Tom Fitzgerald Explains How the Fed Actually Works and the Economic Terms Every Banker Needs to Understand

Intro: Helping Community Bankers grow themselves, their team, and their profits. This is The Community Bank Podcast.

Caleb Stevens: Well, hey everybody, and welcome to episode 80 of the Community Bank Podcast. I’m your host for the day, Caleb Stevens and I am joined by Tom Fitzgerald. Tom, can you believe this is episode 80 of the podcast?

Tom Fitzgerald: I cannot, I almost fell out of my chair when I heard that 80. Wow. That is great.

Caleb Stevens: Well, to commemorate the 80th podcast. This is a historic show because for the first time ever. Tom, you are the guest and you are on the hot seat, and I get to grill you with questions today. So, I am pumped for this episode.

Tom Fitzgerald: I bet you are. I’m a little nervous too, by the way, being a guest.

Caleb Stevens: Well, for folks that don’t know a little bit about your own background. One of the biggest contributions you make to this show is you bring a wealth of economic knowledge. You host our podcast with Joe Keating, you provide a market update, you talk a lot about the bond portfolio with our fixed income folks. Give us a little bit of your own personal backstory in terms of how you really sort of came upon the banking side of things, economic side of things, and why is it interesting to you?

Tom Fitzgerald: Well, it started out on the, on the banking side as a CFO controller for small community bank, one in Florida, and then one here in Atlanta. Then from there just gravitated to the running the portfolio enjoyed that portfolio management aspect. Then that sort of led me to the other side to Morgan Keegan got onto the, kind of the analytics research area of portfolio management, and then found my way back to Atlanta. Then just kind of gradually gravitated into more of taking on that, understanding the macroeconomic drivers of what was driving rates, what was driving the economy. Trying to learn as much as I could about that, and trying to explain that, or write about that to fellow community bankers to kind of give them an insight as to. I know how is like to run your bank or at least run that part of the investment side of the bank and the balance sheet management and then try to tie into that aspects that I see in the economy that could bear on your bank’s operations and earnings over the next quarters or years. And so that’s kind of how it’s sort of been going over the years as to where I am today.

Caleb Stevens: One of the first things that hit me when I first got into the banking industry is I did not realize how closely tied our industry is to things going on in the broader economy. I didn’t know much about the Federal Reserve. I didn’t know much about I’d taken macroeconomics a little bit in college and in high school, but really didn’t have a great perspective on how banking, the fed, the economy. It’s all one system that’s interconnection interdependent, and you’ve really helped me connect the dots in that arena and that’s been really helpful, but still, I’ve got a ton of questions about the mechanics of how it all works and my guess is there’s a lot of folks listening who are in one specific side of banking, maybe they’re a lender. And so, every day they’re waking up thinking about how can I meet a new business owner and help that individual with their business needs, help them have a loan, get their deposits, yada yada. There’s folks who work on the operation sides of banking, and maybe there’s even executives who know the basics of how the fed works and the fed fund rate and the discount window and a lot of the basics, but really don’t have a firm grasp on the mechanics of how the fed works.

And when they read these economic reports that you put out, even what some of the metrics that you look at and you measure, what they are, and what they mean. So, I just felt like what we can do today. Let’s take maybe the first half and let’s cover three economic terms that Tom, you write about a lot kind of define them and then help us think through why do they matter for community banking? Why are they important? And maybe what are some misconceptions of about them? And then I’ve got a few questions on the fed and the economy and interest rates. So, we can maybe go over together and for the folks listening, if these sound silly and uneducated, I apologize, because maybe that’s probably a reflection on me, but I hope, and my guess is that some of them maybe you’ve wondered as well too. So, this is a no dumb question podcast, and Tom, I think you’re going to kind of help me and our listeners clarify some of these things. So, first, let’s start with retail sales versus personal income spending. That’s two metrics that you look at quite frequently, retail sales versus personal income I’m spending. You make a distinction that those are not the same things, but they’re both important metrics. Talk about those two things.

Tom Fitzgerald: That’s correct because there’s, obviously with our economy, it’s two-thirds based on consumer consumption. So, you really want to understand if you understand what’s going on there, then you’ve figured out a good chunk of the economy so far. And so, certainly one of the great distinctions between the two reports, retail sales, and the personal income and spending number. The retail sales number is not adjusted for inflation and so that number you’re seeing like the today as we record this, the latest retail numbers came out and they were up, much larger than expected, which is a good thing. That means the retail that the consumer is out there spending. The report was negative in December. And so, with the Alb variant, running through, there was some concern, this was going to continue in January, but that did not happen.

The increase in spending was a little bit above, expect a lot above expectations and it was also of obviously very, it’ll be a nice boost to first-quarter GDP when that comes out. But getting back to that question that you have to keep in mind before when we were dealing with inflation under 2%, it wasn’t a big deal to say the retail sales was just not inflation-adjusted, but when you’re dealing with seven and 8% inflation, some of that boost in sales is just really reflective of higher prices. Not that they were selling more of whatever items. So, it’s a, you’re…

Caleb Stevens: Just spending more on the same amount of quantity.

Tom Fitzgerald: Yeah. Instead of you used to fill up your tank for 30 bucks and now it’s costing you 50. Well, you spent 20 more dollars in gas. Well, you’ve got the same amount of gas, and so it’s just something to be aware of, especially in this environment of higher inflation that, that retail sales number’s going to be. It can be a little bit misleading in the case of its projecting more sales than there probably really are. It’s just in part, it’s reflecting higher prices. Now the personal income and spending report, which comes out a couple of weeks later, typically couple differences there on the, just the focus on the spending side, it is inflation-adjusted. And so, it’s going to give you kind of a, a look at what is that consumer spending kind of on fixed at a fixed dollar.

I think it’s 2012 is the dollar, that they’re using right now. And so, it gives you sort of a better feel kind of factors out that inflation aspect. It also takes in more services of the economy. The retail sales is more heavily into the good side of the economy. And so, as we shift, we’re seeing a shifting kind of away from just total goods purchases, which was sort of how we came out of the pandemic. And so, it’s kind of shifting more towards goods and more or services. And so that personal spending number probably picks that up better. And so I think if it’s me trying to choose between the two, I would lean on that personal income and spending number just because of those two factors, it’s inflation-adjusted and it picks up more of the services side of the economy.

Caleb Stevens: The first experience I ever had learning about inflation, I was in high school and I looked up on Wikipedia, the list of the highest-grossing films of all time, and I saw the list and at the time I think maybe at the movie avatar or something was number one and Titanic was up there and then below that was a list, a justed for inflation and it was staggering the difference. Staggering and I don’t remember what movie was at the top. It may have been the original Star Wars back in 78 or whatever. It may have been gone with the wind. It wasn’t even close and I just, it really hit me, my goodness, how much the value of a single dollar has changed over the past several decades.

Tom Fitzgerald: Especially, you go back to the most listeners are familiar with Paul Volker and what he had to do to kind of get his wrestle inflation to the ground. But you to dealing with double-digit almost 18 to 20% fed funds rates to get inflation down and you CPI was running double digits as well. It’s like you said, it doesn’t take long for that to erode quickly the value of a dollar, and so, those higher prices reflected in sales shows you one thing, but you kind of discount it back down to a fixed dollar amount. It’s it could be a completely different story.

Caleb Stevens: Okay. So, retail sales versus personal income and spending, you’re saying maybe focus more on the personal income and spending, measurement. Second thing that we want to talk about is GDP. A lot of people, I mean, we hear this term all the time. GDP grew GDP shrink a recession is two consecutive quarters of negative GDP. I think we don’t often know exactly what that means. You hear the term, it’s the value of all goods and services produced in a year. I think that’s the technical term. Tell me if I’m wrong, but talk about how we sometimes misread what GDP means?

Tom Fitzgerald: Yeah. There’s a couple of things that go into it that people sometimes don’t realize its gross domestic products. So, it’s a measure of production, it’s not a measure of sales per se. And so, this past quarter, the fourth quarter of 2221 was a good example because you had a big increase in an inventory. So, inventory companies were sort of trying to stock up and replace before all heard of the shortages out there, they had sort of a reprieve that the consumers sort of stepped back a bit in November, in December. So, they had a chance to kind of restock inventories well that added to GDP for the fourth quarter, but those products or whatever they are sitting on the shelves are going to get moved eventually to a buyer. If they don’t get moved, then you’re going to come to a quarter where those companies say, we’re going to stop inventory restocking.

We’ve got enough inventory to last for so long. And so, that inventory is typically what you see is you see a big influx of inventory the next quarter or the quarter after that, you see a reversal of that. And so, like I said, it was a real driver of the fourth-quarter increase in GDP that came in above expectations, but it’s probably going to be a reversal in that in the next quarter or two as that inventory is plentifully stocked. And they’ll say, well, just let that run off through sales, and depending on how quick that happens you could have a negative inventory stocking number one quarter. And so that obviously is going to be negatively impacting GDP now, and this first quarter we’re looking at just over, I think 1% is the sort of the consensus, GDP number and I think Atlanta fed has it even under 1%. So, you’re already, I think seeing part of that as the reason is inventory number’s going to probably going to reverse, and that is going to be part of why we see a sort of a mediocre, if not less report coming in the first core order,

Caleb Stevens: It seems like the reports that I read GDP is often put in terms of an annualized basis and I’ve always sort of wondered why is it presented that way? Because it’s I would think we can’t assume it’s going to continue at that rate for a year. So, why are we presenting in as if it is, or if it will, why don’t we just do the quarter-to-quarter number and I’ve heard, and it could be wrong on this, but I’ve heard in Europe, it’s not annualized? Typically, you do see it on more of a quarter-to-quarter basis. Whereas in the United States, we tend to do an annualized figure. You have any insight into why that is, or maybe I’m just needing to catch up with the times?

Tom Fitzgerald: I’m not sure why, why that is, but you’re right. Some countries in Europe just reported as a, whatever that quarterly growth figure was and don’t annualize it, and typically that hasn’t been an issue for us. I mean because you tend to think in annual increments anyway. So, I think it was probably just an attempt to take that quarterly increase or decrease and annualize it just so you have an idea, okay, we’re growing at 3% a year versus 3% a quarter or 1% a quarter. What does that typically someone’s going to ask, what does that mean for the year?

Caleb Stevens: We tend to think in terms of years as it is.

Tom Fitzgerald: Yeah. The problem is when we came out of that lockdown, you had these huge numbers that just totally absurd 30% GDP I think what was it the third quarter of, of 20? And so that annualization of a quarterly increase into an annual just gave you absurd numbers in the market. I think just pretty much ignored those numbers because you just can’t make sense of them.

Caleb Stevens: Well, the last metric that we want to cover on the economic portion of this show is CPI versus PCE, two metrics you hear often in economic reports, you hear it on the news, talk about CPI, PCE. What are those two metrics? How are they defined and what are the key differences?

Tom Fitzgerald: Right. Well, on CPI, I think most people are familiar with CPI, but basically, it’s a consumer price index and it’s a basket of goods and services, and mostly goods though and it’s kind of fixed those weights that they give each item are fixed from one month the next. So, that number is kind of what you see, it gets a lot of the publicity, it gets tied into the annual cost of living increases for social security payments and a lot of other things. The PCE, Personal Consumption Expenditures Index is really what the fed focuses on, and they look at that, I think for a couple of different reasons over the CPI, even though they certainly do look at CPI. I think when they’re, issuing their quarterly economic outlooks they don’t issue a C P I forecast, they issue a PCE forecast, both overall and core. And so, core being, just taking out energy and food as being a little bit more volatile to the index. So, they’re trying to get kind of back to a, more of a steady-state trend, is it going up, or is it going down right now? We know it’s going up. The difference in PCE is the two differences between CPI, the biggest difference is one, is it carries a little bit more services side of the economy. So, again kind of going back to that personal income and spending report, we think that’s important just because the economy, I think is 65% services. So, if you’re excluding a big chunk of like the CPI does it’s can be it’s problematic in the overall calculation where PCE does pick up that service aside a little bit better and also, it’s what we call dynamic in that if there’s a price increase in something, the index is going to assume that there’s being that the consumer’s going to buy less of it. And so, we were using the example of gas, you know if it takes $40 to fill up your tank, and now it’s going to take 60. Maybe you still buy 40, but you’ve gotten less gas just because that’s your budget for what you’re going to spend on gas.

Caleb Stevens: So, that means I’m traveling a little bit less, maybe spending less on other things that would necessitate a trip in my car somewhere.

Tom Fitzgerald: Maybe not going on those weekend junk just because I don’t have the money to pay for that full tank of gas as much as I did a year ago. So, it kind of captures some, be consumer behavior as a result of higher prices and again, there going back a couple of years there, wasn’t a big difference between CPI and PCE, as far as what the numbers we’re telling you, but it probably will be when we’re in these era of seven and eight, 9% type inflation readings on a year, over year basis. And so, I think it just kind of important to keep in mind some of those distinctions that the fed focuses more on PCE. And those were some of the reasons why they do that.

Caleb Stevens: From your vantage point. What metrics do you look at when you’re writing your economic reports? And I think this is a good segue into if you haven’t signed up for Tom’s report, he puts out a great report on a weekly basis, really highlighting all the things going on in the economy and why they’re relevant to you as a community banker. But Tom, as you’re writing your own reports, what metrics do you about in terms of here are the key things I need to communicate to the banks out there?

Tom Fitzgerald: Well, I think all these that we’ve talked about today are certainly on that list, and I think two we haven’t mentioned the jobs report, that’s obviously a key measure of what’s going on in the economy as far as jobs, and I think not only that headline jobs number and the unemployment rate that everybody gets in the first 30 seconds of the report being released but also the hourly earnings numbers that come out of the jobs report because I think you’re seeing an increase in that number. I think when you look at the annualized figures, you’re looking at four and a half, 5% type wage gains, which is historically very high. And these were levels, the fed initially one would’ve loved to have seen a three or 4% wage gain because there was that period of time, we’re only getting one or 2% annualized wage gains. And so, we’ve kind of moved quickly from those lower-level wage gains into something that they fear can drive that wage-price spiral that wages are going up, the consumer can spend more and he’s going to demand more. And that raises the suppliers he’s got more demand. He can raise his prices.

Caleb Stevens: An inflation in a vortex.

Tom Fitzgerald: Yeah. And it just kind of, it’s kind of just continues. I don’t think 20, 30, 40 years ago you had that issue and that was something that Volker was fighting when he was going through his rate-raising campaign. But you also had what we don’t have today, you don’t have a huge union base that can negotiate these four or five or 6% type annual price hikes in the contracts of their workers. I think it’s less than 10% now of unionized labor. So, you’re still going to see some wage gains, kind of I impacting the inflation story, but I don’t know that it’s going to be as impactful as it was say in that last, that 30, 40 years ago when you had a larger unionized base that could really drive wages pretty quickly, to a higher level and so, the one other report that I would look at in that regard is called the ECI or employment cost index and it really takes in all of the wage comps, it takes in your benefits increases. It takes in bounces salaries, even your taxes that you’re paying to the federal and state authorities. So, it encompasses a kind of the broadest look at wages and it’s probably, it’s been running too in upwards of over 4% rate and it’s moving higher. And so, the fed that’s one a report. I think the Fed’s going to keep an eye on primarily is it moving too fast and becoming a threat to that wage-price spiral that we talked about now, if we start to see that level off, I think that’s an indication, okay. The fed is probably getting what it wants from that side of the equation and start maybe thinking about tapering down on some of those rate hikes.

Caleb Stevens: Well, that’s a good transition into kind of part two here, talking about the fed. We’ve all heard of the last several months, there’s a number of rate increases projected for this year expected this year. So, let’s dive into that a little bit when the fed, let’s say this next month here in March, when it sounds like we may be getting the first potentially the first-rate hike, what is the fed actually doing when it raises rates or lowers rates? Like, I think we all know the purpose of why the fed funds rate is set, where it’s set. The Fed’s dual mandate, stable prices, full employment. I think we all kind of intuitively get that, but mechanically, what is the fed doing to influence that target overnight?

Tom Fitzgerald: Well, it’s getting into the plumbing of the…

Caleb Stevens: Let’s get into the plumbing…

Tom Fitzgerald: Of the banking business.

Caleb Stevens: I think let’s get into the pipes.

Tom Fitzgerald: And well basically they were work through the New York fed has a trading desk and you can think of it as being on wall street, but it works out of the New York fed, and you have, I don’t know how many primary dealers there are, but you have primary dealers, like your JP Morgan and so forth who have to do contractually have to be a primary dealer, you have to do business with the government. So, if the fed says, okay, we’re going to raise rates right now, we’re sort of in the zero to 25 basis points, let’s say they, March meeting comes, we’re going to raise that to 25 to 50. So, they’re going to try to move that fed funds rate, they can’t just snap their finger in it, move what they want to do and it’s think of it as supply and demand. There’s these reserves out there or dollars that are at the primary dealers and, and they can be kind of the fed can drain some of that, so that the supply of those dollars comes down and the demand from the banks that need, that need to borrow fed on for reserve ratios and so forth, or just for liquidity purposes, they’re going to have to pay more because those dollars are…

Caleb Stevens: Less reserves on hand.

Tom Fitzgerald: Yeah. And so, they, how drain, how does that happen? Well, the fed will buy from the primary dealer or security or something, and then that dollar will go away. So, it’s you’ve got a whole branch at the federal reserves and certainly in New York that that’s all they do is sort of dig into that plumbing aspect of it. And so, but just kind of think of it as those dollars as being a supply and how you get price is upon anything in supply. You kind of make it less available. And so, you just kind of pull those reserves back in onto the feds balance sheet and so then it becomes not available to the banking community at large.

Caleb Stevens: This may be getting into some of the Caleb silly questions here, but why would I want to be a primary dealer? I guess there’s an incentive for me, even though, hey, you may come back to me and buy my securities back. Why would I want to engage with you kind of on the front end? I would imagine there’s a lot of upsides in terms of having first access to securities or kind of walk me through the primary dealers and what’s the benefit to them?

Tom Fitzgerald: And I think I misspoke earlier. I think I said that they would buy from the primary dealer to what they would do is sell some securities to the primary dealer that dealer would send them, reserves.

Caleb Stevens: Send them cash.

Tom Fitzgerald: Currency, and so that money’s coming now out of their books onto the fed’s books. And so, they’ve basically, and this is part of the other, the thing is the fed wants to shrink their balance sheet. So, obviously moving just what they’re doing is moving it from a security line item to a cash line item. So, they haven’t changed the balance sheet, but they have removed those reserves from the general populace as you could think of it and what was that other question that you had?

Caleb Stevens: Well, why would I want to be a primary dealer what’s in it for me if you may come back at any time and buy my security back, or I’ve got to give you cash. I mean, what’s the, I would imagine there’s a lot of incentive to be a primary dealer.

Tom Fitzgerald: Right. And it’s a very, I guess, prestigious type position to hold where you’re kind of a trusted partner of the government. And so, they can take that and play that up to potential customers on their end, as the government trusts us enough to handle their business. Why shouldn’t you and there’s advantages too, of just being, they can kind of get first look advantage of what the fed is doing, and then use that as a piece of what they’re going to be doing in their own strategies and so they get to see sort of on a ground-level view. It’s not like they’re trading on inside information, but they get to see information kind of as quickly as it is communicated and you get a sense of talking to the fed officials that you get that feeling of which way things you’re going to go and so you get a like I said, did you kind of get a you’re sort of in tune better with…

Caleb Stevens: You’re an insider?

Tom Fitzgerald: Yeah. You’re in tune better than somebody who’s not a primary dealer. But I think the biggest thing is just that prestige factor of you’re a trusted partner of the government and so that certainly carries a lot of prestige in dealing with your other custom.

Caleb Stevens: How is this different than the term you often hear QE Quantitative Easing? Is that the same? Are these two things related? How does setting the fed funds target rate and QE? How do those go together?

Tom Fitzgerald: Well, and that’s kind of a, it’s a good question because right now they’re talking about ending, well, they are ending QE, and then it’s a question of, okay, we’re…

Caleb Stevens: That’s the tapering when folks hear about, oh, the Fed’s ending is a bond-buying program. It’s going to taper it off. That’s the QE we’re talking about.

Tom Fitzgerald: Yeah. And we went from just a round number. We went from about a $4 trillion fed balance sheet to over 8 trillion during the course of the pandemic and that basically was buying Treasuries and buying mortgage backs in order to prop up the economy prop up.

Caleb Stevens: So, we’re handing out the government’s handing out cash vets in out cash.

Tom Fitzgerald: And then buy getting those securities and that’s why you had banks just to wash with liquidity because they were selling securities to the fed whole that in hopes of that would keep mortgage rates low, would keep other market rates low because they were buying the security, creating less supply out there and so now we’re to the point where they’re slowly stopping those purchases. So, they’re not adding to the balance sheet as much as they were, and then at some point after March, and I’ve heard it talked about maybe in July, when they’ve got a few rate hikes on the books that they’ll actually start to let the portfolio run-off and maybe not actively sell securities, but start to let just the maturities and prepayments on mortgages start to run off. And so, you’ll get the shrinking of the balance sheet that way now.

So, what that would do, we’ve talked about you and you may have questions on inverted yield curves, but what the market has done is already priced in that the Fed’s going to be moving, let’s say six or seven rate hikes this year. That’s pretty much priced into the treasury curve and what that has done is pushed short rates up. The long end hasn’t backed up is backed up some, but not to the degree the short rates have. So, you flatten the yield curve with the short, what you call a bearish flattener. The short end has come up and so there’s concern on the fed. They don’t ever want to just drive the yield curve into an inversion, but if they were, were to need more rate hikes that would be a possibility. So, the other way of they’ve talked about is what they would be doing as tightening policy is increasing that runoff on the, we call it instead of quantitative easing as quantitative tightening because you’re letting that those balances runoff and so that may put a little bit more yield in the back end of the curve and sort of prevent an inversion of that curve as they continue to move to the later stages of their hiking.

Caleb Stevens: Yeah. And I guess I misspoke earlier. I said it was QE, I guess it’s really quantitative tightening in this case when you’re trying to influence the rising of interest rates.

Tom Fitzgerald: Yeah. If they’re trying to, and that’s right. If they’re afraid that they don’t want to hike us into an inverted yield curve because longer ends, oh, they’re, that’s what they’re going to do. That’s going to bring a recession. So, they have those long-end yields have a tendency not to back up, but if you’re selling or letting bonds roll-off, that should keep a little bit more yield on the backend and prevent that run-in inversion.

Caleb Stevens: And so, when the fed I guess this would be more QE, but when the fed is buying bonds and giving somebody else cash, are they buying those bonds from these same primary dealers mortgage, all these securities of fed is buying and giving cash. When we were lowering rates over the past couple years during COVID the feds buying bonds, giving somebody else cash, how is that different than what we talked about earlier with the setting the target fed funds rate the QE versus setting the right? Are those two distinct things or are they basically accomplishing the same thing? I don’t if that question makes any sense?

Tom Fitzgerald: Well, they were on the QE part, they had specifically laid out parameters that were going to be buying this dollar amount of treasuries, and then they would lay out within that the kind of the maturity range they would be buying, and same thing on the mortgages. They would kind of layout, we’re buying a set amount and we’re going to be buying say two and a half percent coupon, 30 years, new production. So, it was a pretty detailed, this is what we want to buy and then they would go to the primary dealers and start to make those purchases now from the fed funds perspective, I think it’s just, they’re trying to get reserves out of the banking system. So, it’s a matter of we’ll just sell, sell you probably, I don’t know. It could be T-bills, it’s probably something very short that kind of just removes, it just removes some of the reserves from the system.

Caleb Stevens: You did mention Yield Curve. One stat you hear often is anytime there’s an Inverted Yield Curve recessions on the way. What’s your sort of take on that? Is that just sort of an old saying or myth, is that truly a leading indicator of economic and economic recession on the horizon or is it more of a self-fulfilling prophecy of, oh, no yield curve’s inverted and everyone just sort of tightens up and pulls back and production shrinks from there.

Tom Fitzgerald: It’s I tend to lean on more as a more of a self-fulfilling prophecy that you see that, you’ve heard everybody heard that every recession is preceded by an inverted yield curve. And so, if they see one that, oh, no recessions around the corner and like you said, and then that sort of you just everybody hunkers down and then that sort of brings on a recession just because of the fact that everybody’s sort of scared to do anything, with that inverted yield curve. And that’s part of the reason why the fed does not want to get into that situation just because that there’s that history and there, so you can certainly point to recessions and look at the Yield Curve and see how they tend to lead to inverted yield curve does lead to a recession, but I tend to think it’s more that self-fulfilling prophecy than it is a general. It truly creates this pressure on the economy and forces a recession. Now, when you do have short-term rates that we’re, less than 1%, and now you’re at three or four there’s going to be slowing inactivity because of that but there’s enough activity to generate a recession I’m not sure, but I think it could be 60, 40 self-fulfilling and 40% there is a direct imp impact and also, it’s very for banks, particularly inverted Yield Curve is just, it’s tough to make any money. So, you’ve got profit picture dims, and then that slows them down as far as wanting to make loans to do any kind of expansion, and so when you’ve got a big chunk of the financial part of the economy, starting to feel the effects of that inverted yield curve, it does have implications in the real-world economy.

Caleb Stevens: Well, if folks are not subscribed to your update and they want to kind of learn a little bit more about what you do and what you put out. How can they sign up for your update?

Tom Fitzgerald: Well, you can just send me an email to my tFitzgerald@southstatebank.com and I’ll be happy to get you enrolled and would love to have some more readers.

Caleb Stevens: Last question. This is kind of off the wall, but how is an economist, graded from a performance standpoint, because you’re just always so sort of making predictions, offering council, offering advice if you’re a sales guy or a lender, it’s like, did you hit your quota or not basically one of the key metrics if you’re an economist we’ve often joked before and I think this is probably a common saying that our listeners have heard before economists and whether men are the only folks that can be wrong most of the time and still have a very stable job and do their careers for a long time. How do you sort of think about what makes an effective economist effective or ineffective?

Tom Fitzgerald: Well, I just think being able to sort of take what you’re seeing in the economy and then projecting what you see going forward now. That’s part of why I got into it was like, I used to be an accountant, so you were either right or wrong being an accountant.

Caleb Stevens: So, much more gray.

Tom Fitzgerald: It’s either footing or it’s not footing and you got to get it to foot at some point. But so, here, you sort of have a lot of squishy zones around it, but, and certainly, when you go through a pandemic, everybody can say, well, it’s a pandemic. I who’s been through one, anybody lived through the Spanish flu. So, I sort of just take comfort in not comfort, but just try to pride myself that if I do make a call, that it does have some, at least some rational basis to it. We’re not always going to if a guy hits 300 is going to make the hall of fame and that’s, I hope I have a better batting average than in economics, but you’re certainly not going to a bit at bat a thousand that’s for sure.

Caleb Stevens: Well, and I think too, one of the benefits that at least I’ve seen is it’s not necessarily, hey guys, here’s, what’s going to happen, it’s hey guys, here are the things to be paying attention to over the next several months. I, as you think about how you make decisions for your bank, here are some things to keep in mind as we go forward, and here are some trends you may be coming on the horizon.

Tom Fitzgerald: And I would just say kind of to I guess, wrap it up in that thought that again, kind of going back to the idea that the consumer is two-thirds of our economy. And so, we if you can kind of keep track of what he’s doing or he’s or she’s doing, you’ve got a real good feel for how the economy as a whole is going to do. And I think one of the things that’s kind of worrying me right now is that you’re seeing these consumers, sentiment numbers really at very low levels. I mean, levels going back to the great recession in 2008. And so, people are at least expressing the thought that they feel pretty lousy about obviously about inflation, maybe about the pandemic going into the third year about kind of the political and geopolitical situations that we, and so to date, obviously that January retail sales number was strong. So, it’s not impacting their propensity to go out and spend money. But if it persists like that, I would think at some point it will that there will be a point where they say, I’m just not feeling comfortable at all. I’m not going to spend now like I said, we’re not there yet. They tend to have talked themselves into feeling bad, but that hadn’t stopped them from spending. But at some point, I think that might shift and that’s something to be on the lookout for.

Caleb Stevens: Could be a leading indicator of a trend to come.

Tom Fitzgerald: Or confidence could come back and then just sort of, they pick up where they left off.

Caleb Stevens: If inflation normalizes.

Tom Fitzgerald: They start to see some improvement inflation that the COVID numbers are continuing to receive. Then you could see that rebound and that then we just have this next stair step of consumer spending because of that. So, it’s a key to me to kind of, I think to that, I’m going to be looking at over the next several months.

Caleb Stevens: Well, folks go out and sign up for Tom’s and we appreciate you all listening, Tom, thank you for letting me ask you economics and federal reserve questions for dummies and I hope this was beneficial to our listeners and if not, this will probably be the last show we do on this, and we’ll make sure there’s an expert in my seat. Next time.

Tom Fitzgerald: I’ll go back to the hosting side again, right?

Caleb Stevens: Yeah. There you go. All right. Thanks, Tom.

Tom Fitzgerald: Thanks, Caleb.