How The Upcoming Fed Meeting Will Impact Your Wallet

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3:06Nicole Lapin:I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand. It's time for some money real.

3:20Nicole Lapin:So for more than 100 years, the Fed has been one of the most boring institutions in the government. No offense, it's true. But in the last few years, the Fed has really been bringing the drama. Right now, the Fed is in the middle of one of the most important transitions in decades. There's a new chair, there's rising inflation, a divided committee, and an upcoming meeting that has Wall Street's full attention. The Federal Reserve is, of course, the central bank of the United States. It's not where we bank at. It's a government thing. But even so, it definitely impacts our financial lives. So I'm going to untangle how this upcoming meeting is going to impact your wallet and how the market most likely will behave.

4:02Nicole Lapin:Now, the reason the Fed is always in the headlines is because of the federal funds rate. Here's how this comes up. And it's also a kind of cool look into how banks actually work. I mean, I think it's cool, but I'm a nerd. Anyway, banks need a certain amount of money in their reserves. That makes sense. When banks lend money throughout the day, their cash balances fluctuate. So by the end of the day, some banks might find themselves slightly short on their reserve requirements. So rather than scramble to try and fix a shortfall, they just borrow overnight from other banks that happen to have excess reserves that day.

4:37Nicole Lapin:And when they borrow, they borrow at the federal funds rate. So basically, this is the rate that banks charge other banks. Now, I'm going to get into how this affects you. Your bank is going to adjust your interest rates depending on what the rate is that they're getting from other banks. This is the sort of same philosophy as tariffs. businesses pass on increased costs to their customers so that they can keep their own margins and their own business running. Your bank basically does the same thing. Here's the thing most people get wrong about the federal funds rate. It doesn't directly set your mortgage rate or your car loan or your business loan.

5:17Nicole Lapin:Banks definitely take a look at what the Fed is doing, but then they make their own calculations. The relationship is real, but it's not a one to one. The rate that does move directly and immediately, high yield savings accounts and money market funds. When the Fed cuts, those rates fall fast. When the Fed raises rates, they go up. So if you're sitting on cash in a regular old savings account paying 0.01%, sorry to say, but you're already losing the game. But hopefully you've already signed up for a high yield savings account with SoFi. If you haven't, hang on to the end of the episode and I'll tell you exactly how.

5:51Nicole Lapin:So the Fed funds rate is a lever that makes it easier or harder to borrow. Now, the Fed is supposed to use that lever to control two things. Number one, inflation. Number two, unemployment. This is what's called their dual mandate, and it's literally written into the law. The Fed wants to keep inflation under control and keep unemployment low. And those two goals are constantly in tension. When the economy is overheating, prices are rising too fast, inflation is running too hot, the Fed tends to raise rates. This makes borrowing more expensive. As a result, consumers pull back, demand cools, and inflation ideally follows.

6:33Nicole Lapin:When the opposite is true, the economy is sluggish and unemployment is climbing and growth is stalling. The Fed usually cuts rates. Borrowing gets cheaper, companies invest, consumers start spending, growth returns. Hooray! That is the theory anyway. The Fed's target for inflation is 2%. As of the latest numbers, inflation, though, is running at 3.8 % year over year. That is nearly double the Fed's target. So, based on what I just said, the Fed might want to raise Fed funds rate to cool inflation. But it's not so simple. It never is. Eight times a year, the FOMC, that's the Federal Open Market Committee, the 12-member body that actually votes on these rates, meets for two days and releases a decision on interest rates.

7:20Nicole Lapin:The next Fed meeting is June 16th and 17th. And here's the honest, honest answer about what's going to happen there. I don't know, because not only is the economy complicado, but also we have a new Fed chair. You've been hearing me talk about Jerome Powell for years now. He has been the Fed chair. We have called him J-Pow, but his term ended on May 15th and his replacement, Kevin Warsh, was sworn in. Warsh has a reputation as a hawk. That's someone who prioritizes keeping inflation low, even if it means higher rates and slower growth. A dove, by the way, is someone who thinks the opposite. And I know Wall Street loves all of its animal references.

8:00Nicole Lapin:We have bulls, we have bears, we have hawks, we have doves. Oh, my. Anyway, President Trump isn't really into the hawk approach. He really wants lower rates, and he has been very, very vocal about this. This is where some of the drama comes in. The tension between J-Powell and Trump was pretty public. You might remember I had Austin Goolsbee on the pod. He is the president of the Federal Reserve Bank of Chicago. So he's in these Fed funds rates decisions. Here's what he had to say about what it's actually like. So can you take us in the room where it happens? so to speak. Yeah, look, if you're an econ nerd like me, going to the FOMC meeting is just about the coolest thing there is in the world.

8:42You go in a huge room, biggest table I've ever seen in my life. We sit around the table. The shades come down so nobody can spy and see what's being said. Do you have to give up your devices? You have to give up your devices. And I famously, I was on the Fed for five minutes. I'd been there five minutes in my very first meeting and somebody's phone goes off. Like it was begun. They're just like taking the role. And there's all these formalities at the, at the beginning. Do you need it? And I was like, what idiot brought their photo? Do you need it? And then I realized, oh, no, it's me. It's me.

9:21I was like, I'm sorry. I'm sorry. I'm the new guy. Did you get a timeout or did you get in trouble?

9:26Nicole Lapin:What happened? Well, I got a little trouble, but they got a, nothing had happened yet. So I didn't get in that much trouble. But that never happened again. And they go around the table. And day one is about the state of the economy. And day two is about what we do with rates. And Jay Powell is going to say, here's what I think about the economy. And then if you're going to walk down and President Moussala, what do you think about the economy? President Goolsbee, what do you think? It's a deliberative body. It's got a formal aspect. And after some time, the transcripts will come out. So if you're really into this sort of thing, you can go read word for word what happens at the meetings.

10:09But it's a very important deliberative body. And people are coming. They built the Federal Reserve in the Federal Reserve Act to have independent thought coming from all around the country. And that's why we have these 12 reserve banks sprinkled all around the U.S. and people come from very different backgrounds and very different perspectives. And it's been it's been pretty great.

10:35Nicole Lapin:So now Warsh is in and the president is asking for one thing, but the economy is signaling another. Again, inflation came in at three point eight percent and the Fed committee is divided. In the last meeting, three members dissented against language signaling future cuts. They wanted an option of a hike on the table. And by the way, that level of internal dissent has not been seen in over three decades. Now, I have a prediction. But first, I want to give you a warning. Markets get tense before Fed meetings. Volatility in the S &P 500 reliably ticks up right ahead of the announcement. Then the decision drops at 2 p.m.

11:16Nicole Lapin:Eastern Time, and the chair holds a press conference at 2.30. That press conference is often more market moving than the rate decision itself because the market is always trying to read what happens next, not what just happened. The historical trend is rate cuts send stocks up, rate hikes send them down. But surprises are what create the real volatility here. If the market already priced in or thought a cut was about to happen and the Fed delivers one, you might not even see much of a reaction. If the Fed does nothing when the market expected or thought there would be a cut, it kind of feels like a punch in the gut.

11:55Nicole Lapin:So just expect some volatility on June 17th. Here's my prediction. I do not think Warsh is going to cut rates to make the president happy while inflation is running at 3.8 percent. That would be the single fastest way to destroy the Fed's credibility. and whatever you might know about or think about Warsh, maybe based on some of the social media I did about him, he is not a reckless guy. He knows that a central bank that loses credibility on inflation has nothing. So I think he is going to hold. If you're waiting for your mortgage rate to fall dramatically, though, in 2026, I would make peace with the current reality and plan accordingly.

12:34Nicole Lapin:For today's tip, you can take straight to the bank. I mentioned earlier that I would tell you about high yield savings accounts. High-yield savings accounts are exactly what they sound like, accounts that have a much better interest rate than traditional savings or checking accounts. If you're keeping your savings in a checking account, you are killing me softly. Seriously, I'm like Tinkerbell. Every time I hear somebody say that they don't believe in high-yield savings accounts, a little part of me dies inside. If your money is sitting in a checking account, you're earning less than 0.1 % interest.

13:05Nicole Lapin:And I have said that number 500 times today. Inflation is eating away almost 4 % of the value of your savings. So protect, please, your hard-earned money and open up a high-yield savings account. Me and my team opened up accounts at our partner SoFi. You can get started at SoFi.com slash MNN as in Money News Network or click the link in the episode description.