Show notes
#643: Picture this: you're at the Federal Reserve years ago. The chairman literally hangs up a conference call, waits 30 minutes, then calls back — suddenly everyone agrees on the rate decision.
That's the kind of insider story Karsten Jeske (“Big ERN”) shares when he joins us to break down what's happening with the economy right now.
Karsten worked at the Federal Reserve Bank of Atlanta for eight years, then spent a decade on Wall Street at Bank of New York Mellon.
Today he runs the popular Early Retirement Now website, where he applies his economist background to help people understand money and markets.
You'll hear Karsten explain why the Fed is about to start cutting interest rates. The futures markets are pricing in a 90 percent chance of a quarter-point cut, with more cuts likely through the end of the year.
But why? After all, inflation just ticked up in the latest CPI report, yet the Fed is still planning to lower rates.
We dive into how this affects real people. If you're thinking about buying or selling a house, Karsten suggests acting sooner rather than later.
He explains the "buy the rumor, sell the news" principle – the bond market may have already priced in the good news about rate cuts, so waiting might not help you.
The conversation covers some surprising economics too. Did you know that high interest rates can actually cause housing inflation?
When mortgage rates are expensive, fewer people build new homes, which drives up prices. It's the opposite of what most people think happens.
Karsten walks through the recent jobs report revisions that caught everyone off guard. The government had to subtract nearly a million jobs from their previous estimates. He explains how this happens – it's not that officials are making up numbers, but tracking new businesses is genuinely hard to do in real time.
You'll also learn about two Fed tools most people haven't heard of: the dot plot and R-star. The dot plot shows where Fed officials think interest rates should go over time. R-star represents the theoretical perfect interest rate when the economy has no problems — currently around 3 percent.
The interview wraps up with Carsten's take on Fed culture. The consensus-building era under Greenspan is giving way to more dissenting votes, which actually makes the central bank more like it was decades ago under Paul Volcker.
Enjoy!
Timestamps:
Note: Timestamps will vary on individual listening devices based on dynamic advertising run times. The provided timestamps are approximate and may be several minutes off due to changing ad lengths.
(1:04) Carsten’s career path from Fed to Wall Street
(1:57) Current economic growth limbo state
(4:04) GDP formula and tariff impacts
(5:10) Trade efficiency and comparative advantage
(6:04) Supply chain threats from protectionism
(8:20) Fed meeting and rate cut expectations
(9:35) Market pricing in multiple rate cuts
(12:19) Real estate timing and mortgage rates
(13:55) How Fed rates affect treasury yields
(18:50) Buy the rumor, sell the news strategy
(22:13) Fed transparency and decision telegraphing
(25:56) Fed consensus culture versus dissent
(30:48) CPI data shows inflation ticking up
(34:32) Transitory versus persistent inflation confusion
(38:56) Fed behind the curve on rate cuts
(40:00) Major jobs report revisions explained
(44:24) Methodological issues with new business tracking
(46:00) Dot plot and R-star concepts explained
(52:29) Bond allocation strategies by age
(57:25) Current bond yields look attractive
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