Will the Fed’s Response to Inflation be Enough with Andrew Opdyke — EP 012

Matthew Peck: Welcome, everyone, to another edition of the Retirement Roadmap Podcast brought to you by SHP Financial. I’ll be your host today. My name is Matthew Peck. As always, I’m certainly here. And as always, we always want to make sure that we are providing fantastic content and answering questions that all of our clients have about what’s happening in the world, what’s happening in the world of finance, and what’s happening in the world of taxes and accounting and legal and estate planning and everywhere else that our thoughts and concerns go in the world of money.

And so, today, we have an extremely special guest. I’m very, very excited to say the least that we have Andrew Opdyke, a senior economist from First Trust. Now, this gentleman is traveling the world and doing research on all of those reports that you hear about. When you hear about CPI and you hear about these data points and you hear about all the Federal Reserve minutes and all the information that goes out there, this gentleman is crossing the country and digging into what that information actually means, what it actually means when they’re sort of like the rubber meets the road, basically, of what numbers means in real life. Because if there’s anything that we’ve always heard from day one is that you don’t fight the Fed. So, this gentleman is going to help us understand what fighting the Fed or what the Fed is trying to do, and most importantly, whether or not it is working.

Matthew Peck: So, without much further ado, Andrew Opdyke, thank you so much for joining us. We really appreciate it.

Andrew Opdyke: Matt, hey, thank you so much for having me. That was a great explanation of what I do and I really look forward to our conversation today.

Matthew Peck: No. Cheers. All right. So, clearly, everyone, at least me personally speaking, is worried and following inflation numbers every single at least every single month, maybe daily to a certain extent but certainly every single month. And funny enough, I just finished up a webinar that was sort of like a quarterly webinar market report that we put out there. And so, what was interesting, Andrew, is that literally what really blows my mind is the fact that three years ago in 2019, the world was more concerned about deflation, the world was more concerned about literally not meeting their targets. And so, now obviously a very, very big pandemic in between, it’s the exact opposite. So, if you don’t mind, explain kind of how we got here. And then what are your current thoughts of the inflationary environment?

Andrew Opdyke: Yeah, absolutely. Well, as you mentioned, coming out of the last recession, let’s go back to the financial crisis. For the ten years following that, the Fed was targeting. They look to try to keep inflation at just around 2%. And for that ten-year period roughly after the financial crisis, it felt like they could never get there. We were at 1%, 1.5%. And they kept talking about inflation was falling a little bit. Sure. It felt like we couldn’t get enough inflation. And I think, honestly, I think that was one of the things that kind of caught the Fed flatfooted when we went through COVID is it they just went through ten years trying to get inflation higher and it wouldn’t go. So, they expected that, yes, forces would hit, yes, things would impact but inflation was hard to find. So, I think they thought that it was going to come down a lot faster. Now, what happened was we get into COVID and immediately we have two key things happening. One is production comes offline, right? You remember we had the shutdowns, the shelter in place. We saw businesses shut their doors. We saw supply chains. And supply chains are this incredibly intricate knitted network.

There’s almost nothing you can create today that doesn’t involve 10, 15, 20 other companies. Whether it’s the inputs to go into your tools or the clothes that you’re wearing to go to work, the coffee that you brew to get up and go in in the morning, and all of a sudden, these connections, there’s these little sand in the gears when things shut down. So, we have the supply side of the economy get pulled down. At the same time, the Fed is dealing with a health crisis, right? These businesses were shutting their doors, not because they had bad products, not because they had bad service. We were shutting down due to COVID. And so, the Fed stepped in and said, “Look, we need to find a way.” Congress stepped in and said, “We need to find a way to kind of balance this out.” So, what did we do? We put money into the system. So, we increased the purchasing power of consumers. At the same time, we have less things available to purchase. And this created the classic inflation dynamic, more money chasing the same or fewer goods. And it took a little bit of time because people were really cautious in the early days. They didn’t know if their job was going to be there in two months, three months, five months. So, at the very beginning, everybody kind of hunkered down.

But when we turned that corner and it really started to turn from an economic standpoint in about June of 2020 and we started getting back to work, the job gains started to pick up. We said, “Hey, look, I might not be able to go to that restaurant in person,” but the restaurant said, “Well, okay, we’ll set up tents outside or we’ll set up a front door delivery. We’re going to find ways to continue interacting.” We were purchasing. Consumers were buying at new highs by the end of 2020. It took less than a year for activity to come back. Now, we were still putting money into the system. We had additional stimulus bills. We had the paycheck protection program. In total, we had $5.5 trillion into the system and we did it in a way that’s very different from what we’ve done in most other points in the past. You go back, let’s say, to the financial crisis and there was some spending, right? There was TARP. There were things like quantitative easing by the Fed. But what we did this time that was so different is we gave checks to people and we gave checks to businesses with no need to pay them back as long as you started following certain rules. So, we really amplified the money that consumers and businesses have to spend.

In my background, I did undergrad in economics, I did grad school in economics, I did the CFA program with a focus in economics. You don’t need to take a single economics course to understand that when you give people money, they’ll spend it. So, we had this big jump in money in the system, a limit in terms of the total number of things available for purchase. And that mismatch between supply and demand really started to drive inflation. And what we’re dealing with today is that there is a substantial amount of money that remains in the system. We are today about 42% more money in the hands of consumers and businesses and GDP just got back. So, there’s 42% more money and we have the same number of things that we can purchase as we did when all this started. Until we get this kind of in check and the money growth has stopped, that’s a positive, but until we can either make this up via inflation or we can get more production, inflation is going to be arguably the biggest thing that we’re dealing with, and I think that’s going to remain through 2022. I think we’re likely going to see it in 2023. I think it’s probably going to take into 2024 to get these wheels balanced again. But once we do, I think we start going back towards the scenario that we had pre-COVID, that 1.5%, 2% inflation environment. It’s that the economy right now needs to digest this huge bulk of money to enter the system.

Matthew Peck: Well, let me ask you because you bring up a number of interesting topics, and I’m hoping I’m going to get back to each one of those. Like, specifically supply chains, I want to talk a little bit about that because I do know there is a paradigm shift happening from sort of just-in-time inventory to more resiliency or we’re shifting from efficiency to resiliency. But let me also go back to sort of a question I’ve always had, right, which is the idea of tightening where, okay, we’re going to have an easy money policy. We’re just going to kind of pump money into the economy, and then we also have a tightening. So, what does it mean when it’s like, okay, they’re draining liquidity? Like, where does that money go? How does that work?

Andrew Opdyke: Yeah. So, essentially what’s happening is the banks are regulated by the Federal Reserve. And one of the things that happened recently, the banks have been reporting second-quarter results. And one of the reasons that the results haven’t looked as strong as they did, let’s say the prior quarter or before that, is because they were being forced to take more of that money and put it on the sidelines, but basically hold it on the side, don’t lend it, don’t spend it. It’s a buffer. And any time that we’re going into periods of economic uncertainty, they kind of shore up the fences. Now, this is a new thing since the financial crisis. The financial crisis, the banks were undercapitalized. Now, they’re really kind of over-capitalized. So, the central or the Federal Reserve, when they’re tightening, when they’re trying to slow down inflation, the two things they have control over is, one, setting interest rates. They can set that base rate, the lowest rate at which banks should be willing to let. Because if the Federal Reserve says, “Hey, banks, you want to borrow from us, okay, it’s going to be 1.5%.” No banks should lend to anybody else at less than 1.5% because the Fed is the absolute safest bank in the world, I would argue.

So, what they start to do is they lift interest rates and it becomes more expensive to borrow and buy a house, more expensive to borrow and buy a car. And as they raise rates, what they’re hoping to do is slow down the pace of new loans, slow down the money entering the system, slow down demand and have it kind of come into check with the supply side. So, they can raise rates but there’s so much money in the system. You go back pre-financial crisis. You go back to the 70s, the 80s, the 90s. The way that it worked is there wasn’t much extra money in the system. So, if the Fed wanted to raise interest rates, what did they do? They literally took money out. But when we did quantitative easing and we put so much in, it kind of changed the dynamics. So, now they use regulations. They say you need to hold a certain amount of capital. You need to have certain ratios where you need to hold X amount of ultra-safe assets, be that cash or treasuries. So, the liquidity, what they’re doing is they’re reducing the amount of money that’s available to lend. They’re making it more expensive for people and businesses to lend. And what that does is when we lend, it increases the money in the system. So, they’re slowing. They’re essentially stopping that from happening.

They’re holding now the money that’s in the system at places that those loans come due. Some of them will roll off. Some of that money will come out but it’s not a quick process. It’s a longer-term process. And this is not something that the Fed has really done before. So, there’s a piece of this. There’s a piece of uncertainty add on to all the other uncertainties that are out there in the economy right now. But there’s a little bit of uncertainty in terms of how precise can they be at implementing this. And that’s something we’re going to find out here over the next few years.

Matthew Peck: Well, absolutely. And I think that is why the word you used was digest because I saw I think it was like, and I wish I had the exact quote but it was almost like 20% and you said 40%. But just the idea of all this new money being created since COVID, I think it was $1 out of $5 or something like that. I wish I had the exact quote.

Andrew Opdyke: Yep.

Matthew Peck: I never understood how when you create that money, which I know if you have the Federal Reserve and if you’re backed by the best of faith in the federal government, you can do that because your currency has that good faith behind it. You have the ability to sort of create money. I just didn’t know how they then pulled it back or as you were saying, it just digest where it’s more like, okay, if we slow it down, then it almost like it gets absorbed back into the economy. Or is that kind of the right way of looking at it?

Andrew Opdyke: Yeah. That’s how I would think about it. Is it possible for them to take money out of the system? Yes, it is possible for them to take money out of the system. The problem is the only time in the last hundred years where they did that in any substantive level was the 1930s, and it was the cause of the Great Depression. If you think about it, if you’re a bakery, let’s say, and you got a loan from the banks and that’s what you use to buy your flour, to buy your sugar, your salt, to pay your employees, the way that the Fed or the banks could do is they could call loans and say, “Hey, I know we gave you that $40,000 loan. We’re going to take it back. We’re not going to wait until it’s due.” And if they did that to the bakery, they can afford to keep operating. So, it causes a major impact on economic activity. Is it possible? Yes. Does the Fed want to do that? They really want to avoid it unless it’s absolutely necessary.

Matthew Peck: Got it. No, that’s interesting. Okay. So, that kind of, again, helps. And these are just questions I’m having, which I like to think that our clients and listeners have, too. But let me jump back to you mentioned a little bit about sort of outlook. You said maybe not 2023, maybe 2024, but you do believe, again, in your opinion that the larger trends like older demographics and technology and all of the forces that kept inflation in check pre-COVID, you do believe, again, in your opinion that those forces are just sort of just taking a breather, and then they’ll eventually come back to depressed inflation?

Andrew Opdyke: Yeah. I mean, I think they’re still in effect. I think that things like technology, where the computers that we record on, the phones that we use for conversations are still getting cheaper. It doesn’t feel like it right now. Prices are going up with inflation. But overall, like you can buy a computer for the same price you did a year or two years ago but it’s more powerful. It’s a better computer. If you want to go replace with the exact same specs that you had with the computer you bought two years ago, it would be so much cheaper. That is disinflationary. It means that we’re going to see slower levels of inflation, but that disinflation is being completely overwhelmed right now with this money supply. Once we get the money supply through and here’s one thing that’s incredibly important from the inflationary standpoint right now. This is not like what we did, let’s say, with the New Deal. It’s not what we did with the Great Society in the 60s into the 70s. There was no entitlement reform that happened here. It was one-time spending. I think the best analogy, the best echo in history of what we did over the last kind of 18, 24 months is World War II.

Back in 1942, 1943, actually, the government spent massively, created a lot of new money in the system to produce the planes, the tanks, the munitions needed to fight that war. Now, that was one-time spending. You get that munition, you get that plane, it fights overseas. Maybe it goes down, it crashes, that thing is gone. It’s money that was spent that we’re never going to get back. And afterwards, after World War II, we went through a period of inflation with this extra money in the system, but eventually, it kind of made its way through. And those longer-term factors like you mentioned, the demographics, the technology, things like that, that comes back in to be the core focus but we need to get back. We need that digestion first and then we’re kind of in a, I guess, you could call it a bit of a reset. And we get back towards that driver, the longer-term drivers of inflation over time.

Matthew Peck: Yeah. Okay. So, well, that’s it. Well, I guess I do believe in that. I mean, personally speaking, I do think that we’re going to eventually get back there, and just the idea that especially with demographics like you and I just use that term, but specifically in regards to aging population. I mean, I saw about how America had one of the lowest birth rates that we’ve ever close to had like a century and no other societies. Japan specifically is aging to say the least. And so, I mean, there may be a baby boom somewhere, not that I heard of or not that I’m aware of, that’s going to change that underlining. But what has changed with something that I’m curious about your opinion on what it was saying about was, and to use the other idea we’re talking about is supply chains and then globalization is, okay, prior to I was calling it the peace dividend in the sense that after the Berlin Wall fell. So, now this whole marketplace, Eastern Europe suddenly opened up because now communism fell and now that they’re going to embrace market and capitalism, whatnot, and free trade and all of these different trade pacts and NAFTA in the 90s and all of that type of thing was pushing towards the most efficient supply chains in the whole wide world.

And there were some human rights abuses. What can you do? Hey, you making a good widget and for a good price. Well, that’s changed a little bit obviously with the Russia-Ukraine conflict and in China with some of their more aggressive posturing. So, what’s your views on globalization? And we talk about supply chains. Is that a paradigm shift where we won’t be going back to the more freewheeling times?

Andrew Opdyke: Yeah. I think there’s a component of that. Now, one thing I’ll say is that you go back to 2019. Let’s go back pre-COVID but back when we were escalating the trade conflicts with China. One of the things that we were doing back then, U.S. companies was doing is they were shifting where their factories were. They were shifting where the supply chains were. We were shifting out of China. And for technology, we were going to South Korea. For some of the soft goods, we were going more to Vietnam. We were going to places like France. We had new trade deals with Canada and with Mexico. We also had a new trade deal with Japan. We were starting to shift our supply chains towards more trusted partners. But I think what COVID is going to do, when I went to school, right, we still learned about just-in-time inventories. We learned about the Toyota method of you don’t want to hold excess inventories. Let’s get everything exactly when you need it. Companies are rethinking that after they went through COVID because it stopped the supply chain, it stopped production. They said, “Okay. Now we need to remember, we need to think about how much inventory we need to be able to keep operating if there’s a stop.”

So, I think that’s going to change things in the short intermediate term. I think in the longer term, countries realize free trade is a net benefit to them. In the short term, they may go into protectionism as we’re going through the conflict with Russia, Ukraine, as there’s questions on China. Will China, let’s say, invade Taiwan? There’s escalated tensions there. In the short term to intermediate term, what that’s doing is twofold. It’s slowing activity with those groups but it’s also strengthening some of the ties with the other countries. I mean, I got to tell you. I think that the relationship between, let’s say, the U.S. and the European Union, who right now is trying to figure out how do we get nat gas, how do we get oil, how do we get supplies that we can’t get from Russia, Ukraine? In the short term, it’s difficult. It’s pushing prices up. I want to fill my car this morning at the gas station. It was $135 to fill the tank. But if I look out here and say in five years, in ten years, do we have a better trade relationship with Germany and Italy and France with the broader EU? Are they any more resilient? Are they in a stronger supply chain because of shifts away from some of these geopolitical tension areas?

I think down the road we’ll look back and say we strengthened some things coming out of it, but there’s going to be an adjustment period, no doubt. This is not an overnight thing. You don’t move a factory overnight. You don’t sign a new trade deal overnight. You need to get pipelines in place. You need to get ports in place. And so, it’s a gradual process but I think we will emerge more resilient out the other end.

Matthew Peck: But that itself, though, wouldn’t that be an inflationary force, though, in a sense? I mean, that has to be a headwind-tailwind, you know what I mean? Like, that has to be now pushing us more towards inflation because of the fact that we’re not trying the most efficient supply chain, the most resilient supply chain, which might have higher labor costs.

Andrew Opdyke: Yes. It very well could. If you go from producing in China to producing in France, it’s higher labor costs, higher input costs. It’s probably higher energy costs. So, yes, it is a bit inflationary. I’m not looking for this to be something that keeps inflation in a 4%, 5%, 6% range but I think if we were looking at 1% to 1.5%, maybe we’re looking at 1.5% to 2%. We’re going to see other groups emerging, though. India, you mentioned some of the stuff from like the population side, China, Japan, even in the U.S. to a degree. We’ve been moving a bit down on the population side. You’ve got other places like India where the population is – they’re actually going to be expected to overtake China here in the not-too-distant future. And one of the biggest things that I think people forget, right, is you go back, let’s say 50 years ago, go back to about 1970 and across the world, the percentage of adults that could read that were literate in the world was less than 50%. And it always had been. Throughout the history of humankind, less than half the world’s adult population could read. As we got into the 70s, 80s, 90s, we start to see this major shift.

And today we’ve got about 90% of adults globally can read. And what we’ve seen is technology bringing access to places like India, to places like Bangladesh, where kids are getting better schooling and they’re able to stand on the shoulders of giants. They’re able to learn from what others have figured out, tried, and failed in the past. And I think that is an incredibly powerful momentum driver for global growth. I don’t know if the cure for cancer is going to come from the US or China or Japan. It very well may come from India, Bangladesh, somewhere in Africa, but the world will end up being better off for it. So, there is this counterbalancing factor. There’s the things that are making things more expensive and building that resiliency has its cost. But there’s also innovation and technology that’s driving from the other side. And we’re constantly looking for ways to do it better, faster, cheaper, with fewer resources. And to a large degree, you look at something like agriculture. You go back, let’s go 70, 80 years in the past. A much larger proportion of U.S. citizens were in agriculture. Why? Because we needed to produce that much food to survive but as the technology came along and we went from 40 bushels of corn per hectare acre to 400, it freed us up to do other things.

I think we’re going to see that globally technology innovation will continue to drive us forward. That’s going to be that counterbalancing factor from an inflationary standpoint because we’re going to be doing more with less. It’s going to be cheaper. It’s going to be faster. But again, as you mentioned, it’s not an instantaneous thing. Here over the short in the next 5 to 10 years, I think it’s entirely possible inflation’s running a little higher than what we saw over the last ten years as we get through that transition period.

Matthew Peck: Well, I was going to kick that you talked about being able to stand on the shoulders of giants and whatnot. Remember, like this is whatever, I’m 43 years old. I remember kind of just growing up in the city and growing up in Boston or Dorchester and I would see all these wires and I’m like, “Oh, man, that’s a lot of wires.” But, hey, that’s what they had to do in order to get the landlines in. Everyone had wires and poles connecting all the way through. And now it’s like, okay, if you go to India or wherever, Africa, whatever that may be, it’s like, “Let’s put a tower up. We’ll put a tower up every, whatever, 10 miles, 100 miles, I don’t know, telecom.” But my point where it’s so much nicer to have these towers every once in a while and have no wires and not have to put in any of that infrastructure whatsoever.

Andrew Opdyke: Right. And the speed of Internet access they can get is incredible. I mean, it’s even happened here. I mean, think about this for a minute. 2020, we have COVID. Take 20 years before that, go back to the year 2000, we were dealing with Y2K, right? We remember Y2K when we were worried the 99 was going to turn to the 00 and the U.S. missile system might shoot off. Like, I was standing in Chicago, there was a tension in the air at midnight on 12-30-99. People are like looking around, waiting to see if the lights are going to go off.

Matthew Peck: Yeah. Or planes going to start falling from the sky.

Andrew Opdyke: Start dropping from… Now, I think about this later and I’m like, “Wait a second. Chicago is in a Central Time Zone.” You guys have done this an hour before. How did we not know this? Why were we so worried? But back in the year 2000, just 20 years ago, there were not iPhones. There were not iPads. Who did we go to if we need to replace a lighting fixture, a fan during COVID, right? And you couldn’t go to the hardware store down at the corner, where did you go? I went to Amazon. And they could deliver it the next day, two days later. Twenty years ago, Amazon was a bookstore. They were trying to compete with Barnes & Noble and Borders. And you think about that progress that happened from the year 2000 to 2020, where we entered this point where everyone was connected. Everybody’s got these devices. We had this capacity to move classrooms online. My wife is a teacher. Her fourth-grade classroom moved online. We started, we could still interact, see each other, talk to each other through the Zoom, the WebExs. You think about the progress that took place with something like Amazon from being a bookseller to getting you your order same day in a lot of occasions, that happened in 20 years.

And we forget how far we’ve come because that happens day after day, week after week, month after month, and it builds incrementally over and over. One of the hardest things as an economist and dealing with and when you think about the financial markets, everybody gets caught up in the downturns. I get it. It’s fast. It’s shocking. It’s so different. And we get caught up in the downturns but we miss this broader progress. We miss these momentum drivers that move us forward over time. And the thing is, I’ve never met anybody who’s got a crystal ball who can tell us when those downturns are going to be and exactly what the drivers are but a look back through human history 20 years, 40 years, 60 years, 80 years, the entrepreneurship, the innovation in a place like America where you have private property, you’ve got the rule of law, you’ve got a democratic system, it is an unbelievable place in the world to innovate, to build, to grow into. So, I’ve got two kids at home, a four-year-old and a seven-year-old. I have no idea what the world is going to look like for them in 20, 30 years but I can guarantee they’re going to have things I could never imagine because that’s what happened 20 years ago and that’s what happened 40 years ago.

So, I’m optimistic about where we’re going. And I think whenever we face times of adversity, we figure out new ways. And when our backs are against the wall, we fight harder. There’s going to be amazing things coming out. Think about what we’ve done on the medical technology side. We brought a vaccine to market in less than a year, and now we’ve got these technologies that we’re starting to use to try to figure out, can we use it for cancer? Can we use it for X, Y, Z? There’s incredible advancements that got us through this time period but now we keep them and now we can build on those into the future. So, those are the counterbalancing factors and pessimism reigns supreme. Negativity reigns supreme. You turn on the TV, you turn on the radio, you open up the newspaper. It’s always negative because it sells advertising. We hate uncertainty. And so, when they bring uncertainty, when they highlight it, it keeps the eyes glued to the screen. But the pessimism is not what’s moved us forward. It’s the opposite side of that equation that doesn’t get the love that it deserves but it’s what keeps progressing us into the future. And I don’t think that’s changed.

Matthew Peck: Well, unfortunately, I am going to ask you, though, to look into your crystal ball. You said you didn’t have one but I want to ask about sort of the…

Andrew Opdyke: I’ve got one but it doesn’t work.

Matthew Peck: I couldn’t agree with you more in regards to that, the optimism. Optimism, I guess is boring or it doesn’t have the media fascination that pessimism does. And doom and gloom sells. I know that much. But because we were talking about the uncertainty of the situation, I mean, even to go back to an earlier part of our conversation, the uncertainty with quantitative tightening and as the Federal Reserve lowers its balance sheet and different things like that. But there certainly is a wide variety of how is this going to play out. Obviously, a wide variety of uncertainty. So, are you guys projecting a recession? And if so, when? Because it’s like, a, will there be a recession and, b, how deep of a recession? Or is a soft landing still possible as the loans become more expensive? And I guess how does this play out in the short term?

Andrew Opdyke: Yeah. So, I’m going to give you my view here over the next two years. And that’s what I’ll consider the short term. Is a soft landing possible? It’s possible, but it’s incredibly difficult. And I’ll tell you, the Fed does not have the best track record at orchestrating soft landings. Usually, they find themselves behind the curve and I think that’s where they are today. I mean, remember, this is an incredible shift we’ve seen from them. At the end of last year in November into December of last year, they were forecasting one rate hike of a quarter of a percentage point for 2022. And they said, “Hey, inflation, it’s running a little high. We’ve been saying transitory.” That was their favorite word last year. They said, “We’re getting rid of the word transitory,” but their forecast for inflation this year with 2.7%. That’s where they stood at the end of last year. Now, they’re way off and they’ve acknowledged it. They said, “We were off.” Okay. So, they shifted it early in the year. They said it’s probably going to be 4.5%. Then they went up to 5.5%, 6%. They’re chasing inflation. So, the Fed right now is ramping up and this is what we want them to do.

Inflation is an incredibly degrading thing. What it does is it eats away the purchasing power of every dollar that we’ve saved for retirement, every dollar that we’ve invested in the past, it’s worth less with inflation. So, this should be their number one priority. Now, the question is, when do they get too tight? When do they get to the point where the rates are so high, it stops business investment, it stops purchases? We’re not there yet and I don’t think we’re going to get there this year. In fact, I think the US economy, it’s moderating while this is going on and the markets are having a heck of a time dealing with this massive shift in the Fed’s outlook. Okay. I think next year we’re going to reach a point where they’ve kind of reached that tightening, 4%, 5% on the federal funds rate. Is that rate where I think we’re going to start seeing that tightening hit the economy? And I think we could see I think it’s likely that in the second half of next year, in the first half of 2024, we see a recession. But this is not going to be a debt crisis like we saw with the financial crisis. It’s not a debt crisis, an issue like we saw, let’s say, during the Great Depression. There’s differences in recessions. They’re not all built the same. Some are deeper, more severe. Some are less severe. I would look at this as more of a 1991-type recession. Unemployment moves higher but it’s not a 6, 7-point jump. It’s 1% to 2%.

The consumer is in phenomenal shape right now and businesses are actually in phenomenal shape. They have more cash on the balance sheet. They have higher income relative to the loans that they need to service. You listen to the bank earnings calls from here in the second quarter that are coming in and consistently, whether it’s JP Morgan, Citibank, Bank of America, Wells Fargo, they keep saying, “Look, our consumers are in about the best shape that we’ve ever seen.” They are able to handle what’s going on right now, but timing will have its impact. So, I expect a moderate recession and I expect that to come later next year. Could it be avoided? Yes, but it’s going to be difficult because of how far they already are at dealing with inflation. They’ve denied it for so long that by the time they acknowledged, inflation was already over 7% and there’s so much pressure that built up that money that kept entering the system, you needed to stop the flow before you could deal with digesting everything that’s already come in.

Matthew Peck: And so, at the end of the day, then, do you think inflation and recession are going to go hand in hand in the sense that with inflation, they will hit their 2% target again. However, a recession will be part of that package, and then there’ll be a whole new world at that stage but at least, we’ll move on from the post-COVID. There’ll be neo-post-COVID or whatever it might be at that point, but is that kind of how you see it that stage or the stage ending?

Andrew Opdyke: Yeah. That essentially. They tighten to the point where the money supply, the new growth in money has stopped. We digest what came through but in order for them to get to that point where it’s totally stopped, they raise rates enough, they throw us into a recession. It’s essentially a reset. And at that point, moving forward, the environment from an inflationary standpoint, from a money standpoint, from a banking standpoint looks a lot more like it did pre-COVID than it has over the last 18 to 24 months. And then we can focus on the fundamentals. We can focus on those longer-term drivers, not on all of these fluctuations, the uncertainty about getting things back to normal. And that’s what everybody’s worried about. How do we get back to normal? Because we did such extraordinary things. We did truly unprecedented things and unprecedented gets used too much. That phrase gets used too much I believe like pre-COVID. Unprecedented doesn’t mean it rarely happens. It means it never happens. And we really saw some unprecedented things during COVID, and now we’re figuring out how do we get things back in balance. But once that balance is there, we reset, we get back to fundamentals, we move forward.

Matthew Peck: That’s great. Andrew, thank you so much. And it’s interesting enough. We’ll kind of end on that note because I have been telling people very, very some of the things where we had to go through this. I mean, we had to tear off the Band-Aid. Could it have been done better? Yes. Now, what’s it, Monday morning quarterbacking here. I mean, Monday morning, Federal Reserve being at the stage. So, yeah, I do. But all joking aside, I do believe that, as you were saying too, that they took their eye off the ball because they thought they had inflation squashed or had been a non-issue for so long. But that being said, after the unprecedented steps that they took, and I love how you put it that way, it doesn’t mean it doesn’t happen rare. It means like it never happens. But we had to go through it and we had to get back to that balance. And the normal market dynamics had to return. No one likes going through it. And as I said, it could have been handled better but, obviously, I think some of the geopolitical and the conflicts in Russia didn’t help things either to say the least.

But still nonetheless, thank you so much. Again, I really, really appreciate you coming on the show and just providing the guidance. Hopefully, you’ll come on again so we can bore as well as interest our listeners that much more because I’m sure we can talk on and on about this but I really appreciate you coming on and thanks again.

Andrew Opdyke: Matt, thank you so much for having me.