Financial Partners CU hosted its 6th Annual Economic Forum this week, spotlighting a forecast, presentation, and expert commentary on whether the economy is entering a recession, the potential cure for inflation, and other hot topics on the minds of senior management teams at credit unions and local businesses.

“Since our first economic forum in 2017, it has continued to grow and attract local business and government leaders throughout Southern California,” said CEO Nader Moghaddam. “In addition to diving deep into the issues that are pivotal for the current economic recovery, the forum ignites important conversations and collaboration that will move the communities we serve forward.”

The forum took place at one of the credit union’s offices in Costa Mesa, CA and featured a special presentation by Dr. Chris Thornberg, founder of Beacon Economics, followed by a lively question-and-answer session and discussion among attendees. You can view the presentation slides, or watch the entire recording here.

“Are we heading into a recession? Not a chance,” Thornberg said. “The only thing that could possibly cause a recession in 2023 is if the Federal Reserve continues to go down the path of raising interest rates even more than they currently project right now.”

Thornberg said the best medicine for today’s inflation is to “let inflation burn out on its own.” Inflation, he argues, would’ve died with no Fed intervention within the span of a few years. Instead, rampant fear about consumer and business cost pressures have been thrust into the American mindset through short-sighted economic viewpoints, talking pundits, and 24-7 news media chatter and exaggeration, he said.

“Inflation, eventually, is its own cure,” Thornberg said. “Higher money supply eventually gets absorbed.”

What supports his theory? The fact that consumers continue living off of some of the highest savings/deposit rates in history, a hot job market, significant wage increases, and the fact that the shock to the U.S. economy during the COVID-19 pandemic was all “supply-side related, not demand,” he said. Congressional fiscal stimulus and relief spending, combined with monetary easing by the Fed, amounted to $6.5 trillion over the past two years, which made the U.S. government go even deeper into debt.

In fact, Thornberg thinks the Fed should have never began hiking its benchmark short-term federal funds interest rate earlier this year from zero to the anticipated and projected 4 – 4.5 percent range by December 2022. Instead, the Fed should only be focusing on reversing course within the financial markets by selling holdings of long-term U.S. Treasury debt (treasury notes and bonds) and mortgage-backed securities, also known as quantitative tightening (the opposite of quantitative easing, or bond purchases, during both the pandemic recession and its aftermath).

“But it’s too late now, and banks and credit unions will be sensitive to these rate hikes if the Fed continues,” Thornberg said. “The Fed is creating a lot of pain in small portions of the economy. Exactly ‘how’ you put the brakes on the economy is important. And the way the Fed is doing it is stupid in relative comparison to how it originally accelerated the economy. They used a rocket thruster to get the economy going, only to try slowing it down with bicycle brakes.”

Other opinions and insights from his presentation include the following:

• Right now, “it’s not the end of the world” when it comes to the economy and the residential real estate market. “The housing market is not going to collapse like it did in 2008.”
• However, there will be “pain points” for the lending industry going forward. How credit unions and banks navigate this pain is going to be complicated over the next couple of years.
• Nonetheless, consumer demand is still noticeably strong. It will continue moving the economy forward over the next 12 months.
• The real issue facing the U.S. economy over the long term is the federal government’s annual federal deficit, combined with its total outstanding debt. “We’ve borrowed a total of $60,000 for every single person in this country since the year 2000, and $20,000 of this amount was just over the past two years. Nobody in Washington, D.C. seems to care about it. Debt doesn’t matter to financial markets — until it does. And it could get ugly very quickly when it starts to matter. Will that happen anytime soon? Probably not. But these are large outstanding long-run issues that are not sustainable that nobody is talking about. Out there, somewhere on the horizon, is an enormous fiscal challenge.”
  
  

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