THE QUIET REVOLUTION AT THE FED - Dave Galloway

Our good friend Dave Galloway here with us from Heartland Home Mortgage. Always a pleasure, Dave. Man, it's never a dull moment these days, especially with the latest from the Fed this week. The headline basically is they're not going to change the rates right now, which is okay. We didn't really expect that to happen, I think, is what you were telling me. I didn't either. But I just find it so fascinating because what is happening behind the scenes may be the bigger story. Welcome in, man. Thank you for having me. And yeah, it's quite an interesting slew of events we've had with feedback on just how the chairman has started so far. So Kevin Warsh is the new chair of the Fed. In fact, here he is breaking down just the other day, the decision that they're going to keep the rates basically where they are. He's, Trump's appointed chair. That was the discussion in the last two days. Is that the dominant remedy? if inflation continues to be elevated through the forecast period, interest rates could well be part of that solution. But I wouldn't say it's in isolation. I tried to describe in my remarks today a point that I made into the Oversight Committees a couple of weeks ago. I think there was a misimpression by some in financial markets, by some households and businesses, that central bankers like me, we set a 2% inflation target. But maybe we were more tolerable of a somewhat higher inflation target. In economics, we'd call that the revealed preference. And so might it have been rational for people to think, well, their inflation targets somewhat higher? What I heard in the last two days, what I've heard in eight and a half weeks is no. we will deliver the 2% inflation target. That is the committee's definition of price stability. So one way, absent the tools that you reference, to ensure that we get there, is ensure that expectations are centered around the right number. And I think we've made some progress on that. What's he saying? Can you translate for us, Dave? What's he talking about here? I mean, I think what I've gathered is he's looking at other data points besides just the straight inflation rate. I know. They've referenced CPI, which is consumer price index. That was only at like a 0.5 increase. They also are looking at jobs, you know, employment. I think we had a slow, the last report was only 57,000 jobs added. So when they're looking at how they're going to respond to those numbers, those things play heavily into that. Like, hey, how's the economy really doing? And are we going to make a decision based on just one data point, especially when we.

know a lot of that is driven by gas prices, which could very well be temporary. Yeah, and to the gas point part, I mean, I don't know about you, but it's, you know, you're kind of all over here in Michigan, you're in Florida, you're traveling quite a bit and seeing different things. But, you know, here in Michigan, I see one price at 449 across the street, it's 409. And then I go to Grand Haven and they pay 387 at Meyer the other day. What is the deal with the gas prices? They're all over the road. And how can you bake all of this stuff in to figure out where things are going to be when you have such a wide and ranging margin there? It's really tough to understand. Yeah, I think there's a lot of... news that could come out of the gas prices. I think we know, I think it was, I forget who it was, Exxon and somebody else just reported. And shockingly enough, they have huge profits over the last quarter gas prices. And I know Trump has definitely referenced a couple times, maybe auditing them or seeing what's going down. You'd love to believe that, you know, somebody would have a way of getting these guys to not gouge you, but it kind of is what it is, right? It's like, hey, this is what we're dependent on. But, yeah, they're definitely taking advantage. of the news and and then in Michigan obviously the gas prices are very high you know you got to make sure you collect all the taxes on those for those wonderful roads so yeah That's the thing, right? Is how does this all kind of play out? Where do we go from here? How do you plan these things? And what does this look like? So let's talk about because you mentioned some different data. And what I heard in our conversations before really has been that there's transformation happening inside the Fed. There are things happening that are revolutionary to the point that it'll change the way we get these numbers, how they. either raise or lower rates, what they decide to do. So let's talk about some of that. What are you seeing? What are you hearing? What is he signaling? Kevin Warsh and what's really going on? Because I think it's the bigger story. Well, I think the biggest challenges guys are facing is the amount of money going into AI. That's something they've never had to factor in. And that's a huge portion of what's being spent right now. So as much as everybody wants to guess on what he's going to do, and you got to remember, this guy is going to be under a huge scrutiny because... Trump picked him, right? So no matter what he does, it's going to be, there's always going to be a couple of strikes against him. But while he's just, you know, doing Trump's bidding, not really operating in the best interest of everybody, right? That's what everybody wants to, you know, majority of the media wants to tag that on him. I don't think that's the case with him at all. I just think they're still figuring things out. And he's made references to, you know, we're having some family fighting, right? So you're not going to get the, I don't think you're going to get the classic all the Fed governors voting in the same way.

I think you're going to have some dissension among them as they're coming to these decisions. But I don't think any of them know how he's going to come to his decisions going forward. I think you're not going to be able to go off the predictive models that they've... done over the past decades and that makes sense right because technology has changed everything it used to be we would find out what 90 days after what the inflation rate was a quarter ago well now that stuff is in such real time and everything's so responsive all you got to do is buy by a couple chip stocks and you'll find out the fluctuation in the market really fast from just day to day and try to make sense of it right you can't Yeah, that's a good point. President Trump, in fact, you just mentioned AI and chips. He's going to talk in this clip a little bit about Kevin Warsh, why he likes him, what they're doing. And he actually mentions some of those, hits some of that AI spend that you just mentioned on the head too.

Kevin's fantastic, but he can't hear that. The reporter's asking, are you disappointed in Kevin Warsh? Yeah, Kevin's got a board. He's fantastic. He's a brilliant guy, smart. I know he'd love to see lower interest rates, but he's got a board, and it's a political board, and they want to keep rates up. But we fight through rates. We have the greatest, we have the strongest investment ever made in a country of any country. It was China about... 13, 14 years ago, we have far greater, 19. Even Jensen Huang would say that's a lot. And Jensen Huang's spending a tremendous amount of money by hundreds of billions of dollars. He happens to be in the room. He's spending more than United, actually. He's spending 10 billion. But Jensen Huang spending hundreds of billions, right? I don't know. That's not a bad business. But no, no, we have. So he goes in talking about this, and I thought it was interesting because, you know, as we discussed there, that AI spend, you know, how do you level that all out? How do you figure out where they're going? And then some might look at that AI stuff. There's a bit of a bubble going on here. So there's a delicate balancing act in all of this. Well, and it's following right in line with job creation, right? They want to see how the AI effect is going to be with employment and, you know, whether it's hiring more people to deal with it or getting rid of people because they don't need them anymore because of AI. And so I think they're looking at that data as well. And I think the most interesting thing there was they were trying to set. President Trump up, right, to have him, you know, make that accurate. Well, he needs to drop rates. He needs to drop. They were trying to set him up to say that. And he didn't. He just, you know, stayed in line and was complimentary of the chairman. Well, you know the interesting thing about the AI? As you mentioned, we don't know yet. Are they going to need to hire more people? Are they going to, how's this going to work? We got reports that we're watching this because we have a tech segment every week too because they're so tied in. But we're watching this and looking at specifically the reports that have come out that now they've, a lot of these companies are a reverse course. on the whole we're going to downs, you're going to get rid of people, and they're actually having to hire more people, bring them back in because the AI doesn't necessarily do what they thought it would do. It doesn't help in the ways they thought it would. It's great to help with productivity in some ways, but you, and this, I've always said this. I really think you need a person to interact. You need a person to make sure to, now we're all managers. I heard somebody say this. Back in the 50s and 60s, you worked in an office, but how many people were secretaries? So many. There were so many secretaries. The workforce, I don't remember the number, but it was a staggering number, is a very big number, the people that work in and the workforce as secretaries. And eventually they did away with secretaries. We all have our computers. We're all secretaries now. We're all making our own appointments. We're all doing the things that secretaries did. Everything shifted. That workforce sort of shifted. And now this person made the point that,

We're going to move into a new era and we're starting to get there now where AI is going to run things. Maybe you'll have like a bot that's going on or an agent that goes in and does things, schedule things for you or, you know, does some work for you. But our job now, we're all going to be managers. We have to manage these systems, these agents, et cetera. And so there may be a little bit of shift. or flux in what jobs are done or how they're done. But I haven't seen, and another's been a lot of talk. We see the robots when they come in, right, and start taking jobs. We'll see. You know, Elon Musk's working on a factory in Texas. But, you know, we haven't quite seen that sort of doom and gloom prediction come into play yet. And this has got to be dang near impossible for them to figure that out at the Fed. Yeah, and I don't know a ton about the AI stuff. I mean, Trent's obviously the better guy to talk to about that. But as a business owner, if I'm looking at AI for what we do, I would love for it to bring in, you know, more business. But I do know that the goal of that is to then hand that business off to a human being to, you know, take care of our clients. If AI is super effective, that means we have way more business coming in, which means I'm going to need more people on the back end to handle that business, right? That's just the way my mind's working. Now, I know there's other industries where maybe that's not the case. But yeah, for us to try and predict how it's going to work out is we won't be able to. And if you think about it, Justin, they'd say Americans are the most stressed people in the world, right? Some of the most stress. And we're always working, even though we have all this technology that was supposed to help us reduce our stress and not work as hard. and we're actually you know one of the hardest working uh countries in the world and working more hours than anybody because we always have that you know access to work and there's always that drive to make more money and capitalism helps with that too so it's an interesting thing that i think we it's not going to work out you know exactly like anybody thinks it will Dave, Galloway, Hartland Home Mortgage, the key is to be informed through it all. That's what we're trying to do is make sure we bring in the headlines, go a little beyond so you can see what's happening. Dave, we got some questions and we'll talk about this. What you're doing right now is obviously helping people buy homes, refinance, whole equity line of credits. We talked about that. All kinds of different ways that you're helping people. One of the questions folks were asking in the chat was about home rates right now. Where are they? Where do you see them going? We know they're not exactly tied to the Fed rate because there's lots of other things that play there. You've told us that before. So give us a little bit of a rundown where folks are and how you can help them save some money.

Yeah, long-term rates fit like a 30-year fixed right now, depending on. There's several factors that go into an exact quote, but you're probably looking in the sixes right now. We were brushing into the fives there for a hot second until the action happened in Iran. But still, historically speaking, it's still, you know, cheap money. And we're not seeing home values in West Michigan go down. So somebody feels like, well, I'm going to wait this out. You know, the values are dropping. And then I'll get a good deal. As of June, there's 1.1 month of inventory in Kent County. The average sale prices continue to increase at 4.4% right for year over year. So what that tells you is when rates do drop, if you think that you're going to get a better deal on a home, that's not going to be the case. right it's going to create more competition we saw what happens when rates dropped a lot right it drove up the competition more people came into the market because money was more affordable so it's still i i think it's a good time to buy in in west michigan um i think the bigger deal is the the values continue to stay high you have the opportunity to let that equity work for you, right? So if you have a significant amount of equity and we know what credit card interest rates are, we know what some of these other loan payments have, you can let that equity work for you, maybe do some consolidation, maybe you do some home improvement. Whatever the case may be, there's some big opportunity out there. And one of the fastest growing mortgages in the country is the reverse mortgage. And the reverse mortgage is basically if you're over the age of 62 and you don't want to have a mortgage payment. because, hey, look at what the cost of affordability has done and you're on a fixed income. It allows you to eliminate that mortgage payment. You just don't have anymore. And there are, you know, a lot of other. And it can also work as an equity or monthly income producer for you as well, where you can, you know, take some of that equity as a monthly payment, help you get through some bills. So there's just a ton of opportunity when values are what they are right now to take advantage of that and just make life more affordable, stave off financial disaster, whatever it may be. What makes West Michigan? Because, you know, we've heard this quite a bit, but what makes, like, West Michigan so special or so different? Because, I mean, you're right. Like, I've watched our, and expecting, I'm, like, expecting, okay, some point there's got to slow down or some, at some point, maybe they will go, they will drop or something that's going to happen. You know, maybe this is coming. But we just watch the home that we're in. You know, since we bought it in 2020, just, I mean, it just keeps going up and up and up the values. Now, we're also in a very particular, you know, a school area, all of those things. You know what I'm talking about. But in West Michigan, it seems like we've got something special going on here. What is that? Well, there's a lot in West Michigan to be proud of. I mean, for one thing, Michigan is just a beautiful state as it is, and the west side of the state is just gorgeous, just a great place to be. You've got a ton of entrepreneurial people there to produce just so many good opportunities. And then...

you know really the increase in housing price has been a slow increase for you know if you look compared to the nation what you're getting in west michigan for your money is actually still a really good deal i mean those of us that have been there a long time they're thinking man home prices are crazy but it's like if you get somebody coming from a different location they're stunned with what they can get for their money still so and um for the most part they've been able to since 2000 before 2008 they've been able to hold off on the overbuilding and you know to create way too much inventory in the market so yeah it's it is a unique area and you got a good melting pot of just people and there's great people in west michigan that's what that's what we've come to find as you travel around and you look back on who are there just just some awesome people It is, it's fantastic to watch. I can tell you that much. There are not a lot of other places, and that's why we always think it's worth saving here. We're fighting for. But Dave Gatley, folks want to find out more. They want to ask you about whether it's buying a home, whether it's a refinance, because there's a lot of people too, like me. I got real low rates right now, so I'm thinking I may not want to move, but maybe I want to do some things around the house to. You know, make some improvements here or there. Or maybe it's credit card debt that, like you said, that's out of control, the interest rates on that, that they want to try and tackle. You've got lots of different ways of helping people. And you've got something special for the people to listen and watch this program for those Justin listeners. You're calling this the Justin Value Deal. This is brand new folks. Dave's always giving you a good deal. But he's here. He's supporting the program. And we appreciate Dave because he's a real friend. And gosh, we just love him and his family. But this Justin Value deal, I'll let you tell him a little bit more about what's going on. Yeah, we love that our listeners will, you know, use our businesses, use our services. And so we just want to give back a little bit to that and thank Justin for having us as part of this. So we are making sure we offer anybody that mentions the Justin Value deal. We will pay up the $500 credit at your closing towards your appraisal cost just as an incentive, as long as you let us know that, hey, you know, I got the, I want the Justin value deal. And so, yeah, it's an opportunity there to just save something. money and get a little bit back and be rewarded just for listening to the show. And then also, you know, you talked about people having low rates and maybe not wanting to sell. Sometimes life happens and you get sized out of your home. You got to remember, if you have a two point something on your mortgage and you want to buy a new home, you should now become a, you know, a landlord, right? Because the rental income you can get on that, let somebody else buy your home. The fastest path to wealth in this country is through real estate, right? And homeowners have 40 times. the net worth of non-homeowners in this country. So if you want to get, you know, if you're in that home and you're like, I can't sell this home, I got too good of a rate, it doesn't mean you can't go buy another home and move into a bigger home. You just got to make sure you do it the right way. Let somebody else pay for that home you're currently in because that's cheap money. I wouldn't sell it either, but rent it out, make some income on it, help it pay for your new home.

Lots of different options. Walk through them all. Dave and the entire team, a heart of a teacher, to walk you through it. H-HMlending.com, or you can call them at 877-350-350-0-0-0-0-7. That's H-HMlending.com or call Dave at 877-3503507. Dave, always there. Yep. Or stop in and we'll buy you a cup of coffee, right? That's even better. We'll chat in person. That's even better in person. Yeah, because I, you don't know how many of a, and I'm right there with you, how many of the people in the chat said, oh man, I hate that. Not that you guys are this, but when you call it's like an AI, you've got to talk to the AI to try and get through. You can't get through any place anymore. I was trying to figure out something on Delta the other day and help my mom with a flight on something. And I'm telling you, this thing was like, your wait time. is an hour and it asked me all these because you want to do this no operator give me an operator give me a human oh my goodness so yeah face to face imagine that we can still do things face to face and that's one of the best parts they're better than the big banks with dave and the team come you know to close they will come to your house they'll they'll come walk you through it and uh it it's awesome thank you Dave appreciate you as always yeah thank you for having me God bless you guys You too. Very cool. Dave Gataway Heartland Home Mortgage, HHMlending.com, 877-350-0-0-07. And again, if you want to just go in person, he said they can walk you through it there. Just ask a question, have a cup of coffee. Great conversation and say hi.