October 31, 2025 • 41 mins
On this episode of Simply Money presented by Allworth Financial, Bob and Brian welcome former Cleveland Fed President Dr. Loretta Mester for a rare insider’s view into how interest rate decisions are made, why 2% inflation remains so elusive, and how the Fed stays focused amid political noise. She also recounts navigating the economy through COVID and shares what makes Ohio’s economy uniquely resilient.
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Speaker 1 (00:00):
Shut down, reopen the garden, updates, nice Officeer is the
top of the hour hour by after on fifty five
krs the talk station.
Speaker 2 (00:15):
Tonight a special treat. We've got one of the most
influential voices in American monetary policy on the show. Right now,
you're listening to Simply Money, presented by all Worth Financial
on Bob Sponseller along with Brian James. If you follow
the markets at all, or even just have a mortgage,
then you know that the Federal Reserve plays a massive
role in your financial life. But the conversations that happen
(00:38):
inside those closed door meetings in Washington, most of us
never get to hear from someone who was actually in
the room.
Speaker 3 (00:47):
That's why tonight is so special.
Speaker 2 (00:49):
Until the middle of last year, when her ten year
term concluded, Doctor Loretta Mester served as President and CEO
of the Federal Reserve back of Cleveland, where she actually
cast votes that directly shaped interest rates in the direction
of the US economy. And for those that don't know,
the Cleveland Fed has a branch right here in Cincinnati.
(01:11):
Doctor Mester currently is an adjunct professor of Finance at
the Wharton School of the University of Pennsylvania. Prior to
joining the Cleveland FED, she served at the Federal Federal
Reserve Bank of Philadelphia. And you know, as if she
does have any spare time. In her spare time, she
serves as a trustee of the Cleveland Clinic and of
(01:32):
the Musical Arts Association in Cleveland. Doctor Mester, it is
a real treat to have you with us.
Speaker 3 (01:39):
Thank you so much for making time for us tonight.
Speaker 4 (01:42):
Thanks for having me on. I'm really looking forward to
the conversation.
Speaker 3 (01:46):
Great.
Speaker 2 (01:47):
Well, Hey, the timing of your being with us could
not be much better. Is the Fed, as you well know,
just voted to lower interest rates by a quarter of
a percentage point yesterday.
Speaker 3 (01:57):
Do you have any reaction to that move? Are we
on the right track here?
Speaker 2 (02:01):
And more importantly, you know, and I've heard you interviewed
on this, you know, through other media, you know channels.
What what give us a taste of your sense of
the balance that the Fed is trying to strike here
between getting inflation back down to that two percent target
and balancing that with the health or lack thereof of
the labor market.
Speaker 4 (02:22):
Well, you're exactly right. I mean, the Fed does have
a dual mandate goal so called that the Congress has
given it. It has to hit price de vility, which
it defines the two percent inflation, and it has to
set policy also to support getting from accell unemployment, and
so balancing those at times can be challenging, and this
(02:43):
is one of those times because, as you pointed out,
the labor market, it's in a balance. I would call
it an easy balance in that there isn't a lot
of firing going on, but there also isn't a lot
of hiring going on, and so you have sort of
an equibrium there for businesses where they just don't add
(03:05):
a lot of people to their payrolls because they don't
want they get caught out with too many if the
economy takes a turn. On the other hand, you also
have inflation that after the surge after the pandemics, you know,
when the inflation went up really really high to high
levels over seven percent, hasn't ever come back down to
the goal of two percent, and the saied's been working
(03:27):
hard to try to get that to come down. So
they have to have both of those goals in their site,
and that's what they've been trying to do. They last
meeting in September, they started to reduce interest rate, their
policy rate, and they followed through with another rate cut
this week yesterday, just yesterday, And so you know, they're
(03:51):
trying to take out some insurance on the labor side
of their mandate while at the same time keeping some
pressure to get inflation back down. And that's hard to
do when you have the economy performing as it is.
But so far, you know, that's what they're trying to do.
And as the chair said yesterday and his press conference,
(04:14):
chair Pal, they're they're not sure what they're all do
in December now, you know, they'll have to wait and
see how the economy evolves to see whether they need
to do more or whether they're going to stand pas.
Speaker 5 (04:25):
Doctor Mesher, it seems like we've been stuck at three
ish percent inflation for a long time now, and it's
almost for an uneducated mind like myself, it almost feels
like three percent is the new floor, especially since we
decided to go ahead and start cutting interest rates. While
you know, before we got down to our preferred two percent,
why was it so much so much easier to get
(04:45):
down from the crazy nine percent down to three But
this last mile is so difficult.
Speaker 3 (04:49):
What would you say is the biggest hurdle to.
Speaker 4 (04:51):
That, Well, you're anxiety, right, and we have been sort
of very in some sense stuck at three. You know,
last year they started to bring the industry down because
they thought inflation was on its path down to two percent.
You don't want to wait until inflation gets to two
percent to move monetary policy into a more neutral stance,
(05:13):
because then you'll overshoot and have you know, inflation prices
go keep falling, and that isn't necessarily good for the
economy either. But you're right, and I have some concerns
about the inflation numbers that you know, they've been having
a view that, you know, most of it is teriffs, right,
so when firms have to face higher costs to bring
(05:36):
goods into the country, the increase their prices to consumers
to try and make up for some of that higher costs.
And so they've been saying that they think most of
the inflation has been this care for later inflation, and
they view that as being sort of a temporary phenomenon
that that'll go away. However, I think if you delve
(05:57):
under the hood, you see that it's not just tariffs
that it serves crisis, especially to take on housing crisis,
which are starting to move back down, and so I
think they do need to be very watchful of that
and not go too far on their rate cuts because
then you go em bed that inflation in the economy,
(06:18):
and as you point out, it's already been you know,
four and a half years since we've gotten inflation back down.
That too, you know, has been at two percent. So
again there is a difficult row to hoe, and they
have a challenge in front of them, and so that's
why I think they really need to be focused on
inflation and the labor market, not just some one of
(06:42):
those two calls. They need to heat both. On their site, you're.
Speaker 2 (06:46):
Listening to Simply Money, presented by all Worth Financial on
Bob Sponseller along with Brian James, joined by doctor Loretta Mester,
the former president and CEO of the Federal Reserve Bank
of Cleveland. Doctor Mester, we want to get into a
little bit of your you know, actual time serving on
the FED. I mean, let's face it, you served on
the FED, you know, as president of the Cleveland FED
(07:07):
during some interesting times. You served during most of the
Obama administration, the first Trump administration, then almost all of
the Biden administrations, so uh, pretty pretty interesting times to
say the least, and among the most interesting times you
were on the Federal Reserve helping us guide the country
(07:27):
through COVID, one of the most historic, you know, periods
in history and certainly a gut punch to the economy.
Speaker 3 (07:34):
Take us behind the scenes of.
Speaker 2 (07:36):
How you tried and your colleagues operated during a time
when you know, let's face it, we weren't sure what
was going to be going on here with this you know, pandemic.
Speaker 4 (07:46):
Well, you're exactly right. It certainly was nothing than any
of us it experience, and it was very uncertained. I mean,
I think people sometimes forget, you know, that were you know,
now five you know, years beyond how inserted it really was,
and we didn't really understand what was what was going on,
(08:08):
especially in the beginning. I remember sitting at a conference
in New York after having gotten back from London early
in March, and we were like stardines in a can
and I'm thinking like, now, wow, that was pretty really thing,
but you didn't know at the time, and so that
was you know, we said, all of the policymakers and
(08:29):
all the staff of the SAID really hunkered down to
really try to understand what was happening to the economy
because we wanted to do what we could with our
policy tools to support the economy as best we could.
And I had to give credit to all the business
people that I talked to during those times, because we
(08:49):
really didn't have a clue about what was having it
was really important for us to gather that information and
from bankers and business people and labor market leaders and
in our distion, you know, which includes Cincinnati of course,
as you as you mentioned, you have a branch that
people were so generous, you know, they were worried about
their own business, their own families, and yet they were
(09:10):
incredibly you know, generous with their time and intel and
telling us what they were seeing out there. And I
actually had the opportunity to serve on a nonpartisan, apolitical
council that Governors of Line put together because he wanted
to gather people who were really in the understanding trying
(09:33):
to understand what was happening in the economy in Ohio.
And that was also I felt like I could provide
at least our insights from the SAID side in terms
of what we were seeing the economy but also hearing
from the business people on that. So it was a
very uncertain time, I would say, But I mean, one
thing about the said is that we're everyone at the
(09:55):
is very dedicated to doing what he or she can
do to support the economy. And you know, as you
saw yesterday's meeting, not everyone has the same view necessarily
want best what is the best path, but everyone brings
their ideas to the table and then they discussed. And
(10:17):
so that was what we tried to do during the pandemic.
You know, as you know, you know, the Center Reserve banks,
including the branch in Cincinnati, stayed open because we had
to move cash. It was very important that people have
access to cash during uncertain times and impact demand for passion.
A lot of people go around today not having cash
(10:39):
in their pocket. They don't have dollar bills in their pocket.
They use their phone or you know, credit cards or
debit cards. But during those kind of uncertain times, people
want cash and want to physically have something in their hand,
and so that was really important. In all the workers
in our cash operations, they were dedicated coming in even
though they were scared for their our own family, you know,
(11:01):
they were, you know, really dedicated to making sure that
the financial system stayed upload in the payment system.
Speaker 5 (11:11):
Tax mescher, I want to ask you about about something
a little more recent this had this happened after your turn,
but just a few months ago, Erica mcintar, for the
Commissioner of the Bureau Labor Statistics, was let go from
her position after a less than desirable July employment report,
which isn't necessarily attributed to any one person, but might might.
And then then some other changes with regard to how
we collect outa how we distributed. So you weren't in
(11:33):
the role, of course at the time, But what were
your thoughts when you started to hear the news about
how we were changing the information that people such as
yourself were going to have in order to make decisions.
What are the biggest things that you thought, Oh my gosh,
how are they going to function without this kind of thing.
Speaker 4 (11:47):
Well, it is certainly true that the government's economic statistics
would be zero. Labor statistics, you know, have published both
inflation data and employment data. Those reports are you know,
top notch reports on the US economy. They give you
a very good picture on what's happening in the economy.
(12:10):
And you know, not to have that data does is
a disadvantage. Now, on the other hand, there are other
data sources that the SAID has available to them. Some
of them are private sector data that are available to everyone.
And also the SAID collects its own data. So you know,
before every every you know, meeting on interest rate, the
(12:35):
SET actually publishes what it calls the Beige Book. I'm
sure you have seen that before and many of your listeners, colleague,
seen it. And it's really a summary from every reserve
bank of what they're seeing and hearing from contact in
the district, and it's the summary of the economy and
we put that out. That SAID puts that out before
(12:56):
the home seates are everyone can can share. I am
sure that the reserve banks have really stepped up those
efforts given they don't have the goal standard of data
from the federal government and a lot of the centerl reserves,
including the Cleveland said, you know, our own kind of
surveying of businesses and then evaluate them into indicators and
(13:21):
put them out to look to see as well. So
I'm sure there's a very big effort going into sort
of collecting that intel so that they do have a
basis or understanding what's happening in the economy and also
what is happening what they can expect that happen in
the future. And that's where the boards of directors of
(13:44):
the centeral Reserve banks and the business advisory councils. You know,
when I was at the Cleveland said we ran a
lot of business advisory councils that are geographically or industry focused,
so that we would have those contacts to be able
to ask people, Hey, what are you planning to do
with your crisis? You know, you know you're facing higher carts,
(14:04):
so are you planning to you know, pay for some
of that and you're you know, by reducing your margins.
You know, do you have that money to do that
or are you planning to pass them on to your customers?
And do you think you'll be able to do that? Well,
customers demand space for your product, and so you have
that as a real avenue for gathering information that can
(14:24):
be very use local policy.
Speaker 3 (14:26):
All right, doctor Mester, we got to take a short break.
Speaker 2 (14:28):
I know you're going to hang with us for a
few more minutes, which we really appreciate you're listening to
simply money presented by all Worth Financial on fifty five KRC,
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Five is a cleared war from Chicago are heard every day.
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All Worth Financial a registered investment advisory firm. Any ideas
presented during this program are not intended to provide specif
financial advice. You should consult your own financial advisor, tax consultant,
or a state planning attorney to conduct your own due diligence.
Speaker 2 (15:11):
You're listening to Simply Money, presented by all Worth Financial
on Bob Sponseller along with Brian James. If you can't
listen to Simply Money every night, subscribe and get our
daily podcasts. Just search Simply Money on the iHeart app
or wherever you find your podcast. We are back in
continuing our conversation with doctor Loretta Mester, who served as
President and CEO of the Federal Reserve Bank of Cleveland
(15:34):
from June of twenty fourteen through June of twenty twenty
four Doctor Mester, I've got a question I'm dying to
hear your answer to You know, obviously in the current environment.
And as we've already talked about, you've served under three
different administrations. Now we have the second Trump administration where
he is wanted to kind of try to, for lack
(15:56):
of a better term, direct FED direction on social give
us the real answer on how this actually works behind
the scenes, how the FED governors actually communicate. Are you
guys actually influenced at all by all this noise out there?
Speaker 3 (16:13):
How does it really work?
Speaker 2 (16:15):
I mean, you gave us a lot of reassurance about
how the FED operated during COVID.
Speaker 3 (16:19):
Talk about what it's really.
Speaker 2 (16:21):
Like here when all this you know what I'll say,
rhetoric is flying around. Is that just noise that you
all just tune out when you're actually doing your job.
Speaker 4 (16:31):
Certainly you truly tune all that out.
Speaker 6 (16:34):
I am.
Speaker 4 (16:34):
I am very confident that when each policy maker enters
that room where they sit around and able to deliberate
what's the best path or monetary policy, none of the
outside influences affect how they're going about making their decisions.
That's said, I think it's very unfortunate that you know,
(16:57):
even that you had to ask me that question, just
show how unfortunate a situation we're in because it's you know,
it's the past. You know, presidents haven't tried to influence
the SAID. Typically it happens during election years where they
want to get up the economy and they would love
to have these sort of the economy growing as they
enter an election, and you know, then then there will
(17:19):
let's worried about inflation because that comes later. And that
has happened in the past under other presidents in history.
But what's different this time is that it's so in
the open, it's so unrelenting, and it's so vitriolic. And
so this is an unfortunate situation because it does lead
(17:42):
to skepticism about habits that actually goes about making decisions.
But I know in that room, none of that enters.
This is really about sitting down the table, deliberating what
they're seeing in the economy in their various districts and
for the nation, and what they believe with their tools
is the best path for them to set that industry.
(18:04):
And so again it's an unfortunate situation. You want the
SAID to be able to make its decisions independent of
all these short run political considerations because it actually leads
to better monetary policy. There's lots of work in various
countries that basically show and in the US as well,
that when the central bank can make decisions based on
(18:28):
what that's achieving priceability and maximum employment, if that's part
of their goal, you actually get lower inflation and you
don't have to pay a price into having more volatility
or business typle you know, fluctuations on growth or unemployment.
You actually get better outcomes to the public. And so
(18:49):
that's why you really want to have to said, to
be able to make its decisions without this influence attempt,
and that's the so it's going to distract that isn't
help one anyway.
Speaker 5 (19:02):
Doctor Mesher, you spent a lot of time in Ohio
and then of course you were responsible for a lot
of the Midwest in your role. What do you see
currently about this area in terms of opportunities, threats and
those kinds of things. Is Ohio specifically a well positioned
to navigate all this economically or do you see challenges here?
Speaker 4 (19:19):
Well, Ohio you know has a lot going for it.
I mean, it was more manufacturing base than other parts
of the country and you know certainly has more ties
also to the auto industry. But on the other hand,
it also has a very important service sector, including education
(19:41):
and including healthcare. You know the Cleveland Clinic. Of course,
I'm on their board, and you know there there certainly
are at a forefront in the nation of the world
on healthcare. So that's great about the district in Ohio,
it's really that it is a very diverse economy. And
diversity of your economy is what you want because then
(20:03):
you can get through periods where you know, maybe you know,
the tariffs are challenging some manufacturing firms, but on the
other hand, healthcare, you know it is still you know,
going to be in demand. So again, having diversity is
very important. That's what Ohio has. The educational part of
(20:23):
Ohio is also very important because it's creating the workers
of the future, and that's very important. On the other hand,
there are a lot of businesses doing a lot in
terms of internship programs of apprenticeship programs, so that we
have sort of the workforce right they can do a
lot of the jobs that are going to be necessary
(20:44):
as the economy involved in the future.
Speaker 2 (20:47):
It has been a huge week for company earnings. We're
going to talk about that and later. Take your questions
you're listening to simply Money presented by all Worth Financial
on fifty five KRC the talk station.
Speaker 6 (20:58):
Some people only hear what they want to hear in
the no twenty four hours a day, we only.
Speaker 1 (21:04):
Deal in what you need to hear. These days, you
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Speaker 2 (21:25):
You're listening to Simply Money presented by all Worth Financial
on Bob Sponseller along with Brian James.
Speaker 3 (21:30):
When the companies that make up a third of the S.
Speaker 2 (21:33):
And P five hundred's total capitalization make earnings announcements, it's
a pretty big deal. Good news will drive the market
and the reverse can happen as well. So let's delve
into some of these actual companies, Brian, because we are
getting some earnings news, you know, coming out, you know
as we speak, and we've gotten earnings you know, over
(21:54):
the last couple of days from some of these big
tech giants.
Speaker 5 (21:57):
Yeah, the big companies are producing their report cards here.
So let's start with Microsoft. Microsoft reported better than expected
results for the fiscal first quarter. Revenue in the company's
Azure cloud business jumped about forty percent.
Speaker 3 (22:09):
That's obviously a pretty good run, and.
Speaker 5 (22:11):
They're heavily involved in the AI revolution using Azure as
well as open ai, which is the company behind chatch Ept,
which itself is making rumblings about going public and being
spun off on its own. That was a headline from
earlier this week. Major enterprise software player is Microsoft and
when they beat earnings, what that signals is that corporate
IT spending is really strong, and that means growth.
Speaker 3 (22:31):
Right.
Speaker 5 (22:32):
If big companies are looking to spend on their infrastructure,
their networks and all that, they're not doing that for fun.
They're doing that because they somehow sense an opportunity to
make more money with the core products and services that
they sell. That has ripple effects across the economy. So
let's talk about OpenAI a little bit more.
Speaker 3 (22:47):
So. Open ai is giving its Microsoft. Microsoft is not.
Speaker 5 (22:50):
The only owner, it doesn't own a open ai entirely,
but it is a large shareholder. Open ai is going
to give Microsoft a twenty seven percent ownership stake part
of this restructuring plan, and they've been negotiating for about
a year and that's kind of that kind of removes
one of the big obstacles one of the big question
marks we had out there for both sides, and it
clears the path for the chat GPT to become a
for profit business on its very own. So there's one
(23:13):
good story happening in the economy of bib What else
do you see out there?
Speaker 2 (23:16):
Well, just to just to go back on this whole
open Ai chat GPT you know story. I mean, just
as a reminder, you mentioned it. They're trying to become
a for profit business. They have extremely innovative technology, but
they've yet to make a profit. So you know what
I'm hearing talked about in some of these analyst calls
and all that is, you know, these companies are going
up because of the tremendous spend on AI infrastructure, and
(23:40):
you know, the chip stocks and everything else are following
right along. But I think the question mark heading into
next year is going to be, all right, you guys
are spending all this money. You obviously have smart people
running these companies, and you're monitoring profit and loss and
expenses on a regular basis. We got to make sure
these you know, trillions of dollars of spending on open
(24:01):
AI infrastructure actually yields some benefits in terms of continued
growth and that's the real question, you know, going into
twenty twenty six. But we will will move on to
the next company.
Speaker 3 (24:14):
Meta. They reported third quarter sales of.
Speaker 2 (24:16):
Fifty one point two billion, which beat the average estimates
from analysts. They've used profits from their advertising business to
fuel their AI ambitions, leading to some anxiety among investors
who were waiting to see, Like we just talked about,
how much profits are actually coming and more in the
near term, how much holiday quarter sales would help offset
(24:40):
some of that spending.
Speaker 3 (24:42):
They were once just Facebook.
Speaker 2 (24:44):
Now they let's face it, they're a trillion dollar ad giant.
So if Meta is doing well, it tells us companies
are confident enough to spend big on digital advertising. That's
a good indicator of business sentiment. Their user numbers also
hint where attention and engagement are shifting, because let's face it,
advertising is shifting to you know, podcasts and digital and
(25:08):
you know all that in a way from traditional media.
It's a fascinating evolution to watch unfold in real time.
Speaker 5 (25:16):
And not to be outdone the Artists formerly known as
Google Alphabet Incorporated. They reported quarterly sales, again also ahead
of analyst estimates.
Speaker 3 (25:25):
Remember that's all we care about, folks. We care.
Speaker 5 (25:27):
We don't care what the innings actually were. We just
care that it was better than what the analyst said
it was going to be. But anyway, that came from
the cloud units within Google and Alphabet that is growing
artificial intelligence startups. So think Google's Gemini and that kind
of thing. All these big companies have their own AI
type of tools out there, similar to Meta. Google of
course makes its money off of based off of the ads,
(25:49):
but that also tells us an awful lot about search trends.
How are people engaging with each other over YouTube? And
therefore where's the profits to be found there? Cloud infrastructure
through Google Cloud, and then of course Google, Google, they're
a huge player in the AI race, just like these
other companies, so they're investing record amounts to try to
really really push AI to its limits and to get
it to be a profitable business. I think there's a
(26:10):
ways to go before this is truly profitable. But we
once said that about Amazon as well, and they turned
out okay.
Speaker 2 (26:16):
Yeah, And then this discussion wouldn't be complete without at
least mentioning the big kid on the block, Navidia. I
mean that stock price is through the roof. It's done
so so well, and many investors are wondering, you know,
can this momentum continue? Believe it or not, Brian, When
you look at the valuation of this stock, you know,
when you look at their actual earnings and sales growth,
(26:37):
it you can make a very good argument that is
not priced very expensive relative to some of their peers.
But you know, I'm just one guy looking at data.
You know, the market will tell the tale. And it's uh,
you know again, it's fascinating to watch if and how
this whole AI thing is going to impact the overall economy.
(26:58):
I mean, just listening to doctor Mester talk in the
FED trying to balance labor with inflation. You know, a
lot of people are worried that AI is going to
start replacing jobs that are never coming back. Others make
the argument, if you look at any other technological innovation
in this country, it's always created a bunch of jobs,
just different jobs that people never even knew, you know,
(27:22):
existed or never expected to exist. So it's going to
be real fun to watch this all unfold in twenty
twenty six and beyond.
Speaker 3 (27:30):
Yeah, and it is. That's good.
Speaker 5 (27:31):
That's a fascinating area to look at, and I think
you're right. I mean, I remember when the Internet was
first a thing thirty years ago, how many jobs were
going to be lost?
Speaker 3 (27:38):
Well, it was.
Speaker 5 (27:39):
It ended up being the opposite, because we wound up
creating a bunch of jobs we hadn't thought of before
as the Internet provided new opportunities to make profit. So
I think at this point that's the way we should
be thinking about AI, not being overly afraid that it's
going to wipe out everybody's job and we will all
simply sit at home and wait for computers to bring
us everything we need.
Speaker 2 (27:56):
Here's the all Worth Advice. Earning season isn't just noise.
Insight and the biggest tech names give us the clearest
signal on where the economy and the markets might be
heading next. Coming up next, we tackle some real listener questions,
from the tax surprise after selling mutual funds, to the
confusion around tax drag and whether investing through an LLC
(28:19):
can really make some sense. You're listening to Simply Money,
presented by all Worth Financial on fifty five KRC, the
talk station.
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Speaker 6 (28:41):
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Speaker 1 (28:55):
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Speaker 3 (29:01):
I do think he is too old to run.
Speaker 4 (29:04):
In twenty twenty.
Speaker 1 (29:04):
Four, fifty five KRC the talkstation.
Speaker 3 (29:12):
You're listening to simply money.
Speaker 2 (29:13):
There's not a buy all Worth financial I'm Bob sponsorer
along with Brian James. Do you have a financial question
you'd like for us to answer. There's a red button
you can click while you're listening to the show. If
you're listening to the show on the iHeart app, simply
record your question and it will come straight to us.
Speaker 3 (29:30):
John and Blue Ash leads us off tonight.
Speaker 2 (29:32):
Brian he says, I've heard that as rates fall, muni
bonds could actually create phantom income for tax purposes.
Speaker 3 (29:40):
Is that true? Brian, and how do you plan ahead
for it?
Speaker 5 (29:43):
Well, it is Halloween's is the season to talk about
phantom stuff that shows up on spreadsheets and tax returns.
So yeah, let's talk about phantom income. This is a
real thing. So here's an example. Let's say you buy this.
This happens for some municipal bond investors sometimes. Let's say
you buy a muni bond at a discount, maybe nine
hundred dollars instead of its face value of a thousand,
and as rates drop. The IRS assumes you know the
(30:05):
bonds will go up as rates drop. There's an inverse
relationship there. The IRS assumes part of that gain every
year is interest you earned, even though you haven't actually
received a dying yet.
Speaker 3 (30:14):
It's just on paper.
Speaker 5 (30:15):
That's called original issue discount, and it can show up
as taxable income even when your muni is re labeled
as tax free, because that's kind of a capital gain
in a roundabout way. Most likely affects people holding individual
muni bonds in taxable accounts, not those in iras, which,
if you've done that, you're doing it wrong. Don't own
unibonds in iras or bond funds, which will handle that
accounting internally, All this stuff filters through on your ten
(30:36):
ninety nine, so you don't need to sort it out.
But if you see a funny looking number on your
ten ninety nine, talk to your CPA, talk to your
advisor about it.
Speaker 3 (30:43):
But it may be phantom income. Boo Bob.
Speaker 5 (30:46):
All right, let's move on to with unus very timely
questions today. Let's see how Kathy and Loveland is going
to scare the Bejesus out of us. So Cathy says
her tax bill jumped. Okay, that is scary. Tax bill
jumped after selling mutual funds, and so she's wondering, how
do these capital gains distributions sneak up.
Speaker 3 (31:04):
Even when you don't sell anything.
Speaker 2 (31:06):
Well, Kathy, I'm sure you've lived through this, but for
those that haven't, you know, they sneak up.
Speaker 3 (31:12):
They sneak up on you.
Speaker 2 (31:13):
Through these distributions that come out in the fourth quarter
of every year. And Brian and I talk about this
all the time on the show. This kind of relates
to the evolution of the whole investment industry over the
last ten, fifteen, twenty years. You know, where people are
getting taxed on these mutual funds and they might be
fantastic mutual funds that you've owned for decades, but you
(31:34):
don't have any control. You don't have absolute control from
a tax standpoint, meaning you know, depending on how long
you've owned them or when you bought them, you might
get handed a tax bill in the fourth quarter every
year for games that you didn't even participate in. And
that's just a function of how mutual funds work. You know,
highlight the word mutual. And this is why ETFs. You know,
(31:56):
your situation is individualized to you when you own an ETF,
so you have much more tax control.
Speaker 3 (32:03):
So how do you handle this?
Speaker 2 (32:04):
I think you sit down with a good fiduciary advisor
and a good CPA and you map out a strategy.
Does it make sense for us to gradually transition into
a more tax efficient operation here moving forward, whether that
means direct indexing, ETFs, a mixture of both, with some
good tax loss harvesting working in the background, things really
(32:26):
have evolved to the place where, again, gradually transitioning, you
can put yourself in a much better position from a
tax standpoint moving forward.
Speaker 3 (32:35):
Kathy Hope, that helps, all right.
Speaker 2 (32:37):
Brian Tom in Westchester says, we've got multiple layers of insurance,
umbrella insurance, life insurance, long term care insurance. How do
you coordinate all those policies so they actually work together.
Speaker 5 (32:49):
Yeah, So a lot of people build up their insurance
coverage this way, one piece at a time, triggered by
when they need it.
Speaker 3 (32:54):
So maybe there's a you know, we.
Speaker 5 (32:55):
Start off with life insurance and there's an umbrella policy
all of a sudden a little bit later in the
long term care, much later on. So the problem is
if you haven't coordinated all these different layers, you might
wind and wind up overpaying.
Speaker 3 (33:06):
Because these things overlap.
Speaker 5 (33:08):
You're paying for things twice, or you're not paying for
things at all because there's a gap between them.
Speaker 3 (33:12):
So you're gonna want to start off with just an inventory.
Speaker 5 (33:14):
What do you have, What does each policy cover, and
bullet that out when does it pay off, what triggers
the coverage, and how much protection does it actually provide. So,
for example, your umbrella policy should be on top of
your home and auto limits, but only if those limits
are high enough to trigger it. Right, make sure that's
coordinated life insurance. There's really three things you're trying to
cover there. You probably want to pay off any debt
(33:35):
in the event of your untimely death, provide some liquidity immediately,
and those numbers are relatively easy to get to. The
harder one is the third, which is income replacement for
your family. That's going to depend on what does the
family spend and how much time do they need to
cover those expenses, coordinated with whatever income sources they will
still have. But what they didn't say is a fat
round number from a long time ago. Make sure there's
(33:56):
some logic behind this. And finally, long term care insurance
that interacts with both your retirement plan and your estate plan.
You have a life policy, it may have a long
term writer on it, a long term care writer. Double
check and see if that's already there before you go
out and buy a standalone policy.
Speaker 3 (34:11):
So I hope that helps.
Speaker 5 (34:12):
There's a few steps there, but that that is a
complicated puzzle to put together sometimes and hopefully you've got
an advisor out there available to help you figure it out.
Speaker 3 (34:19):
Mark and Lebanon.
Speaker 5 (34:21):
Mark's considering investing through an LLC for privacy and liability reasons,
and he's wanting to know what the tax trade offs
are they're compared to just investing personally without the layer
of the LLC.
Speaker 2 (34:31):
Bob, all right, Mark, this is a loaded question, and
I will say right off the bat, this is this
is another situation. This is not a do it yourself proposition.
This is not something you want to decide on yourself
and just work this through turbo tax. You really do
need to have a good CPA involved to help you
evaluate these decisions. So I think start, you know, if
(34:52):
you sit down with your advisor in your CPA, I
think the important thing, like everything else, we talk about
what are your true objectives here? So you know, there
are single member LLCs which basically get treated from a
tax standpoint just as though you invested personally. So pretty simple,
you know, depending on what you're trying to accomplish here,
you know, if you have a multi member LLC, well,
(35:14):
now you're getting into the situation where a K one
has to be issued every every year, and that can
present delays for some of the participants. Some people don't
like K one. So I've had people tell me, Bob,
put me in any kind of investment you want, but
as long as I never receive a K one for
the rest of my life.
Speaker 3 (35:33):
Now there are some potential advantages to.
Speaker 2 (35:35):
Investing in an LLC, which means you can elect to
be taxed as a C corporation or an S corporation
in an LLC. So again, it depends on what you're
really trying to accomplish here. And that's why I say
sit down with a good CPA and hopefully your advisor
and just really put things on the table on what
you're trying to accomplish, and then you'll come up with
(35:57):
the right tax structure to make it happen.
Speaker 3 (36:00):
All right.
Speaker 2 (36:01):
Coming up next, Brian has his bottom line where he's
going to eliminate some of the confusion that's out there
between how does the Federal Reserve operate versus the Treasury Department.
You're listening to Simply Money presented by Allworth Financial on
fifty five KRST the talk station.
Speaker 5 (36:20):
Absolutely reliable information and of course not just one sided
view news.
Speaker 1 (36:25):
That affects you at the top end to bottom of
the hour fifty five KRZ the talk station.
Speaker 2 (36:34):
You're listening to Simply Money presented by all Worth Financial
on Bob's spondseller along with Brian James. And speaking of
Brian James, Brian has his bottom line for us tonight
where he's going to remove the confusion, because we get
questions all the time, Hey, what's the difference between what
the Federal Reserve does and what the Treasury Department does?
Speaker 3 (36:53):
Brian enlighten us.
Speaker 5 (36:55):
Yeah, well, I'm actually gonna I'm gonna push back on
that just a bit, Bob. And nobody ever asks the
question of difference between the Treasury and the fat I
think a lot of people who think about it don't
know that there is a difference between these two organizations. So,
and having just been honored by doctor Lorettamester visiting the
show for us to ask her some very pointed questions
and highly intelligent questions, I might add, Bob, I think
(37:15):
we did a good job there, but I thought we'd
go over a little bit of the history and what
these two organizations the roles that they serve. So the Treasury,
that's the federal government's finance and revenue arm. Its job
is to collect the taxes, issue the debt in printing
coins and notes physically via those bureaus, managing the government's
checking account basically also made pretty famous in a recent
(37:36):
musical called Hamilton. The Federal Reserve, on the other hand,
is not where the cool kids hang out, and has
not had a musical written about it. But its job
is to be the US Central Bank. It's been around
since nineteen thirteen, and its job is, as doctor Mester
would explain to us, as managing that mundy supply, supervising
the banks, setting short term interest rates, and promoting maximum
employment and stable prices. It's really they always call it
(37:59):
a split manned between maintaining inflation and promoting maximum employment.
That's really what the Federal Reserve is after. So really
the way they to these two organizations work together. The
Treasury is part of the Cabinet, led by the Secretary
of the Treasury, and it has to follow the fiscal
directions of Congress and the President. The Fed, on the
other hand, is much more independent, has a board of
governors on which she served. They report to Congress, but
(38:21):
they're insulated so far anyway from day to day politics,
and that allows them to focus a little longer term.
Speaker 2 (38:27):
All right, Brian, if you could pick your dream job,
if you could be the Treasury Secretary of the United
States or the chairman of the Federal Reserve, which job
would you want and why? And I have a feeling
you're going to say neither.
Speaker 3 (38:41):
Neither, Bob, you saw that coming, did you.
Speaker 5 (38:43):
I like my job where it's to explain to people
what these two organizations do and why, what happens to
the why what the decisions that they make have an
impact on them.
Speaker 3 (38:51):
So what is that? So the tools that are used.
Speaker 5 (38:55):
The Treasury will issue debt and collects taxes, right, so
it has to determine how much the government going to
spend and borrow. The FED sets the target for the
federal funds rates. So, in other words, when the Treasury
decides we have to borrow this much money, that's going
to be impacted by whatever the FED just did, such
as the other day when we cut interest rates by
a quarter of a point and now that we're in
a declining rate environment. So why does this matter? Why
(39:15):
do we care about any of this? Well, here's the
impact on your wallet. When the treasury runs large deficits
or borrows a lot, which is we've pretty much been
in that mode for an awful long time. That influences
long term interest rates, influences the national debt, and therefore
how much tax or future burden households are going to
have to face. On the other hand, when the FED
raises or lowers those interest rates that will directly hit
(39:35):
your mortgage rate, your auto loan rates, savings yields, even
job market strength in your region. So these are all
things that have a strong impact on what we and
what we say and do. So these are boring organizations, however,
you have to realize that they do have a direct
impact on your lifestyle.
Speaker 2 (39:52):
Well, all I'll say is up I ever become president
in the United States, which you know, the chances are slimming.
None that's ever going to happen. I will dominate doctor
Mester to be the FED chair. I found her interview
to be very refreshing. She's very smart, obviously, very articulate,
and she'd be great standing in front of the media
(40:13):
just putting things in plain English, unlike what some of
these current people do. I really love that interview and
really so much appreciate her. I wish she was still
surfing on the FED to be honest with you.
Speaker 3 (40:24):
Thanks for listening.
Speaker 2 (40:25):
You've been listening to Simply Money, presented by all Worth
Financial on fifty five KRC, the talk station.
Speaker 6 (40:31):
Recent events has made me listen to the radio a
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Shut down, reopen the garden, updates, nice Officeer is the
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Speaker 2 (00:15):
Tonight a special treat. We've got one of the most
influential voices in American monetary policy on the show. Right now,
you're listening to Simply Money, presented by all Worth Financial
on Bob Sponseller along with Brian James. If you follow
the markets at all, or even just have a mortgage,
then you know that the Federal Reserve plays a massive
role in your financial life. But the conversations that happen
(00:38):
inside those closed door meetings in Washington, most of us
never get to hear from someone who was actually in
the room.
Speaker 3 (00:47):
That's why tonight is so special.
Speaker 2 (00:49):
Until the middle of last year, when her ten year
term concluded, Doctor Loretta Mester served as President and CEO
of the Federal Reserve back of Cleveland, where she actually
cast votes that directly shaped interest rates in the direction
of the US economy. And for those that don't know,
the Cleveland Fed has a branch right here in Cincinnati.
(01:11):
Doctor Mester currently is an adjunct professor of Finance at
the Wharton School of the University of Pennsylvania. Prior to
joining the Cleveland FED, she served at the Federal Federal
Reserve Bank of Philadelphia. And you know, as if she
does have any spare time. In her spare time, she
serves as a trustee of the Cleveland Clinic and of
(01:32):
the Musical Arts Association in Cleveland. Doctor Mester, it is
a real treat to have you with us.
Speaker 3 (01:39):
Thank you so much for making time for us tonight.
Speaker 4 (01:42):
Thanks for having me on. I'm really looking forward to
the conversation.
Speaker 3 (01:46):
Great.
Speaker 2 (01:47):
Well, Hey, the timing of your being with us could
not be much better. Is the Fed, as you well know,
just voted to lower interest rates by a quarter of
a percentage point yesterday.
Speaker 3 (01:57):
Do you have any reaction to that move? Are we
on the right track here?
Speaker 2 (02:01):
And more importantly, you know, and I've heard you interviewed
on this, you know, through other media, you know channels.
What what give us a taste of your sense of
the balance that the Fed is trying to strike here
between getting inflation back down to that two percent target
and balancing that with the health or lack thereof of
the labor market.
Speaker 4 (02:22):
Well, you're exactly right. I mean, the Fed does have
a dual mandate goal so called that the Congress has
given it. It has to hit price de vility, which
it defines the two percent inflation, and it has to
set policy also to support getting from accell unemployment, and
so balancing those at times can be challenging, and this
(02:43):
is one of those times because, as you pointed out,
the labor market, it's in a balance. I would call
it an easy balance in that there isn't a lot
of firing going on, but there also isn't a lot
of hiring going on, and so you have sort of
an equibrium there for businesses where they just don't add
(03:05):
a lot of people to their payrolls because they don't
want they get caught out with too many if the
economy takes a turn. On the other hand, you also
have inflation that after the surge after the pandemics, you know,
when the inflation went up really really high to high
levels over seven percent, hasn't ever come back down to
the goal of two percent, and the saied's been working
(03:27):
hard to try to get that to come down. So
they have to have both of those goals in their site,
and that's what they've been trying to do. They last
meeting in September, they started to reduce interest rate, their
policy rate, and they followed through with another rate cut
this week yesterday, just yesterday, And so you know, they're
(03:51):
trying to take out some insurance on the labor side
of their mandate while at the same time keeping some
pressure to get inflation back down. And that's hard to
do when you have the economy performing as it is.
But so far, you know, that's what they're trying to do.
And as the chair said yesterday and his press conference,
(04:14):
chair Pal, they're they're not sure what they're all do
in December now, you know, they'll have to wait and
see how the economy evolves to see whether they need
to do more or whether they're going to stand pas.
Speaker 5 (04:25):
Doctor Mesher, it seems like we've been stuck at three
ish percent inflation for a long time now, and it's
almost for an uneducated mind like myself, it almost feels
like three percent is the new floor, especially since we
decided to go ahead and start cutting interest rates. While
you know, before we got down to our preferred two percent,
why was it so much so much easier to get
(04:45):
down from the crazy nine percent down to three But
this last mile is so difficult.
Speaker 3 (04:49):
What would you say is the biggest hurdle to.
Speaker 4 (04:51):
That, Well, you're anxiety, right, and we have been sort
of very in some sense stuck at three. You know,
last year they started to bring the industry down because
they thought inflation was on its path down to two percent.
You don't want to wait until inflation gets to two
percent to move monetary policy into a more neutral stance,
(05:13):
because then you'll overshoot and have you know, inflation prices
go keep falling, and that isn't necessarily good for the
economy either. But you're right, and I have some concerns
about the inflation numbers that you know, they've been having
a view that, you know, most of it is teriffs, right,
so when firms have to face higher costs to bring
(05:36):
goods into the country, the increase their prices to consumers
to try and make up for some of that higher costs.
And so they've been saying that they think most of
the inflation has been this care for later inflation, and
they view that as being sort of a temporary phenomenon
that that'll go away. However, I think if you delve
(05:57):
under the hood, you see that it's not just tariffs
that it serves crisis, especially to take on housing crisis,
which are starting to move back down, and so I
think they do need to be very watchful of that
and not go too far on their rate cuts because
then you go em bed that inflation in the economy,
(06:18):
and as you point out, it's already been you know,
four and a half years since we've gotten inflation back down.
That too, you know, has been at two percent. So
again there is a difficult row to hoe, and they
have a challenge in front of them, and so that's
why I think they really need to be focused on
inflation and the labor market, not just some one of
(06:42):
those two calls. They need to heat both. On their site, you're.
Speaker 2 (06:46):
Listening to Simply Money, presented by all Worth Financial on
Bob Sponseller along with Brian James, joined by doctor Loretta Mester,
the former president and CEO of the Federal Reserve Bank
of Cleveland. Doctor Mester, we want to get into a
little bit of your you know, actual time serving on
the FED. I mean, let's face it, you served on
the FED, you know, as president of the Cleveland FED
(07:07):
during some interesting times. You served during most of the
Obama administration, the first Trump administration, then almost all of
the Biden administrations, so uh, pretty pretty interesting times to
say the least, and among the most interesting times you
were on the Federal Reserve helping us guide the country
(07:27):
through COVID, one of the most historic, you know, periods
in history and certainly a gut punch to the economy.
Speaker 3 (07:34):
Take us behind the scenes of.
Speaker 2 (07:36):
How you tried and your colleagues operated during a time
when you know, let's face it, we weren't sure what
was going to be going on here with this you know, pandemic.
Speaker 4 (07:46):
Well, you're exactly right. It certainly was nothing than any
of us it experience, and it was very uncertained. I mean,
I think people sometimes forget, you know, that were you know,
now five you know, years beyond how inserted it really was,
and we didn't really understand what was what was going on,
(08:08):
especially in the beginning. I remember sitting at a conference
in New York after having gotten back from London early
in March, and we were like stardines in a can
and I'm thinking like, now, wow, that was pretty really thing,
but you didn't know at the time, and so that
was you know, we said, all of the policymakers and
(08:29):
all the staff of the SAID really hunkered down to
really try to understand what was happening to the economy
because we wanted to do what we could with our
policy tools to support the economy as best we could.
And I had to give credit to all the business
people that I talked to during those times, because we
(08:49):
really didn't have a clue about what was having it
was really important for us to gather that information and
from bankers and business people and labor market leaders and
in our distion, you know, which includes Cincinnati of course,
as you as you mentioned, you have a branch that
people were so generous, you know, they were worried about
their own business, their own families, and yet they were
(09:10):
incredibly you know, generous with their time and intel and
telling us what they were seeing out there. And I
actually had the opportunity to serve on a nonpartisan, apolitical
council that Governors of Line put together because he wanted
to gather people who were really in the understanding trying
(09:33):
to understand what was happening in the economy in Ohio.
And that was also I felt like I could provide
at least our insights from the SAID side in terms
of what we were seeing the economy but also hearing
from the business people on that. So it was a
very uncertain time, I would say, But I mean, one
thing about the said is that we're everyone at the
(09:55):
is very dedicated to doing what he or she can
do to support the economy. And you know, as you
saw yesterday's meeting, not everyone has the same view necessarily
want best what is the best path, but everyone brings
their ideas to the table and then they discussed. And
(10:17):
so that was what we tried to do during the pandemic.
You know, as you know, you know, the Center Reserve banks,
including the branch in Cincinnati, stayed open because we had
to move cash. It was very important that people have
access to cash during uncertain times and impact demand for passion.
A lot of people go around today not having cash
(10:39):
in their pocket. They don't have dollar bills in their pocket.
They use their phone or you know, credit cards or
debit cards. But during those kind of uncertain times, people
want cash and want to physically have something in their hand,
and so that was really important. In all the workers
in our cash operations, they were dedicated coming in even
though they were scared for their our own family, you know,
(11:01):
they were, you know, really dedicated to making sure that
the financial system stayed upload in the payment system.
Speaker 5 (11:11):
Tax mescher, I want to ask you about about something
a little more recent this had this happened after your turn,
but just a few months ago, Erica mcintar, for the
Commissioner of the Bureau Labor Statistics, was let go from
her position after a less than desirable July employment report,
which isn't necessarily attributed to any one person, but might might.
And then then some other changes with regard to how
we collect outa how we distributed. So you weren't in
(11:33):
the role, of course at the time, But what were
your thoughts when you started to hear the news about
how we were changing the information that people such as
yourself were going to have in order to make decisions.
What are the biggest things that you thought, Oh my gosh,
how are they going to function without this kind of thing.
Speaker 4 (11:47):
Well, it is certainly true that the government's economic statistics
would be zero. Labor statistics, you know, have published both
inflation data and employment data. Those reports are you know,
top notch reports on the US economy. They give you
a very good picture on what's happening in the economy.
(12:10):
And you know, not to have that data does is
a disadvantage. Now, on the other hand, there are other
data sources that the SAID has available to them. Some
of them are private sector data that are available to everyone.
And also the SAID collects its own data. So you know,
before every every you know, meeting on interest rate, the
(12:35):
SET actually publishes what it calls the Beige Book. I'm
sure you have seen that before and many of your listeners, colleague,
seen it. And it's really a summary from every reserve
bank of what they're seeing and hearing from contact in
the district, and it's the summary of the economy and
we put that out. That SAID puts that out before
(12:56):
the home seates are everyone can can share. I am
sure that the reserve banks have really stepped up those
efforts given they don't have the goal standard of data
from the federal government and a lot of the centerl reserves,
including the Cleveland said, you know, our own kind of
surveying of businesses and then evaluate them into indicators and
(13:21):
put them out to look to see as well. So
I'm sure there's a very big effort going into sort
of collecting that intel so that they do have a
basis or understanding what's happening in the economy and also
what is happening what they can expect that happen in
the future. And that's where the boards of directors of
(13:44):
the centeral Reserve banks and the business advisory councils. You know,
when I was at the Cleveland said we ran a
lot of business advisory councils that are geographically or industry focused,
so that we would have those contacts to be able
to ask people, Hey, what are you planning to do
with your crisis? You know, you know you're facing higher carts,
(14:04):
so are you planning to you know, pay for some
of that and you're you know, by reducing your margins.
You know, do you have that money to do that
or are you planning to pass them on to your customers?
And do you think you'll be able to do that? Well,
customers demand space for your product, and so you have
that as a real avenue for gathering information that can
(14:24):
be very use local policy.
Speaker 3 (14:26):
All right, doctor Mester, we got to take a short break.
Speaker 2 (14:28):
I know you're going to hang with us for a
few more minutes, which we really appreciate you're listening to
simply money presented by all Worth Financial on fifty five KRC,
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Speaker 2 (15:11):
You're listening to Simply Money, presented by all Worth Financial
on Bob Sponseller along with Brian James. If you can't
listen to Simply Money every night, subscribe and get our
daily podcasts. Just search Simply Money on the iHeart app
or wherever you find your podcast. We are back in
continuing our conversation with doctor Loretta Mester, who served as
President and CEO of the Federal Reserve Bank of Cleveland
(15:34):
from June of twenty fourteen through June of twenty twenty
four Doctor Mester, I've got a question I'm dying to
hear your answer to You know, obviously in the current environment.
And as we've already talked about, you've served under three
different administrations. Now we have the second Trump administration where
he is wanted to kind of try to, for lack
(15:56):
of a better term, direct FED direction on social give
us the real answer on how this actually works behind
the scenes, how the FED governors actually communicate. Are you
guys actually influenced at all by all this noise out there?
Speaker 3 (16:13):
How does it really work?
Speaker 2 (16:15):
I mean, you gave us a lot of reassurance about
how the FED operated during COVID.
Speaker 3 (16:19):
Talk about what it's really.
Speaker 2 (16:21):
Like here when all this you know what I'll say,
rhetoric is flying around. Is that just noise that you
all just tune out when you're actually doing your job.
Speaker 4 (16:31):
Certainly you truly tune all that out.
Speaker 6 (16:34):
I am.
Speaker 4 (16:34):
I am very confident that when each policy maker enters
that room where they sit around and able to deliberate
what's the best path or monetary policy, none of the
outside influences affect how they're going about making their decisions.
That's said, I think it's very unfortunate that you know,
(16:57):
even that you had to ask me that question, just
show how unfortunate a situation we're in because it's you know,
it's the past. You know, presidents haven't tried to influence
the SAID. Typically it happens during election years where they
want to get up the economy and they would love
to have these sort of the economy growing as they
enter an election, and you know, then then there will
(17:19):
let's worried about inflation because that comes later. And that
has happened in the past under other presidents in history.
But what's different this time is that it's so in
the open, it's so unrelenting, and it's so vitriolic. And
so this is an unfortunate situation because it does lead
(17:42):
to skepticism about habits that actually goes about making decisions.
But I know in that room, none of that enters.
This is really about sitting down the table, deliberating what
they're seeing in the economy in their various districts and
for the nation, and what they believe with their tools
is the best path for them to set that industry.
(18:04):
And so again it's an unfortunate situation. You want the
SAID to be able to make its decisions independent of
all these short run political considerations because it actually leads
to better monetary policy. There's lots of work in various
countries that basically show and in the US as well,
that when the central bank can make decisions based on
(18:28):
what that's achieving priceability and maximum employment, if that's part
of their goal, you actually get lower inflation and you
don't have to pay a price into having more volatility
or business typle you know, fluctuations on growth or unemployment.
You actually get better outcomes to the public. And so
(18:49):
that's why you really want to have to said, to
be able to make its decisions without this influence attempt,
and that's the so it's going to distract that isn't
help one anyway.
Speaker 5 (19:02):
Doctor Mesher, you spent a lot of time in Ohio
and then of course you were responsible for a lot
of the Midwest in your role. What do you see
currently about this area in terms of opportunities, threats and
those kinds of things. Is Ohio specifically a well positioned
to navigate all this economically or do you see challenges here?
Speaker 4 (19:19):
Well, Ohio you know has a lot going for it.
I mean, it was more manufacturing base than other parts
of the country and you know certainly has more ties
also to the auto industry. But on the other hand,
it also has a very important service sector, including education
(19:41):
and including healthcare. You know the Cleveland Clinic. Of course,
I'm on their board, and you know there there certainly
are at a forefront in the nation of the world
on healthcare. So that's great about the district in Ohio,
it's really that it is a very diverse economy. And
diversity of your economy is what you want because then
(20:03):
you can get through periods where you know, maybe you know,
the tariffs are challenging some manufacturing firms, but on the
other hand, healthcare, you know it is still you know,
going to be in demand. So again, having diversity is
very important. That's what Ohio has. The educational part of
(20:23):
Ohio is also very important because it's creating the workers
of the future, and that's very important. On the other hand,
there are a lot of businesses doing a lot in
terms of internship programs of apprenticeship programs, so that we
have sort of the workforce right they can do a
lot of the jobs that are going to be necessary
(20:44):
as the economy involved in the future.
Speaker 2 (20:47):
It has been a huge week for company earnings. We're
going to talk about that and later. Take your questions
you're listening to simply Money presented by all Worth Financial
on fifty five KRC the talk station.
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Speaker 2 (21:25):
You're listening to Simply Money presented by all Worth Financial
on Bob Sponseller along with Brian James.
Speaker 3 (21:30):
When the companies that make up a third of the S.
Speaker 2 (21:33):
And P five hundred's total capitalization make earnings announcements, it's
a pretty big deal. Good news will drive the market
and the reverse can happen as well. So let's delve
into some of these actual companies, Brian, because we are
getting some earnings news, you know, coming out, you know
as we speak, and we've gotten earnings you know, over
(21:54):
the last couple of days from some of these big
tech giants.
Speaker 5 (21:57):
Yeah, the big companies are producing their report cards here.
So let's start with Microsoft. Microsoft reported better than expected
results for the fiscal first quarter. Revenue in the company's
Azure cloud business jumped about forty percent.
Speaker 3 (22:09):
That's obviously a pretty good run, and.
Speaker 5 (22:11):
They're heavily involved in the AI revolution using Azure as
well as open ai, which is the company behind chatch Ept,
which itself is making rumblings about going public and being
spun off on its own. That was a headline from
earlier this week. Major enterprise software player is Microsoft and
when they beat earnings, what that signals is that corporate
IT spending is really strong, and that means growth.
Speaker 3 (22:31):
Right.
Speaker 5 (22:32):
If big companies are looking to spend on their infrastructure,
their networks and all that, they're not doing that for fun.
They're doing that because they somehow sense an opportunity to
make more money with the core products and services that
they sell. That has ripple effects across the economy. So
let's talk about OpenAI a little bit more.
Speaker 3 (22:47):
So. Open ai is giving its Microsoft. Microsoft is not.
Speaker 5 (22:50):
The only owner, it doesn't own a open ai entirely,
but it is a large shareholder. Open ai is going
to give Microsoft a twenty seven percent ownership stake part
of this restructuring plan, and they've been negotiating for about
a year and that's kind of that kind of removes
one of the big obstacles one of the big question
marks we had out there for both sides, and it
clears the path for the chat GPT to become a
for profit business on its very own. So there's one
(23:13):
good story happening in the economy of bib What else
do you see out there?
Speaker 2 (23:16):
Well, just to just to go back on this whole
open Ai chat GPT you know story. I mean, just
as a reminder, you mentioned it. They're trying to become
a for profit business. They have extremely innovative technology, but
they've yet to make a profit. So you know what
I'm hearing talked about in some of these analyst calls
and all that is, you know, these companies are going
up because of the tremendous spend on AI infrastructure, and
(23:40):
you know, the chip stocks and everything else are following
right along. But I think the question mark heading into
next year is going to be, all right, you guys
are spending all this money. You obviously have smart people
running these companies, and you're monitoring profit and loss and
expenses on a regular basis. We got to make sure
these you know, trillions of dollars of spending on open
(24:01):
AI infrastructure actually yields some benefits in terms of continued
growth and that's the real question, you know, going into
twenty twenty six. But we will will move on to
the next company.
Speaker 3 (24:14):
Meta. They reported third quarter sales of.
Speaker 2 (24:16):
Fifty one point two billion, which beat the average estimates
from analysts. They've used profits from their advertising business to
fuel their AI ambitions, leading to some anxiety among investors
who were waiting to see, Like we just talked about,
how much profits are actually coming and more in the
near term, how much holiday quarter sales would help offset
(24:40):
some of that spending.
Speaker 3 (24:42):
They were once just Facebook.
Speaker 2 (24:44):
Now they let's face it, they're a trillion dollar ad giant.
So if Meta is doing well, it tells us companies
are confident enough to spend big on digital advertising. That's
a good indicator of business sentiment. Their user numbers also
hint where attention and engagement are shifting, because let's face it,
advertising is shifting to you know, podcasts and digital and
(25:08):
you know all that in a way from traditional media.
It's a fascinating evolution to watch unfold in real time.
Speaker 5 (25:16):
And not to be outdone the Artists formerly known as
Google Alphabet Incorporated. They reported quarterly sales, again also ahead
of analyst estimates.
Speaker 3 (25:25):
Remember that's all we care about, folks. We care.
Speaker 5 (25:27):
We don't care what the innings actually were. We just
care that it was better than what the analyst said
it was going to be. But anyway, that came from
the cloud units within Google and Alphabet that is growing
artificial intelligence startups. So think Google's Gemini and that kind
of thing. All these big companies have their own AI
type of tools out there, similar to Meta. Google of
course makes its money off of based off of the ads,
(25:49):
but that also tells us an awful lot about search trends.
How are people engaging with each other over YouTube? And
therefore where's the profits to be found there? Cloud infrastructure
through Google Cloud, and then of course Google, Google, they're
a huge player in the AI race, just like these
other companies, so they're investing record amounts to try to
really really push AI to its limits and to get
it to be a profitable business. I think there's a
(26:10):
ways to go before this is truly profitable. But we
once said that about Amazon as well, and they turned
out okay.
Speaker 2 (26:16):
Yeah, And then this discussion wouldn't be complete without at
least mentioning the big kid on the block, Navidia. I
mean that stock price is through the roof. It's done
so so well, and many investors are wondering, you know,
can this momentum continue? Believe it or not, Brian, When
you look at the valuation of this stock, you know,
when you look at their actual earnings and sales growth,
(26:37):
it you can make a very good argument that is
not priced very expensive relative to some of their peers.
But you know, I'm just one guy looking at data.
You know, the market will tell the tale. And it's uh,
you know again, it's fascinating to watch if and how
this whole AI thing is going to impact the overall economy.
(26:58):
I mean, just listening to doctor Mester talk in the
FED trying to balance labor with inflation. You know, a
lot of people are worried that AI is going to
start replacing jobs that are never coming back. Others make
the argument, if you look at any other technological innovation
in this country, it's always created a bunch of jobs,
just different jobs that people never even knew, you know,
(27:22):
existed or never expected to exist. So it's going to
be real fun to watch this all unfold in twenty
twenty six and beyond.
Speaker 3 (27:30):
Yeah, and it is. That's good.
Speaker 5 (27:31):
That's a fascinating area to look at, and I think
you're right. I mean, I remember when the Internet was
first a thing thirty years ago, how many jobs were
going to be lost?
Speaker 3 (27:38):
Well, it was.
Speaker 5 (27:39):
It ended up being the opposite, because we wound up
creating a bunch of jobs we hadn't thought of before
as the Internet provided new opportunities to make profit. So
I think at this point that's the way we should
be thinking about AI, not being overly afraid that it's
going to wipe out everybody's job and we will all
simply sit at home and wait for computers to bring
us everything we need.
Speaker 2 (27:56):
Here's the all Worth Advice. Earning season isn't just noise.
Insight and the biggest tech names give us the clearest
signal on where the economy and the markets might be
heading next. Coming up next, we tackle some real listener questions,
from the tax surprise after selling mutual funds, to the
confusion around tax drag and whether investing through an LLC
(28:19):
can really make some sense. You're listening to Simply Money,
presented by all Worth Financial on fifty five KRC, the
talk station.
Speaker 1 (28:27):
Some people only hear what they want to hear these days,
you need to keep an open mind. We only deal
in what you need to hear.
Speaker 3 (28:34):
Everybody needs the truth of the facts.
Speaker 1 (28:36):
You need the information that matters. We need to know
if there were warning signs.
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that's something that people already know. For certainly, fifty five.
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I do think he is too old to run.
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In twenty twenty.
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Four, fifty five KRC the talkstation.
Speaker 3 (29:12):
You're listening to simply money.
Speaker 2 (29:13):
There's not a buy all Worth financial I'm Bob sponsorer
along with Brian James. Do you have a financial question
you'd like for us to answer. There's a red button
you can click while you're listening to the show. If
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record your question and it will come straight to us.
Speaker 3 (29:30):
John and Blue Ash leads us off tonight.
Speaker 2 (29:32):
Brian he says, I've heard that as rates fall, muni
bonds could actually create phantom income for tax purposes.
Speaker 3 (29:40):
Is that true? Brian, and how do you plan ahead
for it?
Speaker 5 (29:43):
Well, it is Halloween's is the season to talk about
phantom stuff that shows up on spreadsheets and tax returns.
So yeah, let's talk about phantom income. This is a
real thing. So here's an example. Let's say you buy this.
This happens for some municipal bond investors sometimes. Let's say
you buy a muni bond at a discount, maybe nine
hundred dollars instead of its face value of a thousand,
and as rates drop. The IRS assumes you know the
(30:05):
bonds will go up as rates drop. There's an inverse
relationship there. The IRS assumes part of that gain every
year is interest you earned, even though you haven't actually
received a dying yet.
Speaker 3 (30:14):
It's just on paper.
Speaker 5 (30:15):
That's called original issue discount, and it can show up
as taxable income even when your muni is re labeled
as tax free, because that's kind of a capital gain
in a roundabout way. Most likely affects people holding individual
muni bonds in taxable accounts, not those in iras, which,
if you've done that, you're doing it wrong. Don't own
unibonds in iras or bond funds, which will handle that
accounting internally, All this stuff filters through on your ten
(30:36):
ninety nine, so you don't need to sort it out.
But if you see a funny looking number on your
ten ninety nine, talk to your CPA, talk to your
advisor about it.
Speaker 3 (30:43):
But it may be phantom income. Boo Bob.
Speaker 5 (30:46):
All right, let's move on to with unus very timely
questions today. Let's see how Kathy and Loveland is going
to scare the Bejesus out of us. So Cathy says
her tax bill jumped. Okay, that is scary. Tax bill
jumped after selling mutual funds, and so she's wondering, how
do these capital gains distributions sneak up.
Speaker 3 (31:04):
Even when you don't sell anything.
Speaker 2 (31:06):
Well, Kathy, I'm sure you've lived through this, but for
those that haven't, you know, they sneak up.
Speaker 3 (31:12):
They sneak up on you.
Speaker 2 (31:13):
Through these distributions that come out in the fourth quarter
of every year. And Brian and I talk about this
all the time on the show. This kind of relates
to the evolution of the whole investment industry over the
last ten, fifteen, twenty years. You know, where people are
getting taxed on these mutual funds and they might be
fantastic mutual funds that you've owned for decades, but you
(31:34):
don't have any control. You don't have absolute control from
a tax standpoint, meaning you know, depending on how long
you've owned them or when you bought them, you might
get handed a tax bill in the fourth quarter every
year for games that you didn't even participate in. And
that's just a function of how mutual funds work. You know,
highlight the word mutual. And this is why ETFs. You know,
(31:56):
your situation is individualized to you when you own an ETF,
so you have much more tax control.
Speaker 3 (32:03):
So how do you handle this?
Speaker 2 (32:04):
I think you sit down with a good fiduciary advisor
and a good CPA and you map out a strategy.
Does it make sense for us to gradually transition into
a more tax efficient operation here moving forward, whether that
means direct indexing, ETFs, a mixture of both, with some
good tax loss harvesting working in the background, things really
(32:26):
have evolved to the place where, again, gradually transitioning, you
can put yourself in a much better position from a
tax standpoint moving forward.
Speaker 3 (32:35):
Kathy Hope, that helps, all right.
Speaker 2 (32:37):
Brian Tom in Westchester says, we've got multiple layers of insurance,
umbrella insurance, life insurance, long term care insurance. How do
you coordinate all those policies so they actually work together.
Speaker 5 (32:49):
Yeah, So a lot of people build up their insurance
coverage this way, one piece at a time, triggered by
when they need it.
Speaker 3 (32:54):
So maybe there's a you know, we.
Speaker 5 (32:55):
Start off with life insurance and there's an umbrella policy
all of a sudden a little bit later in the
long term care, much later on. So the problem is
if you haven't coordinated all these different layers, you might
wind and wind up overpaying.
Speaker 3 (33:06):
Because these things overlap.
Speaker 5 (33:08):
You're paying for things twice, or you're not paying for
things at all because there's a gap between them.
Speaker 3 (33:12):
So you're gonna want to start off with just an inventory.
Speaker 5 (33:14):
What do you have, What does each policy cover, and
bullet that out when does it pay off, what triggers
the coverage, and how much protection does it actually provide. So,
for example, your umbrella policy should be on top of
your home and auto limits, but only if those limits
are high enough to trigger it. Right, make sure that's
coordinated life insurance. There's really three things you're trying to
cover there. You probably want to pay off any debt
(33:35):
in the event of your untimely death, provide some liquidity immediately,
and those numbers are relatively easy to get to. The
harder one is the third, which is income replacement for
your family. That's going to depend on what does the
family spend and how much time do they need to
cover those expenses, coordinated with whatever income sources they will
still have. But what they didn't say is a fat
round number from a long time ago. Make sure there's
(33:56):
some logic behind this. And finally, long term care insurance
that interacts with both your retirement plan and your estate plan.
You have a life policy, it may have a long
term writer on it, a long term care writer. Double
check and see if that's already there before you go
out and buy a standalone policy.
Speaker 3 (34:11):
So I hope that helps.
Speaker 5 (34:12):
There's a few steps there, but that that is a
complicated puzzle to put together sometimes and hopefully you've got
an advisor out there available to help you figure it out.
Speaker 3 (34:19):
Mark and Lebanon.
Speaker 5 (34:21):
Mark's considering investing through an LLC for privacy and liability reasons,
and he's wanting to know what the tax trade offs
are they're compared to just investing personally without the layer
of the LLC.
Speaker 2 (34:31):
Bob, all right, Mark, this is a loaded question, and
I will say right off the bat, this is this
is another situation. This is not a do it yourself proposition.
This is not something you want to decide on yourself
and just work this through turbo tax. You really do
need to have a good CPA involved to help you
evaluate these decisions. So I think start, you know, if
(34:52):
you sit down with your advisor in your CPA, I
think the important thing, like everything else, we talk about
what are your true objectives here? So you know, there
are single member LLCs which basically get treated from a
tax standpoint just as though you invested personally. So pretty simple,
you know, depending on what you're trying to accomplish here,
you know, if you have a multi member LLC, well,
(35:14):
now you're getting into the situation where a K one
has to be issued every every year, and that can
present delays for some of the participants. Some people don't
like K one. So I've had people tell me, Bob,
put me in any kind of investment you want, but
as long as I never receive a K one for
the rest of my life.
Speaker 3 (35:33):
Now there are some potential advantages to.
Speaker 2 (35:35):
Investing in an LLC, which means you can elect to
be taxed as a C corporation or an S corporation
in an LLC. So again, it depends on what you're
really trying to accomplish here. And that's why I say
sit down with a good CPA and hopefully your advisor
and just really put things on the table on what
you're trying to accomplish, and then you'll come up with
(35:57):
the right tax structure to make it happen.
Speaker 3 (36:00):
All right.
Speaker 2 (36:01):
Coming up next, Brian has his bottom line where he's
going to eliminate some of the confusion that's out there
between how does the Federal Reserve operate versus the Treasury Department.
You're listening to Simply Money presented by Allworth Financial on
fifty five KRST the talk station.
Speaker 5 (36:20):
Absolutely reliable information and of course not just one sided
view news.
Speaker 1 (36:25):
That affects you at the top end to bottom of
the hour fifty five KRZ the talk station.
Speaker 2 (36:34):
You're listening to Simply Money presented by all Worth Financial
on Bob's spondseller along with Brian James. And speaking of
Brian James, Brian has his bottom line for us tonight
where he's going to remove the confusion, because we get
questions all the time, Hey, what's the difference between what
the Federal Reserve does and what the Treasury Department does?
Speaker 3 (36:53):
Brian enlighten us.
Speaker 5 (36:55):
Yeah, well, I'm actually gonna I'm gonna push back on
that just a bit, Bob. And nobody ever asks the
question of difference between the Treasury and the fat I
think a lot of people who think about it don't
know that there is a difference between these two organizations. So,
and having just been honored by doctor Lorettamester visiting the
show for us to ask her some very pointed questions
and highly intelligent questions, I might add, Bob, I think
(37:15):
we did a good job there, but I thought we'd
go over a little bit of the history and what
these two organizations the roles that they serve. So the Treasury,
that's the federal government's finance and revenue arm. Its job
is to collect the taxes, issue the debt in printing
coins and notes physically via those bureaus, managing the government's
checking account basically also made pretty famous in a recent
(37:36):
musical called Hamilton. The Federal Reserve, on the other hand,
is not where the cool kids hang out, and has
not had a musical written about it. But its job
is to be the US Central Bank. It's been around
since nineteen thirteen, and its job is, as doctor Mester
would explain to us, as managing that mundy supply, supervising
the banks, setting short term interest rates, and promoting maximum
employment and stable prices. It's really they always call it
(37:59):
a split manned between maintaining inflation and promoting maximum employment.
That's really what the Federal Reserve is after. So really
the way they to these two organizations work together. The
Treasury is part of the Cabinet, led by the Secretary
of the Treasury, and it has to follow the fiscal
directions of Congress and the President. The Fed, on the
other hand, is much more independent, has a board of
governors on which she served. They report to Congress, but
(38:21):
they're insulated so far anyway from day to day politics,
and that allows them to focus a little longer term.
Speaker 2 (38:27):
All right, Brian, if you could pick your dream job,
if you could be the Treasury Secretary of the United
States or the chairman of the Federal Reserve, which job
would you want and why? And I have a feeling
you're going to say neither.
Speaker 3 (38:41):
Neither, Bob, you saw that coming, did you.
Speaker 5 (38:43):
I like my job where it's to explain to people
what these two organizations do and why, what happens to
the why what the decisions that they make have an
impact on them.
Speaker 3 (38:51):
So what is that? So the tools that are used.
Speaker 5 (38:55):
The Treasury will issue debt and collects taxes, right, so
it has to determine how much the government going to
spend and borrow. The FED sets the target for the
federal funds rates. So, in other words, when the Treasury
decides we have to borrow this much money, that's going
to be impacted by whatever the FED just did, such
as the other day when we cut interest rates by
a quarter of a point and now that we're in
a declining rate environment. So why does this matter? Why
(39:15):
do we care about any of this? Well, here's the
impact on your wallet. When the treasury runs large deficits
or borrows a lot, which is we've pretty much been
in that mode for an awful long time. That influences
long term interest rates, influences the national debt, and therefore
how much tax or future burden households are going to
have to face. On the other hand, when the FED
raises or lowers those interest rates that will directly hit
(39:35):
your mortgage rate, your auto loan rates, savings yields, even
job market strength in your region. So these are all
things that have a strong impact on what we and
what we say and do. So these are boring organizations, however,
you have to realize that they do have a direct
impact on your lifestyle.
Speaker 2 (39:52):
Well, all I'll say is up I ever become president
in the United States, which you know, the chances are slimming.
None that's ever going to happen. I will dominate doctor
Mester to be the FED chair. I found her interview
to be very refreshing. She's very smart, obviously, very articulate,
and she'd be great standing in front of the media
(40:13):
just putting things in plain English, unlike what some of
these current people do. I really love that interview and
really so much appreciate her. I wish she was still
surfing on the FED to be honest with you.
Speaker 3 (40:24):
Thanks for listening.
Speaker 2 (40:25):
You've been listening to Simply Money, presented by all Worth
Financial on fifty five KRC, the talk station.
Speaker 6 (40:31):
Recent events has made me listen to the radio a
lot more, a lot more for every day weather, forecasts.
Speaker 1 (40:40):
Do I wash my car today or not?
Speaker 4 (40:42):
For every one Trafford report, so we have lots of
new construction every day is definitely listen.
Speaker 1 (40:48):
Can I ride my motorcycle the word today for free?
I need the weather forecast on air and on the
iHeartRadio the talk shows, so I like my TV shows
on fifty five KRC the talk stage.
Speaker 3 (41:00):
I'm at Evans, CEO of Consumer Cellular
Simply Money News
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