Why Should you Care about a New Fed Chair?

Apple Podcast Spotify

Why Should you Care about a New Fed Chair?

There’s a new sheriff in town. By Sheriff, I mean a new Chair at the Federal Reserve. What is interesting is that the old sheriff is still in town as well. And the old sheriff is going to be consulting with the new sheriff to make decisions for the town. It’s going to get complicated. There is some drama ahead for the Fed, and there are likely to be some of the most significant changes to the Fed that we’ve had in the last couple of decades. I’m going to use this episode to try and underscore why you should care about the Fed and explain how their actions might affect you in the future.

So, what is the Fed? Put most simply, it is the Central Bank for the United States. It is a bank for other banks, and it is a bank that issues the currency that we use. It was founded in 1913. Its founding was an attempt to create a more elastic currency and a more stable banking system. There were lots of banking panics in the 1800’s and the Federal Reserve was created to limit these. But ironically, there were more banking failures following the creation of the Fed during the Great Depression than in the entire 19th century according to Encyclopedia.com. The purpose of the Fed and the effectiveness of the Fed are two different things – and there are arguments to be made on whether the Fed has accomplished its original purpose. But its purpose has morphed over the years. The high inflation of the 1970’s led to the Federal Reserve Reform Act of 1977. This act revised the purpose of the Fed into essentially two mandates: to maximize employment, and to limit inflation (which also happens to limit interest rates). So, for the last 50 years or so, the Fed has been an active market participant, using direct and indirect tools to increase or decrease certain rates in the economy to maximize employment and to keep a lid on inflation. Its effectiveness in this regard can also be called into question. Fed defenders will say that the Fed has saved the economy from certain ruin – such as its actions in 2008 during the Great Recession. Critics will say that it was the Fed’s low-interest rate policy that caused the Great Recession in the first place. The new Fed Chair, Kevin Warsh, is taking a hard look at the practices of the Fed and plans to present their findings in the near future. He has charged 5 task forces in 5 different areas. These task forces are looking at the Fed’s Communication, its balance sheet policy, its inflation framework, how it measures maximum employment and its data sources. This is a really broad review that is going to address how the Fed measures data, how it thinks about that data, and what the tools are to respond to that data. Change is coming. As a matter of fact, it already has. Chairman Warsh will preside over his second meeting today, and he has already committed to beginning to remove forward guidance. He feels like the Fed’s predictions of the economic future are an exercise in futility. So, there will be more surprises when the Fed meets because they won’t be telegraphing their next move. What makes Warsh an interesting Fed Chair is that he was at the table in 2008 weighing in on massive financial decisions as the Great Recession was going down, and he was in favor of the emergency measures used at that time. However, a few years later he opposed what was called QE2 – or the second round of quantitative easing in 2011. This was a tactic that was designed to reduce long-term rates. His disagreement was so strong that he resigned from the Fed at that time. So, we have a reformer of the Modern Fed at the helm, and we have his predecessor who has some different views in the same room. There are bound to be fireworks.

So, what does this have to do with you? You need to keep an eye on what the Fed is doing, because their moves affect everything. Interest rates are the governor for capital around the world. Interest rates determine the allocation of capital by inducing people to save and/or lend and/or consume. In his book, The Price of Time, Edward Chancellor describes interest rates as the “traffic signals” of capitalism. They are a compass that tells society how much to consume today vs. how much to invest for tomorrow. What the Fed does affects you every day. It affects how much you are earning on your savings accounts or CD’s; it affects the interest rate on your home mortgage; it affects the cost of borrowing for your business; it affects how much you might be able to earn on longer-term investments. There are very few institutions who affect every person on the planet. The Fed is one of those. In their meeting this week there is a 66% chance the Fed will keep short-term rates as is. But in their September meeting, there is a 56% chance that they raise short-term rates by .25%. This is in response to some of the inflation that we continue to see throughout the economy. When we started this year, the market was expecting a couple of rate decreases. And here we are today expecting one or more increases. This is why it is impossible to accurately predict very far into the future.

Speaking of interest rates, we have an incredible one on our High Interest Checking account. And it comes with a ton of benefits that really are valuable to your everyday life. Isn’t it about time you contacted us to learn more? Visit foundationbank.org to start your financial conversation. In the meantime, we hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on July 29, 2026. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.