Fairview COO Glen Weinberg calls the dual mandate the worst thing the central bank could do
The Federal Reserve meets, starting today, with inflation still above its target and the job market sending softer signals, and the two readings point in different directions.
That tension is built into the central bank's dual mandate, which has been cited with increasing frequency by the last Fed chair Jerome Powell, and now by current chair Kevin Warsh. Congress set that dual mandate to cover both prices and employment.
Markets expect the Fed to hold on Wednesday, even with inflation running well above where the central bank wants it.
Glen Weinberg (pictured top), chief operating officer and partner at Fairview Commercial Lending, has more than 30 years in the industry. He is not a fan of at least half of that mandate.
"This dual mandate was the worst thing the Federal Reserve could do," Weinberg told Mortgage Professional America.
Focus on inflation alone
Congress amended the Federal Reserve Act in 1977 to direct the Fed to promote maximum employment, stable prices, and moderate long-term interest rates. However, critics have been skeptical of jobs data, and that’s just one of the reasons Weinberg argues the Fed should act on inflation alone.
"All they need to do is focus on their one thing, inflation, because as soon as they start focusing on employment, they aren't taking the right steps for inflation," he said.
Weinberg pointed to a stretch last year when the Fed began cutting rates. He said worry about the job market drove it.
"When they reduced rates, that was the dumbest move," Weinberg said. "There never should have been a rate reduction. Why would anybody think that's a great idea? They were worried about unemployment so much. It's like, no, keep your eye on the damn ball, not on two balls, because it's not going to work."
The same worry will cause trouble in this cycle, Weinberg said, thanks to a softer-than-expected September jobs report. He tied it to why the economy hasn't moved forward.
"So, the Fed is going to create this problem in this cycle because they're worried about employment," he said. "Employment should have nothing to do with their decisions. It should be inflation and the long-term stability of the economy. But as soon as you get out of your box, nothing happens. That's why we're stuck.
“That's why they lowered rates when they did a while back. They should have actually raised them instead of lowering them a quarter or half a point. They should have raised them just the opposite back then."
The Fed's early read on prices draws his scorn too. During the pandemic, it described the spike as short-lived.
"It's just like this whole idea during COVID, ‘Oh my God, inflation's transitory,’" he said. "It's like, well, the train just hit you, buddy, because we've been saying it's transitory for like 5 years. It's like, come on."
He also objects to the way the Fed talks about measuring inflation. Changing the yardstick, he said, only delays the problem.
"Wake up, focus on inflation, and don't change the metrics like they're talking about," Weinberg said. "Inflation is inflation, whether it's like you're going to trim this or trim that. At the end of the day, it's inflation. And stop screwing with the numbers and deal with it, because the longer that we don't deal with it, the more we're stuck."
Why the Fed may hold
Consumer prices climbed 3.7% over the 12 months ending in September, with core prices up 2.6%, the Bureau of Labor Statistics reported. The summary of economic projections issued by the Fed after its September meeting showed the Fed not reaching its 2% inflation goal until at least 2029.
Futures traders put the odds of a hold at 88.4% as of Tuesday afternoon, with the other 11.6% on a quarter-point increase, according to CME FedWatch. For the December meeting, the tool gives a 72% probability that the funds rate will sit 25 basis points above its current level, 9.1% for a half-point gap and 18.9% for no change.
The Mortgage Bankers Association (MBA) sees the next increases coming in December and the first quarter of 2027.
Barry Habib, CEO of MBS Highway, said at NAMB National in Las Vegas, the National Association of Mortgage Brokers' conference, that the 2-year Treasury is a better guide to the Fed than market odds.
"That 2-year Treasury yield right now is telling us that the Fed probably needs to raise another half a percent," Habib said.
Weinberg doesn't think jobs data belongs in the decision at all. The Bureau of Labor Statistics builds its monthly jobs report from surveys of households and employers.
"It's based on a survey. It's like, okay, if anybody calls me, hey, I want to do a survey, do you answer the phone? Absolutely not," he said. "I'm not answering the phone. Why? Random number asking me for a survey? I mean, they don't even get through my Google phone. It's like, so their information is garbage as well."
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