Imagine this: years ago at the Federal Reserve, the chairman hangs up a conference call, waits half an hour, then reconnects — and suddenly, everyone reaches a consensus on the rate decision. That’s the type of insider narrative that Karsten Jeske (“Big ERN”) shares while joining us to dissect the current economic climate.
Karsten spent eight years at the Federal Reserve Bank of Atlanta, followed by a decade at Bank of New York Mellon on Wall Street. Now, he operates the well-known Early Retirement Now website, leveraging his economic expertise to help people navigate finances and markets.
You’ll hear Karsten detail why the Fed is poised to start reducing interest rates. The futures markets are indicating a 90 percent likelihood of a quarter-point cut, with further reductions expected by year-end.
But what’s the reason behind this? Despite the latest CPI report showing a rise in inflation, the Fed still intends to lower rates.
We explore how these changes impact ordinary people. If you’re contemplating buying or selling a home, Karsten advises acting sooner rather than later. He elaborates on the “buy the rumor, sell the news” principle — the bond market might have already factored in the positive news regarding rate cuts, suggesting that waiting could be unwise.
The discussion also delves into some surprising economic concepts. For instance, did you know that high-interest rates can actually lead to housing inflation? When mortgage rates are high, fewer new homes are constructed, which drives prices up — the opposite of what many might believe.
Karsten also explains the recent job report revisions that surprised many, revealing that the government had to reduce nearly a million jobs from earlier projections. He clarifies that this isn’t due to officials fabricating data, but rather, accurately tracking new businesses in real time is challenging.
You’ll also be introduced to two Fed tools that many are unfamiliar with: the dot plot and R-star. The dot plot indicates where Fed officials anticipate interest rates moving over time, while R-star signifies the ideal interest rate when the economy is functioning smoothly — currently around 3 percent.
The interview concludes with Karsten’s perspective on the culture at the Fed. The era of consensus under Greenspan is evolving into one with more dissenting votes, reminiscent of the central bank's stance from decades ago under Paul Volcker.
Enjoy!
Timestamps:
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(0:00) Podcast introduction and guest background
(1:04) Karsten’s career journey from the Fed to Wall Street
(1:57) Current economic growth uncertainty
(4:04) GDP formula and tariffs impact
(5:10) Trade efficiency and comparative advantage
(6:04) Supply chain risks due to protectionism
(8:20) Fed meeting and expectations for rate cuts
(9:35) Market anticipates multiple rate cuts
(12:19) Timing in real estate and mortgage rates
(13:55) Influence of Fed rates on treasury yields
(18:50) Buy the rumor, sell the news strategy
(22:13) Fed transparency and decision signaling
(25:56) Fed consensus culture versus dissent
(30:48) CPI data indicates inflation rise
(34:32) Confusion between transitory and persistent inflation
(38:56) Fed lagging on rate cuts
(40:00) Clarification on major job report revisions
(44:24) Tracking new businesses: methodological challenges
(46:00) Explanation of dot plot and R-star concepts
(52:29) Bond allocation strategies by age
(57:25) Attractive current bond yields
Check out our earlier interview with Dr. Jeske here.
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Gain early retirement insights from former Fed economist Karsten Jeske. Discover how interest rate reductions and market trends influence your journey to financial independence.
