orange man, but I do hate him. And so we refer to, you know, you'll often hear me refer to Jerome Powell, Fed Chair Chat Powell, as Darth Powell, and I'll refer to the Federal Reserve Board as the Sanhedrin. So that's a lot of times how I'll reference these people. So we talk about the brand of whiskey and all that. I think that's pretty clever. Okay. [00:02:52] Speaker B: I mean, you're coming full steam here with, with your comments on the Fed, the Sanhedrin and Darth Powell. These are. These are strong. [00:02:59] Speaker A: These are strong words. That's it. That's it. That's it. Yeah. Not. We're not Trump level strong words, but we're still strong words. Right? So. And one of the things, there was a book out several years ago called the Creature from Jekyll Island. So given they're just. The Fed's is seemingly, I would say, unlimited and unaccountable power. The Fed's been subject to a lot of conspiracy theories over. Okay. One was a series of books called the Creature from Jekyll Island. You see the COVID here? And so the story goes that the Federal Reserve was created kind of out of thin air by a clandestine meeting of financiers and other Illuminati. Illuminati. Powerful people. And the line of thinking there is that the Fed was created in secret for sort of nefarious purposes. Okay. And there's definitely a school of thought there. Okay. And so what the Fed really is. And so here's maybe a more official definition of the Fed. So the Federal Reserve System, or F, is arguably the most powerful financial institution in the world. And in my opinion, there's really no arguable arguably about it. I think that's a true statement. So the Federal Reserve System, that's a central bank and the monetary authority of the United States. So most other countries have a central bank as well. They have their own Sanhedrin and Darth and all that as well. So the Fed, their job, what they're supposed to be doing, is provide the country with a safe, flexible and stable monetary and financial system. Okay, don't laugh at me. I'm just telling you what the slide says. All right? I'm just. Don't shoot the messenger here, but the Federal Reserve System is composed of 12 federal regional banks that are each responsible for a specific geographic area of the country. So, for example, we have one here in Dallas. I'm sure you guys have one up there. May even have one in Charlotte, that kind of covers that zone, that territory somewhere on the, on the, on the coast there. But the Fed's main duties will be including conducting national monetary policy, supervising and regulating banks, and maintaining financial stability. Stop laughing. All right. And providing banking service. So the Federal Open Market Committee, called the fomc, you'll see that sometimes in the headlines. That's the Fed's monetary policy making body and that manages the country's money supply. More on that in just a second. Okay. And so the Fed, they're going to have some, some mandates, if you will, by the Federal Reserve Act. Okay, so what the Fed's job description is, they want to maintain full employment in the economy and they want to maintain price stability. So that's their job. What's not their job is to figure out a way to fund our astronomical national debt. Nowhere in the Fed charter, nowhere in the Federal Reserve act does it say you've got to finagle and manage a $37 trillion debt. Okay, but that's kind of what's been thrown in their lap. All right, so there's really those two that we talk about, the number one being the full employment. And given that unemployment is near historical lows, we're going to say they've pretty well done their job there. Yeah, we're seeing unemployment kind of creep up. And that's one of the criticisms of the Fed right now, delaying cutting rates. But by and large, the employment picture in this country isn't bad. We're having some issues with the reporting that you've heard about your BLS and all this recently, but I think we're in decent shape, employment wise. And number two being price stability. And that's been a struggle really since COVID since the pandemic and the response to pandemic, trying to keep inflation, keep that genie kind of in the bott as it exploded. And we've talked about this extensively last couple of years, inflation and in those last two halftime reports, including the one we just did, episode four. So lastly, and this is kind of the dirty little secret, poorly kept dirty little secret. It's not their job to manage our ridiculous national debt, but it's kind of become their job by default. So the Fed's got to figure out a way to manage this, and that's a challenge. And so while that sounds incredibly unfair, and it kind of is, the Fed's been forced to navigate the fiscal mismanagement from the political ruling class, you know, up there, north of you in D.C. here. So they've got a reasonably tough Job. They really do. Okay. And so here's an article From January of 23, about two and a half years ago. And you know, when the Fed was really full on in a raising rate increase cycles. What the Fed wants, the Fed wanted back then, you could say that they wanted lower stock prices. All right, so you read that, right? The Fed wants lower stock prices. Fed members aren't gonna say it as bluntly as this, this title does, but the Fed's got a long held belief that stock prices directly impact the economy and therefore inflation. So this is from a guy by the name of Michael Leibowitz at the bottom of the slide. Michael, he makes a very interesting, interesting statement. He says it could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions. We talked about this a lot in cash or trash. We talked about this a lot in the Halftime Report, episode four. So what he's referring to, what Leibowitz referring to, is the so called wealth effect. When we talk about the wealth effect, the wealth wealth effect means that the higher people's investment account balances are, you know, the stocks, their bonds or 401ks or IRAs or investments, their home. All right, the more confident they feel about spending money and buying stuff. So when you cause lower asset prices, directly or indirectly, the Fed hopes that it's going to reduce the demand by reducing the wealth and therefore reduce inflation. So that was kind of the, the method of the madness here. Okay? And so another thing I would say the Fed wants is they want a little bit higher unemployment. That sounds crazy given what we just described as one of their mandates. But remember, you're not painting, you're not. [00:09:07] Speaker B: Painting a flattering picture of the Fed here so far. [00:09:10] Speaker A: I'm not as bad as Trump. Okay, I'm not as bad as Trump. But so unemployment still, Gary, is still pretty low, relatively speaking. So the Fed's going to be worried and you'll hear them talk some about something called the wage price spiral. Wage price spiral. So in other words, we've been in an environment where there are more jobs than there are people to fill them. Well, to fill these jobs, employers, these companies are having to pay higher wages to compensate for these higher wages. These same companies are charging higher prices to their consumers, their end customer. Right? And because prices for goods and services have kept going up, workers are demanding higher wages. And that's that cycle, that's the spiral. Higher wages beget higher prices, higher prices beget higher wages. And this has been a big component and problem with inflation that we've been trying that inflation dragon. The Fed would also like to see tighter lending standards here. This is my own creativity there with the, with the piggy bank and the lock on there. Thought of that myself. Okay. You should be proud. All right. But one of the things on the list, sir. [00:10:16] Speaker B: It's cute. I love it. [00:10:17] Speaker A: Yeah, yeah. Putting that marketing degree to good use, man. So we have. I crammed five years of, four years of college into five and I came up with that. But so another thing I would say on the Fed's wish list here is going to be that they would like to see some tighter lending standards. So while the Fed's probably never going to admit this, they've been the cause of many of the banking problems that we have seen so far. So to reduce, I would say, their own risks and because the Fed is pushing them to, banks are starting to become a lot more restrictive on who they will and won't loan money to. And I would take you back even to the pre crisis financial collapse in 0708. These banks were doing a lot of what I pulse loans. You know what a pulse loan is? You got a pulse, you get a loan. All right. And so that led to a lot of the excess and a lot of the calamity. 0809 and so the reason I think this is so important is because so much consumption in this country is fueled by borrowing, by debt. Okay. People borrow money to buy stuff on credit. And the harder it is for people to get loans, the less stuff they're going to be able to buy. Makes sense. So keep in mind there's a tremendous amount of consumer debt out there. We talked last time, we talked in the halftime report about this very thing. So. And we'll talk a little bit more about this kind of as we go on in the future. But you're seeing that a lot. Okay. Another thing the Fed would really like to see is sort of a reduced money supply. So the Fed's desperately trying to reduce the money supply. Immediately following the COVID pandemic, the Fed began aggressively printing money. So you had fiscal stimulus from the government, from the federal government, federal, state and local. And then you had the Fed printing money, all right, Too many dollars, chasing too few goods. Junior high economics, definition of inflation. And that's what happens. They also, during, during the pandemic, the Fed also dramatically increased what they called quantitative easing, or qe. So qe, if you will remember, that's where the Fed prints money, borrows money by buying bonds, then prints More money to buy more bonds. All right. And this coupled with that massive fiscal stimulus out of Washington Post pandemic. Flooded, flooded the US Economy with cash. Well, this flood of cash. Too many dollars happened. Perfect storm along with a severely damaged supply chain from the shutdown. Too few goods. Here you go. That was the perfect storm for inflation. And the Fed has been trying to fight that ever since to fix the problem that they pretty much helped cause. The Fed's begun draining liquidity from the, from the economy. Draining money or trying to reduce the money supply to fight off that inflation. On the far right, you're going to see a dramatic drop in money supply by raising interest rates and reversing QE set of quantitative easing. We have Q T quantitative tightening. The Fed hopes to get inflation back below their, their self imposed 2% target. We're getting closer, but we're not quite there yet. Another thing that we say, maybe what the Fed thinks. So switching gears a little bit. So we're kind of climbing into the Fed's Fed's mind here, trying to extrapolate what we think they're thinking. All right. And so it's an extraordinarily rare event that the Fed admits that their actions can cause problems. All right, so here's a CNBC article from last November where former Fed, former Boston Fed president says that we have a, that we will have a recession this year. Talking about 2024. Well, this echoes what a lot of the other Fed heads, so to speak, has said this year. So fortunately, unfortunately, recessions tend to be pretty good inflation fighting tools, right? Cause you destroy demand, reduces inflation. All right, but you got to juxtapose that, you got to kind of counter that with what the market thinks. We're talking about what the Fed thinks. What does the market think? And so the Fed's thinking one thing, the market's kind of thinking something else. So I'm looking at my TV and we're very, very close, if we're not there already, to all time highs in the Dow Jones, the sb, the nasdaq, things that you would follow as far as market indices. Okay. And so I'm probably showing my age here a little bit and yours too, Garrett. But remember the old Alfred E. Newman cartoon from the old Med magazine, right? And remember Alfred D. Newman's tagline, what me worry? And that's kind of been the market's attitude with everything. Even we're in the midst of a government shutdown. Same thing. So while the Fed is seemingly being very transparent and say, yeah, we very well could easily have a recession. The market seems to believe that everything will be okay. And that's not just the stock market, that's a bond market too. And the markets rallied pretty well off of its lows. Every year you've had this drop. We had a drop February, March and April, the so called tariff tantrum. And we rallied back above it. There's a lot of data, a lot of data telling us that the economy's slowing pretty rapidly. But so far the market doesn't seem to care. And this is one of my favorites too. But you look at the Fear and Greed index, this is from cnn. Fear and Greed Index. When you see that, that speedometer, speedometer all the way over to the far right, extreme greed, that's generally telling you the market's a little bit overvalued and could be in for a pullback. When you see extreme fear over there to the far left, market's probably oversold. People acting out of panic. You're probably gonna see a rally from there. So it's decent contrarian indicator, if you wanna call it that. But this is one of my favorites. So last October, which I guess would've been 22 post everything, you know, we saw these lows way, way, way over to the far left, extreme fear. And here we are right now at greed. And I would say probably we looked at that today. Probably looks more like extreme greed where we are. And so to quote the great philosopher Gordon Gekko, again showing our age here, greed is good. The market thinks that. So hopefully some of you will get that, that movie reference, not just me and Garrett. Right. Clearly the market and the Fed are on opposite ends of the spectrum here as to what they think's gonn. Maybe they want to happen with the economy. And I would say usually when the Fed and the market disagree this much, somebody's going to end up being wrong. All right, we got to stay tuned to find out who that is. All right. But I think that bears watching. All right, and we want to talk about the R word, right? The R word. The dreaded R word. Recession. Okay. And so we'll kind of define that. So an economic recession, Garrett, usually happens when an economy's overall output shrinks rather than increases. So typically this is measured by changes in what's called gross Domestic Product, or gdp. Okay. And so it's kind of interesting. So this is maybe a really good textbook definition here on the slide of what a recession is. As we talked a lot, particularly in the, in the halftime report about gdp. GDP is the bottom line report Card on the US Economy, or in any economy, gdp, gross domestic product, bottom line, report card. We just came out of the second quarter of 2025, all right, that was about a 3.8% growth rate year over year for the second quarter of this year. That's pretty strong. Okay, that's pretty strong. I mean, if that was your kid's report card, we would probably call that a B plus, maybe A minus, ish, a little bit. So pretty solid report card. And we want to talk maybe some definitions of recession. This one was a new one on me, but I really like it. So what's a rolling recession? Okay. And this is from the same Forbes article we were just referencing, but it's being perpetuated by a lot of people, including Liz Ann Saunders, who's just brilliant. Charles Schwab, among others. So a rolling recession is going to be kind of a special type of recession that doesn't impact the entire economy equally at one time. So it's not everything going down. You see varying degrees. You know, recession hitting different market sectors, different sectors of the economy at different times. Okay. You know, as far as the economy as a whole may not be in a recession, everybody in the economy may not be in a recession, but people in certain areas, geographically, particular industries or whatever could feel very much like they are in a recession, even though maybe the rest of the world at this point isn't. So Ms. Saunders believes that we could kind of see a rolling recession hitting the economy and the market slowly, kind of gradually trying to figure that out, instead of everything going off cliff at one time, like Wally Coyote. And the more I think about this idea, I think she's probably right. I think that makes a lot of sense to me based on what I'm seeing and hearing. Okay. And so we'll talk about maybe some plausible scenarios. And this is the big battle right now between the White House, the Trump administration, and what's going on with the Fed, the Sanhedrin, and the honorable Darth Powell. All right, so let's talk about maybe some plausible scenarios. Right. So soft landing, we maybe heard this term. What do we mean when we say a soft landing? One possible scenario. So this is from Investopedia, not Lancelopedia. Invested, by the way. Not quite as reputable, but not quite at that. [00:19:49] Speaker B: You can go there if you'd like. [00:19:50] Speaker A: Yes, sir. Yes, help yourself figure it out. But that's, and that's a good resource of SPDs for a lot of these definition, these financial terms that we use. Right. So the market is hoping for Something called a soft landing, a soft landing in economics. So that's where the economy slows down economic growth economically, but we actually avoid a recession. We don't slow down so much or stop and go in reverse. So a soft landing is the goal of a central bank when it seeks to raise interest rates just enough to stop the economy from overheating and experiencing high inflation, like we saw, of course, you know, during pandemic and post pandemic recovery. But you want to do this, stop that inflation without causing a severe downturn. All right, It's a very grace, you know, gradual, relatively painless, relatively slowdown. So this is going to be the, the I gave you the Investopedia. Here's going to be the Lancelopedia definition. All right, so I'm going to define some, some different financial terms here. And this, these are just my died remarks along with the definition. According to Lancapedia, soft landing is a mythical place filled with lollipops and unicorns where the Fed actually gets it right. Okay, we're, we're still waiting to see if that's virtual reality AI or what. But you know, the market right now is really, really in hopes of a soft landing. All right, Contrast that with another idea, another concept, hard landing. So a so called hard landing that's going to be defined by a marked economic slowdown or downturn following a period of rapid growth. And so this term hard landing comes from aviation, hence the plane on the highway here, Garrett. It refers to the kind of high speed landing that while not an actual crash, it's a source of stress as well as potential damage or injury. So hard landings are often caused directly by monetary policy interventions meant to curb inflation when the Fed overdoes it. And we're seeing that same type of monetary policy intervention from the Fed right now. And economies experience hard landings, often slip into a stagnant period of growth or even maybe a fairly severe recession. Really don't want that. Okay, this was a new one on me as well. So if you are an eternal optimist, you might subscribe to our last scenario here, Grant. Yahoo News calls this no landing, no landing. All right, so as opposed to a soft landing or hard landing, a no landing scenario involves the economy continuing to grow despite the Federal Reserve's best efforts to tamp down inflation with interest rates. Refer to this kind of as the Alfred E. Newman theory. So I would have told you a year or two ago, Garrett, that this was the least likely scenario as we sit here Today, October of 2025, this may be what actually winds up happening. Okay. Where we don't land the plane, where we don't experience that recession, where things we slow down but we pick right back up. This, this would have been, if you'd asked me this last year, least likely. Given how aggressive the Fed was in raising interest rates in 2022, 2023, and how reluctant they have been to lower them, I would have said this is unlikely. But I think maybe it is. I think I'm coming more along the lines of that school of thinking, you know, and kind of conclusion. So the multi trillion dollar question is, can the Fed thread the needle here? They don't have a great track record, but maybe, maybe they get it right. So we're hoping. We're hoping. Stay tuned. [00:23:31] Speaker B: Well, that's a. Yeah, we can hope for that. Well, yeah, like you said, stay tuned and we'll see. Never know. But for listeners or viewers on YouTube, if they would like to get in touch with you, Lance, I know you have a really cool. What's it called? Troop Command on Troop Highway. Troop Comm. Troop Comm. How'd you go? [00:23:50] Speaker A: Command here on Troop Highway, Tyler, Texas. Yes sir. [00:23:52] Speaker B: How can the listeners and viewers, if they would like to get in touch with you all at troopcom, how can they do so. [00:23:58] Speaker A: Yeah, give us a call. 3787 891-690-378-78916. Brings us phone right over here on my desk. Come see us on Troop Highway 3200 Troop highway here in Tyler Alpha center building or www.lancebrowning.com. [00:24:16] Speaker B: Awesome stuff, man. Well, Lance, always a pleasure. Enjoyed your. Your commentary on the Fed. [00:24:21] Speaker A: Excellent. [00:24:22] Speaker B: You did a very nice job. By the way. I know that this isn't pre approved, so I may not be able to say this, but I just want to say you did a really nice job of taking a really boring subject and entertaining me and getting a couple laughs. [00:24:32] Speaker A: Trying to keep people awake. Yep. [00:24:33] Speaker B: Y. Yeah. Good job. [00:24:34] Speaker A: Yes, sir. Yes, sir. [00:24:35] Speaker B: Have a great one, my friend. Good to see you. [00:24:36] Speaker A: Hey, appreciate you. Thanks so much. [00:24:38] Speaker B: You bet. [00:24:38] Speaker A: Bye. [00:24:42] Speaker B: Lancepedia is for entertainment and educational purposes only. The views and opinions expressed in the show are that of Lance Browning and are not guaranteed to come to fruition. If you have questions about your investments or your financial plans, you should seek a financial professional or give Lance a call at 903-787-8916. We thank you again for watching or listening to the podcast and we'll see you next time.