Interest rate decisions by the Fed have been around for decades. Why should consumers today be particularly careful about commentators’ opinions concerning Federal Reserve decisions?

We need to step back and recognize the extraordinary expansion of financial industry information consumers are now accessing and acting on compared to even a decade ago. Since the global financial crisis and all through the COVID-19 pandemic, inflation and interest rate changes have become the focus of an increasing number of consumers concerned about their own financial health.

Ten years ago, most people wouldn’t be able to define what inflation is, the significance of interest rates on the price of the things they buy, the bills they pay, or even what the Fed does. But now they’re able to – or at least, they’re asking many of the right questions. One problem is that where they get their answers from too often takes a back seat in assessing what they’re hearing. Another problem is that while more and more people can now access a whole trove of financial information, it isn’t clear they all have the fundamental understanding of what that information means to them.

In particular, commentary regarding the speeches, presentations, interviews, and op-eds by the seven members of the Board of Governors of the Federal Reserve System have become closely followed indicators of future decisions by the full Board. Some take their favorite commentators’ opinions regarding the Fed on face value and look no further. That’s a mistake. These “off the record” comments by individual members of the Board are intentionally nuanced and deserve a deeper, more comprehensive look before acting.

What examples can you point to where this type of behavior has happened before and what were the results?

A good recent example is the run on Silicon Valley Bank deposits that took that high profile bank down in a matter of hours, which I’ve written about. The two common denominators here are: one, how powerful a handful of second- and third-tier online sources of “information” can be in affecting consumer behavior and, two, how technology fuels the speed with which consumers can act to change their holdings of stocks, bonds and other financial instruments. With SVB, customers withdrew their deposits in a matter of seconds without having to leave their homes. In the case of Fed decisions, consumers can now shuffle their investments just as quickly on a whim – often with bad consequences.

I remember back in 2020 when some of these pundits started screaming “double dip recession” and I had to literally turn off my TV because I was emotionally triggered by what they were saying. I asked myself out loud “What sort of nonsense are you telling the American people? You need to think of your audience, to be mindful of how you disseminate that information because it triggers anxiety.” And we all know that anxiety is not conducive to sound financial decision-making. It causes a flight to familiarity, which often creates a self-fulfilling prophecy – effectively creating the outcome we were fearing.

Can you give us an example as it pertains to interest rate changes or inflation?

Let’s say you are planning to buy a new big-screen TV sometime down the road. You hear prices are going to go up, so you rush out to buy that TV before prices rise. You and everyone else doing the same thing drives up overall demand, which accelerates the rise in the price of TVs going forward. You may think you made the right decision when prices end up higher a month or so later, and perhaps you bought that TV on credit, without regard to the cost of that credit via a high interest rate on what you borrowed. That attempt to save money effectively ends up costing you more in the long run. The same thing happened with used cars during the pandemic – the rush to buy them coupled with supply chain issues drove up the cost of doing so.

What can people do to alleviate these anxiety-driven impulses to act so they make better financial decisions?

First off, be patient. But that’s not easy to do. So, secondly, expand your sources of financial information beyond the handful of commentators and media outlets you are comfortable with, that you already know and follow.

Simply adding a couple of new, trustworthy sources of financial news and information opens you up to views you may not have considered, other ways of looking at how decisions by the Fed, for example, might affect you. The presence of different opinions prompts you to ask new questions and seek further answers, which can identify other factors to consider beyond the those you typically seize upon.

Are you talking about the Wall Street Journal, New York Times, and Washington Post?

Yes, and if everyone read some of these and similar publications often, their financial decisions would likely improve. But these subscription-only sources can be relatively expensive for the average consumer.

The good news is that there are many free sources of financial news and information online that are reputable and trustworthy – Axios, The Street, The Motley Fool, CNN Money, and CNBC are some of the most highly rated. For hard news, it is hard to beat the Associated Press.

And don’t forget to take advantage of resources you already have available – trusted friends and people in your network who understand the fundamentals of economics and personal finance. And you can rarely go wrong sitting down with the financial advisor at your bank to ask hard questions based on your own individual financial situation.

The point is to venture out beyond your comfort zone. While a bit discomforting at first – it is hard questioning one’s own familiar perspectives – you will be glad you did.