We need to talk about the Fed

Trying not to freak the f out over here!

I’ll forgive you if you haven’t been keeping up with all the drama revolving around the Federal Reserve recently. There has been a lot going on. Truthfully, I never paid attention to the Fed meetings before I joined CNBC.¹ But it turns out the central bank’s regular confabs are pretty interesting if you want to know what a group of very smart people think about the state of our economy. And their decisions do have a direct impact on our personal finances.

You may recall that in the spring of 2020, in response to the pandemic, the Fed cut interest rates all the way down to 0%. That made lending cheap, and we saw a lot of people take advantage of those bargain-basement mortgage (and refinance) rates.

Over the past five years, the Fed has slowly raised interest rates (to a high of 5.25% in July 2024) in order to fight inflation. As a result, many of us enjoyed elevated APYs on our high-yield savings accounts. But in the last 18 months, the Fed has moved to slowly lower rates again, as it seems the economy has cooled (as evidenced by a higher unemployment rate).

On Wednesday, the Fed cut the rate by a quarter percentage point. That was mostly expected and would be fairly unremarkable, except that there’s a lot of drama surrounding the Fed right now.

Since his first presidency, Donald Trump has gone on and on and on about the virtues of low interest rates. It may come as no surprise that it is unprecedented for a president to weigh in so loudly and publicly on what the Fed does. Our central bank is supposed to be completely independent and free from political pressures. (It’s in the Constitution.) This independence allows the board to make decisions focused on the long-term health of our economy.

Since he came back to office, Trump has been very vocal about what he wants the Fed to do: cut rates and cut them drastically. He’s not looking for a measly quarter percentage. And it’s not just talk. In August, he took the extreme measure of firing Fed governor and Biden appointee Lisa Cook, the first Black woman to be on the board, on trumped-up charges of mortgage fraud. Again, this is unprecedented.

@scotusblogTrump vs. the Fed 👀 Can a president really fire Lisa Cook? #FederalReserve #InterestRates #MoneyTalk #Economy #scotus

Tiktok failed to load.

Enable 3rd party cookies or use another browser

Cook immediately sued the administration, saying they had no grounds to fire her. On Tuesday, an appeals court said Cook could stay in office pending the trial. On the same day, Trump appointee Stephen Miran was confirmed by Congress. Miran is set to temporarily replace Adriana Kugler, who unexpectedly resigned in August. As it stands now, the Fed is composed of seven governors, four of whom are Trump appointees (including the much-maligned Jerome Powell, who is the board’s chair) and three who were appointed by Biden. Yesterday, Trump asked the Supreme Court to remove Cook for good.

You might be thinking, Who cares? Add this to the long list of shitty things the administration is doing. And sure, yeah, that’s true. But the president messing with the independence of the central bank is really scary if you start looking around at how similar situations played out in other countries.

Planet Money recently ran an episode about economists who study central bank independence. You only have to look at what happened in Argentina and Turkey in the last decade to see what a mess it can make when the president tells the central bank to cut rates. The result is often super high inflation and weak economic growth. In layman’s terms: high prices and no jobs.

The inflation we’ve endured over the last few years is nothing compared to what they’ve seen in other countries—according to Politico, inflation in Turkey peaked at 80% in 2025. For comparison, inflation in the U.S. reached a recent high of 6.5% in 2021. But it’s not out of the realm of possibility that we could see a similar economic catastrophe if Trump gets his way.

And then there’s the impact on the stock market. We’ve all enjoyed record gains over the past few years. We also saw the markets rise this week at the news the Fed was cutting interest rates. But in July, when rumors started flying that Trump might fire Powell, Senator Elizabeth Warren (D-Mass.) warned that his meddling could cause the stock market to crash. A few Republicans have expressed similar concerns over the importance of Fed independence.

While I tend to try to avoid catastrophizing, all this Fed meddling has me worried—like up-in-the-middle-of-the-night stressing out. Even if none of us are billionaires (or millionaires for that matter), how we choose to spend our money is powerful. Many of us have been stashing away our hard-earned dollars into savings accounts, 401(k)s, and IRAs for years, and we have big plans for that cash. Sure, there’s always some risk to putting our money in the market, but for the most part, the rewards have always outweighed the risks—at least over the long term.

But what do we do if we find the rules suddenly change, and the guardrails that exist disappear? What if we see a stock market crash at the exact moment that inflation soars? We always talk about how good Boomers have it, but maybe they should tell us what it was like to live through the ’70s, when Nixon’s Fed meddling had long-tail impact. Over the next decade and into the ’80s, there was a stock market crash, record-high inflation (peaking at 13% in 1979), staggering unemployment rates (10.8% in 1982), and—eventually—record-high interest rates. (The Federal fund rate in 1980 was 20%.) We’re all complaining about 8% mortgage APRs—in 1981, they averaged 16.64%.

And Nixon wasn’t even publicly meddling with the Fed! It was a private conversation!

I’m not saying we should all sell our stock and stash a bunch of cash under our mattresses. Please don’t do that. But I am worried the economy might get really bad for a while. If the central bank does lose its independence, the fallout could be devastating, and it’s not the billionaires who are going to be hurting.

This worry makes it hard for me to offer advice like “invest 10% of your income.” This week, financial expert Amanda Holden announced the title and cover of her new book, How to Be a Rich Old Lady: Your Guide to Easy Investing, Building Wealth, and Creating the Wild, Beautiful Life You Want. I love the concept, but a cynical part of me wonders if everything we’ve been taught to believe about being smart with money is about to change so dramatically that no amount of saving is going to save us.

I hate writing about this because I have no neat and tidy way to wrap things up, and I worry that all I’ve done is spiral for 1,000 words. I guess my best recommendation is to stash a little bit more in savings if you can. And if you do have credit card debt, use the slightly lower interest rates as a motivator to pay off those outstanding balances. This may sound counterintuitive to everything I just wrote, but if (when?) the stock market does go into free fall, just try to hang in there. Vanguard has a tool so you can see the power of staying invested in a downturn.

But also, maybe we try to remember that while money is important, it’s not everything. The world we live in feels pretty dark right now. As much as my instincts tell me to pull my family close and tune out the outside world, I don’t want to push away my wider community. We all feel better when we help each other. So instead of hand-wringing, how about we find a way to do something kind for someone else this weekend? Have any suggestions? Leave them in the comments.

-Lindsey

The Fed in the news

Truly, I’ve just scratched the surface here. Here are some additional resources!

• Most Fed observers will tell you that the institution has a dual mandate: price stability and maximum employment. Stephen Miran, who recently joined the Board of Governors, vocalized a third mandate that shows you how the Trump administration could be using its influence. “Congress wisely tasked the Fed with pursuing price stability, maximum employment, and moderate long-term interest rates,” he said during his confirmation hearing.

• Planet Money is always such a good listen, and the episodes on central bank independence and Lisa Cook’s firing informed a lot of this newsletter.

• In The Atlantic, Rogé Karma looked at why cutting rates might backfire for Trump.

• In 2019, before she was a Fed governor, Lisa Cook, along with fellow economist Anna Gifty Opoku-Agyeman, penned an op-ed for The New York Times about just how hard it is to be a Black woman working in the field of economics. Related: Anna just released her first book, The Double Tax: How Women of Color Are Overcharged and Underpaid, this week.

• Marketplace is Lindsey’s favorite podcast, and Thursday’s episode on Trump’s economic policies is a good one. Also, here’s their explainer on how the Fed works, from back in 2021.

• In this interview on The New Yorker Radio Hour, former Fed chair and former Treasury Secretary Janet Yellen shares her expertise on the importance of central bank independence.

• Economist kyla scanlon has an interesting interview with Cleveland Fed President Beth Hammack.

• Geeky in the best way, Bloomberg put together a “Fed rate cut” Spotify playlist.

What we’re talking about

And now for some lighter fare (which we all need right now)…

• Amanda Litman gave a great pep talk in her newsletter this morning, encouraging us all to be brave!

• I appreciated this tip from The Wall Street Journal about how to think about seemingly superfluous expenses. It’s called “the 0.01% rule,” and the gist is that if you are torn about making a purchase—say, upgrading your flight or impulse buying a Lego set—you don’t need to stress if it costs 0.01% or less of your net worth. -Alicia

• Last week in Portland, Oregon, I had dinner with Purse reader and Athletic writer Lindsay Schnell. She shared a funny story about reporting on a teenage basketball star who has become an internet sensation for the uber Gen Alpha meme “6 7.” “Ask Freddy if he knows,” she said, and I did, and he does know about it, LOL! It’s a whole thing with his friends at school. Lindsay’s piece on this phenomenon is a delight! -Lindsey

• For some reason, we didn’t read Robert Munsch’s children’s books to Freddy when he was little, but I have fond memories of reading them when I was a child. I loved this bittersweet profile of the author, which focuses on his creative process. (Shoutout to my mom for sharing this one in the family group chat!) -Lindsey

• This comment from Michelle Teheux on my recent 30-something column gave me a lot of food for thought: “I recommend you pretend 50-something or 60-something you comes back in time to give you advice. Imagine various versions that you might be, and what you might say.” -Alicia

On our radar

• Don’t forget, Lindsey is hosting a webinar with Steward on Thursday, September 25, at 12:00 p.m. EST, to discuss all things related to estate planning. You can sign up here!

• I’m making every effort to check out the Brooklyn Book Festival this weekend! -Alicia

• My friend and former colleague Kelsey Miller has a novel coming out later this month, and I can’t put it down. Old Money is a juicy murder mystery and a great distraction from the news! -Lindsey

The best money we spent this week

• Our CSA does a special sale every month where you can order from a variety of local farmers, fishmongers, bakers, etc., and then pick everything up at the spot we pick up our weekly produce share. We spent around $100 on a bunch of peaches, cheeses, buttermilk, meat, and salmon (among other goodies), and it’s all tasted amazing so far. -Alicia

• I had to go to the dentist on Tuesday, and the rule is you get a treat after you go to the dentist. I stopped by a coffee shop in Brooklyn and got my favorite breakfast salad, which sounds weird but is super delicious ($20, including tip). And I paid cash to take advantage of the 4% cash discount. Anyone else into using cash to get a discount at local businesses? It’s a trick I learned from a Purse reader (hi, Gabi!), and it’s my new favorite thing! -Lindsey

1. Alicia and I were laughing this week that it’s like deja vu working with each other on Fed rate-cut day.