DLS-Fed script
Freddie: Hi, I am Freddie Bell, and today we're examining two seismic events that rocked financial markets. Just this week, the unprecedented firing of the Bureau of Labor Statistics Commissioner, and the escalating tensions between President Trump and the Federal Reserve. These aren't just political headlines.
There are fundamental challenges that can have devastating impacts on your financial security. Join us for Leibel on Fire.
And I'm joined by Leibel Sternbach. He's Amazon's bestselling author of Living With Financial Anxiety and also author of the book, Authenticity. I'm so happy to be with you this weekend Leibel. Hello, how are you?
Leibel: Good. How are you?
Freddie: Unbelievable. I'm just excited to, talk further about, uh, these two seismic episodes that have happened, that the whole country is talking about.
So for those who are not in the know Leibel, what exactly happened that rocked the financial world?
Leibel: Yeah, we, we kind of got a 1 2, 3 punch, right? Usually it's one, two, we got 1, 2, 3 punch, right. Wednesday the Fed was meeting and they said, we're still seeing a good labor market. We're not quite sure about lowering interest rates, which the market was really expecting them to lower interest rates.
That was event number one. But alongside that was the fact that there was two dissenting Fed governors. Right? Which is the people who decide interest rates, two of them dissented, which is very unusual. They usually are unanimous in their opinions.
Occasionally you'll have one person dissent, but to have two people that is unprecedented. Last time that happened was 2003. So it' s been a very long time since that happened. On the flip side of that, on Friday we had the Bureau of Labor and Statistics release the jobs numbers.
And they, not only did they release the job numbers, but they revised the last two months, and they revised them down by a significant amount. So all of a sudden one of the indicators that say how healthy our economy is, it went crashing, right? It went from like being an okay market to being a terrible market, and that kind of, you know, what flew in the face of what the Fed was talking about.
So you had this one, two punch to the economy there, and the market reacted strongly to that. And then you have this which really the market doesn't know how to react to this. As Trump came out and said that the head of the Bureau of Labor and Statistics commissioner, that the head of that did it for political reasons and called for her to be fired, and her boss, she actually fired her. And so this person who's like a statistician, right, like not political at all, got fired for having published what was considered to be, you know, an apolitical thing. And something that both the fed and the entire world kind of counts on to determine
policy and to gauge the health of the United States economy. And, she got fired for Trump saying that she was doing it for political reasons, and that has very far reaching implications.
Freddie: So talk about the far reaching implications and for just from your tone, it doesn't sound very typical.
Leibel: It is very atypical. Let me phrase that stronger. That is typically what happens in third world countries, and that is why third world countries fall apart and why nobody trusts third world countries is because they manipulate their statistics for political gain or for political purposes, and so therefore, you have no real understanding of what's happening in their markets, right?
So when you can't count on the data to tell you what the economy is doing, then all of a sudden you're trying to infer information and it means that. Not it. It means none of the numbers are trustworthy, right? Which means you can't predict the future, you can't plan for things you don't know if the investments are being made in the country are leading to good outcomes.
You don't know if they're hiring or firing more people, right? Which ultimately, at the end of the day, that's what we want to know. Are we in a recession? Are we in a growth period? Are we in a healthy economy? Are we in a poor economy? What sectors are growing? 'Cause I'll tell you where investments should be, what part of the market cycle we're in.
Investors count on this information and they count on them having some level of accuracy. And so the politicizing of this information is a real problem because this information needs to be above approach, and that is something that is concerning both on the statistics level, but also on the Fed, right?
Because the Fed, the perception that they are apolitical and that they cannot be influenced by politics at all, and that their interest rates policy and their monetary policy are done for maintaining their mandate, which is a, you know, inflation and employment rates. And if there is any suspicion that they're doing it because the government wants cheap money or the government wants to, you know, have an influx of capital in people's accounts.
That is a real problem because that is a death spiral for any economy.
Freddie: So don't numbers change anyway? Don't we have revisions of information that is released from the federal government concerning statistics like this?
Leibel: We do and you know, numbers change on a regular basis, and typically, and this is what the head of the Bureau of Labor and Statistics said was
statistically speaking, right about 60% of the people who they ask respond to their surveys within the first month. And then the remaining 40% responded two months later. And so they said, you know, the percentage that responded in the last two months was 59.1%. So right there on that 60% target what was different is that the 40% that didn't respond and responded later brought the number down significantly. Now it's typical that the numbers get revised down, right? Like it, it is one of the weird things about the market, that the market reacts so strongly to numbers that aren't so sound to begin with, but nobody was expecting such a large revision.
That hasn't happened historically. So that is concerning 'cause it kind of really fundamentally shifted the picture from it being a tight labor market to having less jobs. Right? And if there's less jobs, that kind of flies in the face of the Fed story of that
we have a tight labor market and the economy's really doing good. And that is what the market is trying to suss out, but the reality is, is that, you know, we've been talking a long time on this show of the fact that there are things not being reported in the data that is happening in the economy. Right?
For the last two years we've been talking about that and the Fed has been fighting the fact that it is very hard for them to get good data. People aren't answering the phones, people aren't answering their emails. There's a lot of things that are just not being reported or we're not gathering the data for this new economy, right.
This gig economy that we have. This shift of bringing onshoring defense manufacturing. I don't think we've spent as much ammunition as we've spent in the last few years since World War II. And that is something that, you know, it just doesn't report in the numbers.
The fact that, you know, Boeing and Lockheed Martin are gearing up for missile production and drone manufacturing and things that they haven't done before. They're gearing up to do two, three times their yearly numbers. But, they haven't started hiring people yet, so it's not reflecting in employment numbers, it's not reflected in purchasing orders yet.
But the fact is, is that they're building these manufacturing plants because we don't have the capacity to do the things that need to be done.
Freddie: How is all this impacting the Fed? There's so many parts of this that you've just so well outlined, but what is the real impact of all of this Leibel?
Leibel: Yeah, so the, the impact of all of this really comes down to the Fed is playing a guessing game as to what's happening with the economy and they, they're juggling two competing agendas. On the one side they have this agenda that they have to keep inflation at a 2% target. That's what their target is because that's a healthy number, right?
You want inflation. You want the value of our dollar to decrease by small amount every. Single year. 'cause if it decreases by too much, then you have the cost of goods skyrocket and nothing can keep pace with it. Which is what we've had the last few years, right? The cost of goods has increased, but people's salaries haven't kept pace with it.
Nothing else in the economy has kept pace with the cost of goods. So you want inflation at a healthy level so that people who are working can borrow against their future and they pay it back with less money, which that creates a very healthy cycle of borrowing against the future and basically growing our economy based on future growth.
And it's, it's a weird thing, right? Like if you tried running your household that way, it wouldn't make sense. But because economies aren't balance sheets, right? It isn't pluses and minuses equals zero, right? Your income minus your expenses is not the number that drives our economic output.
And so the Fed is managing inflation to keep that at a healthy target. That's goal number one. Goal number two is they wanna keep employment at a healthy rate, because that is the flip side of inflation, is you wanna make sure that people are earning money to be able to spend it. Just because inflation, they're spending money that they don't have yet, but at a healthy rate so that it grows the economy.
You wanna make sure that enough people are employed so that you can feed that cycle. 'cause if you have one without the other, then you have a stalled economy. And so the Fed is managing those two numbers. It's a little bit of a guessing game for them as to what you know, where things will be.
Because the way that they control these numbers is primarily either printing money or by reducing the amount of money in the economy. That's the only tool that they really have at their disposal. The other tool that's kind of not a written rule is public perception. Right? So they need the public to perceive that the future is gonna be better than the past.
Otherwise, if we don't believe that the future's better than the past, we stop spending money. And if we stop spending money, then nothing they do works. So they've got, you know, this competing agenda that they're trying to do and they need data in order to do it right. Because if they make more money in the economy.
Then all of a sudden that makes inflation go up. If they tighten the economy too much for too long, the people stop spending money and then we're stuck in the same problem of then we have a stagnation and nobody's spending money and we have no economy.
Freddie: Last quick question. How does firing the BLS director impact all of this?
Leibel: So the Fed requires data in order to make their decisions, right, because they, they are like the chief economist for our country. And economists look at data. So they need to see who's hiring, who's firing, where are they hiring, where are they firing? What's the future of our economy, what's our future of, you know, everything?
And so the Fed gathers some data on their own. But primarily they rely on the Bureau of Labor Statistics and other government agencies to gather information about different sectors of the economy. And then they read that data and they make decisions based off of that data. If we can't rely on the data to be reliable, we are screwed.
We are royally screwed because then how do you make decisions? What are you making decisions based on? Are you looking at an eight ball? So that, that is, the problem is what happens if the next person who comes into the BLS or the Fed, because now we have a Fed governor open spot, what happens if those people are politically inclined and they start making, they start tweaking statistics
based on politics? As Mark Twain is famous for saying, right. Numbers don't lie, but liars figure.
Freddie: Well said. That's about all the time we have for this, but I know that there are people watching and listening who would like more information. Do you have a resource for us this week?
Leibel: So when it comes to more information about this, unfortunately it's kind of one of those things that are unfolding.
So the best thing is if you're worried about your portfolio, if you're worried about how this impacts you, if you want to make sure that you're positioned as best as possible, reach out to us. Reach out to the team at yields4u. And we will be more than happy to take a look and see what we can do to help you reposition yourself so that regardless of what happens with the Fed or BLS or the United States economy that you are protecting, you don't have to worry about your financial security.
Freddie: All right, thank you Leibel. We'll leave it right there and I couldn't have said it better myself. That's all the time we have for today, and if you'd like more information, you can go to yields4u.com. I'm Freddie Bell, and we'll see you on the next Leibel on Fire!
