April 2, 2025 • 21 mins
As economic conditions shift, financial institutions must adapt their lending strategies to balance growth, risk, and liquidity. A "Slow and Grow " approach is emerging as a sustainable way to navigate today’s market while expanding financial services.
This week, host Lynn Sautter Beal welcomes Joseph Mayans, Chief Economist at Experian North America, to discuss the key economic drivers impacting lending in 2025 live at the CBA conference. They dive into the current state of the economy, including inflation, policy uncertainties and the evolving global landscape. Plus, they explore new lending opportunities in the auto and small business sectors and offeractionable insights on how lenders can remain adaptable to thrive in the coming years.
Join us as we discuss:
This week, host Lynn Sautter Beal welcomes Joseph Mayans, Chief Economist at Experian North America, to discuss the key economic drivers impacting lending in 2025 live at the CBA conference. They dive into the current state of the economy, including inflation, policy uncertainties and the evolving global landscape. Plus, they explore new lending opportunities in the auto and small business sectors and offeractionable insights on how lenders can remain adaptable to thrive in the coming years.
Join us as we discuss:
- How inflation and policy changes will impact lending strategies
- The future of auto and small business lending opportunities
- Navigating economic uncertainty while balancing growth and risk
- Expert strategies to stay adaptable in a rapidly shifting market
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Hi everyone, and welcome to Leaders in Lending. I am
Lynn Saarbiel, and I'm joining you today from CBA Live
with Joseph Mainz from Experience. Joseph, do you want to
talk a little bit about your background and your role
as chief Economists Experience.
Speaker 2 (00:18):
Yeah, thank you, Lynn, and thank you for having me back.
So yeah, I'm the chief Economists i Experience North America.
So just roughly what I do. I spend probably about
seventy percent of my time doing external work with our
clients and our partners. Give a lot of presentation speak
with probably one hundred and twenty organizations a year, all
(00:39):
across is kind of the financial system ecosystem, from the
largest banks to fintech's credit unions. I also spend the
rest of my time I report up to the North
America Strategy Team, and so I also do a lot
of work working internally with our strategic finance, our finance team,
strategy team, thinking about kind of those major pivots in
the economy that may be material for our business as well.
Speaker 3 (01:01):
Well.
Speaker 1 (01:01):
Great, well, I know we did this conversation last year,
so it's great to have you have you back on
the podcast. I think you know heading into into your end,
felt that the economy was maybe a little more resilient
than expected and that you know, term recession concerns were
starting to ease. But now I think we're we're certainly
seeing some more uncertainty increase, and especially with different things
(01:23):
going on in the world. So what indicators are you
watching that could signal shifts as we kind of move
into twenty twenty five.
Speaker 3 (01:30):
Yeah, so I think there's a couple of things.
Speaker 2 (01:32):
So you're absolutely right when we you know, coming out
of twenty twenty four, the economy really had had solid momentum.
You know, overall economic activity was doing really well, labor
market pretty solid, spending pretty solid. But you know, there
were some trends and I can talk about them in
a little bit, there were some trends that gave some
(01:53):
kind of a heads up that we may be entering
a little bit of a slower period. And then on
top of that, then we got hit with all Now
we have a lot of obviously policy uncertainty coming out
of DC. Some of that exactly, you know, kind of
further perpetuate some of the slowing trends that we did see.
Speaker 3 (02:09):
But overall, you're right, solid momentum.
Speaker 2 (02:11):
So what I'm really looking at right now, you know,
I think there's a couple of ways to think about it.
So top of mind for me at the moment is
everything that's going on with trade in tariff policy, and
so really I think about it as you know, kind
of affecting two different channels. When you have the kind
of the inflationary aspect, the impact that it's going to
(02:32):
have on the FED, I think, you know, we can
hit on that too, But definitely I think higher tariffs
are likely to lead to higher prices. One of the
questions is how long and how persistent you know that
those price changes may be. But either way, it's probably
going to cause the FED to be more cautious in
the short run. But what I'm honestly a little more
concerned at the moment is kind of the uncertainty that
(02:56):
this is driving in the broader economy, especially for things
like business investment and consumer spending. So that's actually a
segment that I'm a little more concerned about at the
moment than even the inflationary impacts.
Speaker 1 (03:07):
Yeah, you do you think, you know, going into kind
of what we're seeing, this persistent inflation and higher for
longer rates. Do you think the FED has really the
right tools to kind of balance the growth and stability, Like,
do they have enough kind of dry powder do influence
according to their mandate?
Speaker 3 (03:25):
So the FED is stuck.
Speaker 2 (03:27):
They're stuck in a little bit between a rock and
a hard place at the moment, just because you know,
and inflation was already proving to be more stubborn than
they would like to see even coming into the end
of twenty twenty four, and now you look at the tariffs. Definitely,
if it doesn't drive inflation, highers at least going to
keep inflation where it is, which is above the Fed's target.
Speaker 3 (03:50):
I think for longer. I think the FED does have tools.
Speaker 2 (03:53):
Obviously, they have room in the federal funds rate to
drop it phiry substantially if they if they need to.
But it's definitely going to be a challenge, and I
do think that this year they may have to make
that choice if push comes to shove, what are you
going to support You're going to try to make sure
you keep inflation inder control, or you're going to try
(04:14):
to support the labor market. My personal view is that
they they'll support the labor market.
Speaker 1 (04:19):
So interesting, Yeah, I think that, you know, the certainly
policy uncertainty and political changes are having a big impact.
And I'm a big Twitter fan and write a fan
as well, and I think everyone's an expert on tariffs
right now after being experts and other things earlier this year.
So you know, as you think about building forecasts for
(04:41):
twenty twenty five, with so much uncertainty happening, and particularly
like regulatory uncertainty and policy uncertainty, how do you think
about factoring that into your forecasts of what you are
projecting in it experience?
Speaker 2 (04:54):
Yeah, so you know, it is very difficult at the
moment when you look at kind of of the I
don't think you can just pick out one policy aspect
at a time when it's just tariffs or immigration or
spending cuts or you know, tax cuts or deregulation.
Speaker 3 (05:09):
It's really the package deal. But how I am thinking
about it is you have the short run impacts. So
you know, we have tariffs, we're.
Speaker 2 (05:18):
Having, you know, shifts in immigration policy, You're having you know,
federal government layoffs, you have some some spending cutbacks, and
so I think I think about really in the short
term those things are very those things way heavy in
the next six to twelve months, and then I think
the tax cuts and the the deregulation, those impacts will
probably come later. So really, when I'm looking at the forecast,
(05:40):
I'm looking at that tariffs, you know, job cuts, those
things in the short run, and I think if you
look at the short run, it's it's clear that it's
likely going to weigh on growth, likely going to weigh
on the labor markets.
Speaker 3 (05:53):
And I do think that that's.
Speaker 2 (05:56):
One reason why you know, the market in general, if
you you know, if you go back to December, the
FED was projecting two rate cuts this year. I actually
think that's a pretty good baseline. I know, recently there's
been kind of a split, you know, some economists saying, oh, look,
we got it. The Fed's gonna be very focused on
the inflationary picture because the tariff's going to keep them.
Speaker 3 (06:17):
Cautious for longer.
Speaker 2 (06:18):
We may get one cut, we may get no cuts.
On the other side of the thing, you look at,
you know, market pricing of rate cuts this year.
Speaker 3 (06:24):
Now they're up to maybe like three cuts.
Speaker 2 (06:26):
My general view at the moment is if we look
at that, we think about kind of the near term risks.
You know, if I were to take a bet whether
the Fed's going to cut more than twice or less
than twice. I think they may cut more than twice
this year, and we can talk about maybe in a
little bit, but some of the with the weaknesses and
I think in the labor market that may may be
showing up more readily for them.
Speaker 1 (06:45):
Yeah, that's definitely. It's going to be an interesting, interesting time.
And you know, every time I guess is unprecedented. But
you know, I think the one thing we've seen though
is consumer spending has remained pretty strong, and even though
we've seen some dips and consumer confidence, you see spending
is and reflecting that, Like what do you what do
you think is driving that? And do you think with
some of the changes to federal employees, cuts to federal agencies,
(07:07):
do you think that that's going to then trickle down
into really how consumers are spending their dollars.
Speaker 2 (07:14):
Yeah, so I think there's a there's a couple of
things there when I think about the strength of the consumer.
So I've been generally and when I joined you last time,
I've been more optimistic over the past couple of years
than most economists, and that's just because I had you know,
conviction that the consumer was both able and willing to
(07:35):
continue to spend. But some of those dynamics that that
drove me to that conviction have really been kind of
fading over the past year.
Speaker 3 (07:44):
So one of one of the.
Speaker 2 (07:45):
Biggest drivers, you know, twenty twenty three, early twenty twenty four,
really strong personal income growth when adjusted for inflation, rising
at a solid pace. That is really that was really
sort of spending. What you've really seen over especially the
back half of twenty twenty four is a softening an
(08:06):
overall income growth.
Speaker 3 (08:08):
So it's now.
Speaker 2 (08:09):
Running below the average that you saw prior to the pandemic,
which now gives me some pause that you know how,
I do think consumers will spend this year, but I
don't think they'll have the quite as much ability to
do so.
Speaker 3 (08:21):
But what you did see, though.
Speaker 2 (08:23):
In spite of even having incomes kind of fade a
little bit into the back of the year, you did
see spending growth remain very robust, honestly, And I think,
what so this is kind of the second piece. One
is that again, like I said, the income I think
is softening a little more concerned about that. But the
other piece is you have to think why was it
that consumers were willing to, even in the face of
(08:46):
their income growth softening a bit, they kept up spending growth. Actually,
spending growth really was very solid through twenty twenty four,
and spending growth.
Speaker 3 (08:55):
Was rising faster than income growth. You can't have that
happen forever. But the question is why that happen.
Speaker 2 (09:01):
My view, it has very much to do with the
you know, the net worth impact we've seen over the
past couple of years. You know, your your home value
goes up forty percent, your form K goes up forty percent,
you feel more comfortable spending a.
Speaker 3 (09:13):
Larger portion of your income every month.
Speaker 2 (09:15):
But what we've seen recently, and I think especially since
the you know, whether you want to call this a
new trade war and extension of the prior trade war,
but either way, all this uncertainty, you've definitely seen more
of an impact. I think the sp five hundred entered
a correction, and I think you're you're seeing more people
probably cognizant now, well, maybe those things that have supported
my spending of the past two years, maybe they're not
(09:36):
doing so well. Maybe I may be cut back a
little more now.
Speaker 1 (09:38):
Yeah, I think that's probably a good a good point
that if you if you think you're going to make
more next year, and if you keep seeing your investment
balances go up, you may feel a little more confident,
like yes I'll book that trip, Yes I'll buy that thing,
Yes I'll start this home improvement project. So you know,
as you think about then how that relates to lending,
the credit environment, credit markets. I think we may have
talked last year a little bit about real estate, and
(10:01):
you know, rates had been super low for so long,
and so this idea that people weren't going to, you know, move,
you're not going to sell and walk away from a
three percent or two percent mortgage, and that people were
going to do more home improvements. And so now that
rates have increased rather substantially and seemed to be pretty
sticky both on the on the mortgage side, where do
(10:23):
you see the opportunities maybe for lending or the credit markets,
or what may be the kind of products or asset
classes that are coming into favor in the current environment.
Speaker 2 (10:32):
Yeah, I think it's kind of interesting because, like we
mentioned earlier, like the economy really came into twenty twenty
five in a good place, and I think you can
generally say that as well when looking at the credit environment.
So you know you had seen really over the past
since you know, late twenty twenty two, lending standards has
tightened very substantially. Interest rates were high, but coming into
(10:53):
the back end of twenty twenty four, you know, lending
sentans were generally, at least for banks and the broader
market were still tighting, but not tightly nearly.
Speaker 3 (11:03):
At the pace.
Speaker 2 (11:03):
And you did see some You did see some loosening,
you know, large banks loosening, and autos you sell some
loosening helocks. And I think what you can see like
the pickup in lending and FinTechs. You know, we don't
have an exact measure of linding standard tightness for FinTechs
like we do with banks when the Senior Loan Off
Survey comes out, but fintech's generally tightened lending standards earlier.
(11:24):
I think maybe got a head of some of their
delinquencies earlier. I mean I was listening to you, like
I said, your earnings call. I think your CFO said
peak defaultiness was early twenty twenty four, and that's what
I hear from most most FinTechs. So I think coming
into the back end of twenty twenty four, the credit
environment was stabilizing into where you had more people, more
market participants, starting thinking maybe I can step my toes
(11:46):
in the water a little bit here Now as we
enter twenty twenty five, obviously the uncertainty is challenging. But
what I do think about some opportunities. You know, obviously
there's there's a fog of uncertainty, so there's risk this
year for sure. But when I think about opportunities, I
think about some of the constraints that some lending segments have. Like,
for instance, you can see it in the lending data
(12:08):
of credit unions. You know, early on credit unions and
during the pandemic, you know, they're big auto lender, made
a lot of auto loans. Some of those auto loans
are not performing I think as well as they expected,
and so credit unions have pulled back from the auto
lending space. We can see in our origination data. You
can see it in the balance sheets of credit unions,
(12:28):
and so that constraint started. Findex have started moving to auto.
They're not huge in there, but they're starting to move in.
And like I said earlier, big banks have it loosened.
I think maybe three quarters in a row, lending standards
for autos maybe moving a little more in there. So
I think about opportunities like that, but using that kind
of framework that some constraints that happened during the pandemic
(12:48):
may open the door to other entrants. This year, I
think about the same thing with business lending. So my
general view this year is that the uncertainty may be
most impactful to business lending. And the reason why I
say that is if you look in the twenty eighteen
(13:08):
twenty nineteen period, research shows that the rise and trade
uncertainty caused banks to pull back from lending, not just
to those firms that were impacted by tariffs, like, obviously
you're going to be cautious if your manufacturer that you
do business away with now their input costs on by
fifty percent, are they going to be able to survive?
(13:30):
Not only cautious there, but they raise interest rates. So
it kind of basically in essence, just reduced the supply
of lending that they were doing, but also businesses themselves
pull back out of caution. But anyway, so banks pulled
back in twenty seventeen, twenty eighteen, twenty nineteen because.
Speaker 3 (13:47):
Of the prior trade war. Uncertainty now is higher than
it was then. But the other thing is that banks
during the pandemic era, when had all these deposits they
didn't really have, they didn't know what to do with them,
and so they bought a lot of longer dad securities,
you know, a lot of mortgage backed securities, you know,
tenue treasuries, those kind of things. As interest rates have
risen in recent years, right the bond value goes down,
(14:10):
and so now they have large kind of unrealized losses
on their balance sheets. A lot of regional banks are
still working through some of the commercial real estate portfolios
that aren't performing really well, and so those constraints they're
not like, I don't necessarily think them and themselves are
not a risk at the moment. As long as interests,
it's more of a function of interest rates. As long
(14:31):
as interest rates remain high, it causes though a little
bit of I don't know, additional caution on the balance sheet.
Researcher does show that large unrealized losses, you know, other
concerns on the balance sheet will cause institutions to pull
back from lending or at least remain extra cautious in
an environment of uncertainty, which is what you have now
you so you have higher uncertainty to you now you
(14:53):
have some of these balance she challenges at banks that
may make them extra cautious. At the same time, business
loan delinquent see is rising quite a bit faster than
consumer delinquency, which again I think will cause that a
little bit of a pullback.
Speaker 2 (15:07):
But what that means in terms of opportunity is so
like right now, we were creating you know, north of
four hundred thousand. Uh we have north of four hundred
thousand new business starts or filings every month prior to
the pandemic is like two hundred and eight thousand, So
a significant more new businesses are being created, and many
of them are very young businesses. And so that when
(15:28):
I think about opportunities FinTechs, I think FinTechs are moving
more into that space you lend, you know, have a
lot of technology, a lot of data to lend to
those kind of thin file new businesses. So I think, like,
when I think about opportunities, I think about that where
are some maybe market participants who has some constraints coming
into this year may hold back be more cautious and
what does that open the door for.
Speaker 3 (15:48):
Other market segments?
Speaker 1 (15:50):
Now? I think that you know, we did a a
kind of small pilot into the small business lending space
kind of early in the pandemic, and then for a
variety of market reasons, decided to suspend that for a
period and and have not had reopened our business lending.
But we are seeing growth in in the auto space, uh,
(16:10):
in the auto business, particularly in REFI at the moment,
you know, certainly as you're talking about that as just
thinking about just the sher complexity of the global environment
and the even the political and economic environment just in
the US, and as you think about you know, the
maybe the regional banks, the community banks, the smaller lenders,
and the credit unions, you know what, how do you know,
(16:33):
what what would you suggest they do to to think
about just all of these different levers that are moving
in the market, and how to think about managing their
portfolios and managing their business strategy, Like how how can
they be at least most effective in understanding what may
be happening out there and how it relates to their business.
(16:54):
I think it's certainly a challenge, and so I don't
know if there's a great answer.
Speaker 2 (16:56):
Yeah, I don't know if if there's there's definitely not
a one size fits all. You know, when you start
zooming into community banks and you know, credit those those
organizations to operate more regionally, you know, those are very
much Obviously there's a lot of different shifts happening right now,
and I think, no doubt labor market is key to watch,
but especially regentally, Like if you operate in the DC market,
(17:18):
you're gonna have a little more stress now or are
those markets that have large concentrations of uh, federal employees.
Speaker 3 (17:24):
That's that's definitely something to watch. Yeah.
Speaker 1 (17:26):
So you know, we talked a little bit about fintech
and the opportunities for for FinTechs to kind of come
into some of the spaces. You know, I think it
is true that you know, and I've said this as
somebody who used to work in banking before I worked
in fintech, you you don't get fired for uh not
taking risk in a bank. Uh that's it's a safe
place to be unless you're on the trading side, and
(17:48):
then then you could potentially lose your job for not
taking risk. But you are incentivized to be more more
risk averse, and on the fintech side you can be
a little more uh more forward. Are there any other
kind of technological in or maybe even changing consumer behaviors
that you think that banks need to monitor closely as
they're going into twenty twenty.
Speaker 3 (18:09):
Five, Well, one area, I do think.
Speaker 2 (18:13):
So one dynamic that's playing out in the economy right
now is that really over the last year is you've
seen one just a general weakness in hiring. So the
overall hires rate is very low, and outside of the pandemic,
it's near a decade low, and that just means that
the labor market is.
Speaker 3 (18:34):
Not fast to absorb people who are looking for work.
Speaker 2 (18:36):
So whether you get laid off or you're coming off
the sidelines looking for work, whether you're graduating college and
now you're looking for work, so on and so forth,
and that lack of absorption is actually the cause of
most of the rise and overall unemployment, not necessarily layoffs.
So when I think about technological change, I think specifically
(18:59):
this dynamic, this low hiring rate is also happening a
lot in the white collar, higher income segments. So you
can see in the higher rate for those kind of industries.
You can see it in people with bachelor's degree who are
moving from unemployed to employ That rate is very, very low,
and so it's okay if you have a job, not
(19:19):
so great if you're looking for a job. So when
I think technological advancement, I think about things like, Okay,
what's going to play out in AI? How are companies
going to take this up? And then my general view
this year is that we could see the hiring rate
remain generally fairly low this year, and then you have
companies who are cautious about the environment, maybe saying, hey,
instead of hiring the software engineer, let's see what we
(19:41):
can do with AI here, and that perpetuates I think
that could perpetuate a kind of labor market that's not
great at absorbing people.
Speaker 3 (19:48):
But that's problem.
Speaker 2 (19:49):
That's one reason why I do think the FED may
cut more than twice this year, because they realize that
an environment that the labor market's not absorbing workers very quickly,
that a large pick the layoffs could result in a
very fast uptick in unemployment.
Speaker 1 (20:03):
No, I think, and we certainly see that. You know,
in the teams that I manage, not that we are
you know, we we can hire, and we are hiring
as a company, but we're also saying, how can we
use AI to be better and more efficient, more scalable
the things that we're doing, and we're you know, I'm
implementing a couple different AI solutions and how we do
diligence and how we do B to B customer support
(20:26):
as we think about accelerating both the self serve capabilities,
the accuracy, the efficiency and scalability. So I think that's
definitely playing out across not just technology companies, but but
a lot of kind of more legacy businesses that don't
just want to keep keep growing on the on headcount. So,
(20:47):
you know, as we look through into twenty twenty five,
you know, we're already a quarter in to the year,
so we've got three quarters left. You know, what what
piece of advice would you offer to either lenders financial
institutions to think about navigating what's ahead this year?
Speaker 2 (21:03):
Yeah, I mean I think this year in particular, all
I would say and is the advice that I try
to take myself all the time, which is stay humble
because and don't cling too strictly to your assumptions, because
I think in this kind of environment, things can change
very rapidly in one direction another, either for the negative
or for the positive.
Speaker 3 (21:23):
Even great.
Speaker 1 (21:24):
Yeah, and I think we even saw that reflected in
the questions we'd prepared for this session, where had a
much more robust Jago economy and now it's a little
more uncertainty coming into the year. Well, anyways, Joseph really
appreciate you having on the podcast again. Thanks for taking
time to share your insights with us as thank you.
Speaker 2 (21:42):
Lane
Hi everyone, and welcome to Leaders in Lending. I am
Lynn Saarbiel, and I'm joining you today from CBA Live
with Joseph Mainz from Experience. Joseph, do you want to
talk a little bit about your background and your role
as chief Economists Experience.
Speaker 2 (00:18):
Yeah, thank you, Lynn, and thank you for having me back.
So yeah, I'm the chief Economists i Experience North America.
So just roughly what I do. I spend probably about
seventy percent of my time doing external work with our
clients and our partners. Give a lot of presentation speak
with probably one hundred and twenty organizations a year, all
(00:39):
across is kind of the financial system ecosystem, from the
largest banks to fintech's credit unions. I also spend the
rest of my time I report up to the North
America Strategy Team, and so I also do a lot
of work working internally with our strategic finance, our finance team,
strategy team, thinking about kind of those major pivots in
the economy that may be material for our business as well.
Speaker 3 (01:01):
Well.
Speaker 1 (01:01):
Great, well, I know we did this conversation last year,
so it's great to have you have you back on
the podcast. I think you know heading into into your end,
felt that the economy was maybe a little more resilient
than expected and that you know, term recession concerns were
starting to ease. But now I think we're we're certainly
seeing some more uncertainty increase, and especially with different things
(01:23):
going on in the world. So what indicators are you
watching that could signal shifts as we kind of move
into twenty twenty five.
Speaker 3 (01:30):
Yeah, so I think there's a couple of things.
Speaker 2 (01:32):
So you're absolutely right when we you know, coming out
of twenty twenty four, the economy really had had solid momentum.
You know, overall economic activity was doing really well, labor
market pretty solid, spending pretty solid. But you know, there
were some trends and I can talk about them in
a little bit, there were some trends that gave some
(01:53):
kind of a heads up that we may be entering
a little bit of a slower period. And then on
top of that, then we got hit with all Now
we have a lot of obviously policy uncertainty coming out
of DC. Some of that exactly, you know, kind of
further perpetuate some of the slowing trends that we did see.
Speaker 3 (02:09):
But overall, you're right, solid momentum.
Speaker 2 (02:11):
So what I'm really looking at right now, you know,
I think there's a couple of ways to think about it.
So top of mind for me at the moment is
everything that's going on with trade in tariff policy, and
so really I think about it as you know, kind
of affecting two different channels. When you have the kind
of the inflationary aspect, the impact that it's going to
(02:32):
have on the FED, I think, you know, we can
hit on that too, But definitely I think higher tariffs
are likely to lead to higher prices. One of the
questions is how long and how persistent you know that
those price changes may be. But either way, it's probably
going to cause the FED to be more cautious in
the short run. But what I'm honestly a little more
concerned at the moment is kind of the uncertainty that
(02:56):
this is driving in the broader economy, especially for things
like business investment and consumer spending. So that's actually a
segment that I'm a little more concerned about at the
moment than even the inflationary impacts.
Speaker 1 (03:07):
Yeah, you do you think, you know, going into kind
of what we're seeing, this persistent inflation and higher for
longer rates. Do you think the FED has really the
right tools to kind of balance the growth and stability, Like,
do they have enough kind of dry powder do influence
according to their mandate?
Speaker 3 (03:25):
So the FED is stuck.
Speaker 2 (03:27):
They're stuck in a little bit between a rock and
a hard place at the moment, just because you know,
and inflation was already proving to be more stubborn than
they would like to see even coming into the end
of twenty twenty four, and now you look at the tariffs. Definitely,
if it doesn't drive inflation, highers at least going to
keep inflation where it is, which is above the Fed's target.
Speaker 3 (03:50):
I think for longer. I think the FED does have tools.
Speaker 2 (03:53):
Obviously, they have room in the federal funds rate to
drop it phiry substantially if they if they need to.
But it's definitely going to be a challenge, and I
do think that this year they may have to make
that choice if push comes to shove, what are you
going to support You're going to try to make sure
you keep inflation inder control, or you're going to try
(04:14):
to support the labor market. My personal view is that
they they'll support the labor market.
Speaker 1 (04:19):
So interesting, Yeah, I think that, you know, the certainly
policy uncertainty and political changes are having a big impact.
And I'm a big Twitter fan and write a fan
as well, and I think everyone's an expert on tariffs
right now after being experts and other things earlier this year.
So you know, as you think about building forecasts for
(04:41):
twenty twenty five, with so much uncertainty happening, and particularly
like regulatory uncertainty and policy uncertainty, how do you think
about factoring that into your forecasts of what you are
projecting in it experience?
Speaker 2 (04:54):
Yeah, so you know, it is very difficult at the
moment when you look at kind of of the I
don't think you can just pick out one policy aspect
at a time when it's just tariffs or immigration or
spending cuts or you know, tax cuts or deregulation.
Speaker 3 (05:09):
It's really the package deal. But how I am thinking
about it is you have the short run impacts. So
you know, we have tariffs, we're.
Speaker 2 (05:18):
Having, you know, shifts in immigration policy, You're having you know,
federal government layoffs, you have some some spending cutbacks, and
so I think I think about really in the short
term those things are very those things way heavy in
the next six to twelve months, and then I think
the tax cuts and the the deregulation, those impacts will
probably come later. So really, when I'm looking at the forecast,
(05:40):
I'm looking at that tariffs, you know, job cuts, those
things in the short run, and I think if you
look at the short run, it's it's clear that it's
likely going to weigh on growth, likely going to weigh
on the labor markets.
Speaker 3 (05:53):
And I do think that that's.
Speaker 2 (05:56):
One reason why you know, the market in general, if
you you know, if you go back to December, the
FED was projecting two rate cuts this year. I actually
think that's a pretty good baseline. I know, recently there's
been kind of a split, you know, some economists saying, oh, look,
we got it. The Fed's gonna be very focused on
the inflationary picture because the tariff's going to keep them.
Speaker 3 (06:17):
Cautious for longer.
Speaker 2 (06:18):
We may get one cut, we may get no cuts.
On the other side of the thing, you look at,
you know, market pricing of rate cuts this year.
Speaker 3 (06:24):
Now they're up to maybe like three cuts.
Speaker 2 (06:26):
My general view at the moment is if we look
at that, we think about kind of the near term risks.
You know, if I were to take a bet whether
the Fed's going to cut more than twice or less
than twice. I think they may cut more than twice
this year, and we can talk about maybe in a
little bit, but some of the with the weaknesses and
I think in the labor market that may may be
showing up more readily for them.
Speaker 1 (06:45):
Yeah, that's definitely. It's going to be an interesting, interesting time.
And you know, every time I guess is unprecedented. But
you know, I think the one thing we've seen though
is consumer spending has remained pretty strong, and even though
we've seen some dips and consumer confidence, you see spending
is and reflecting that, Like what do you what do
you think is driving that? And do you think with
some of the changes to federal employees, cuts to federal agencies,
(07:07):
do you think that that's going to then trickle down
into really how consumers are spending their dollars.
Speaker 2 (07:14):
Yeah, so I think there's a there's a couple of
things there when I think about the strength of the consumer.
So I've been generally and when I joined you last time,
I've been more optimistic over the past couple of years
than most economists, and that's just because I had you know,
conviction that the consumer was both able and willing to
(07:35):
continue to spend. But some of those dynamics that that
drove me to that conviction have really been kind of
fading over the past year.
Speaker 3 (07:44):
So one of one of the.
Speaker 2 (07:45):
Biggest drivers, you know, twenty twenty three, early twenty twenty four,
really strong personal income growth when adjusted for inflation, rising
at a solid pace. That is really that was really
sort of spending. What you've really seen over especially the
back half of twenty twenty four is a softening an
(08:06):
overall income growth.
Speaker 3 (08:08):
So it's now.
Speaker 2 (08:09):
Running below the average that you saw prior to the pandemic,
which now gives me some pause that you know how,
I do think consumers will spend this year, but I
don't think they'll have the quite as much ability to
do so.
Speaker 3 (08:21):
But what you did see, though.
Speaker 2 (08:23):
In spite of even having incomes kind of fade a
little bit into the back of the year, you did
see spending growth remain very robust, honestly, And I think,
what so this is kind of the second piece. One
is that again, like I said, the income I think
is softening a little more concerned about that. But the
other piece is you have to think why was it
that consumers were willing to, even in the face of
(08:46):
their income growth softening a bit, they kept up spending growth. Actually,
spending growth really was very solid through twenty twenty four,
and spending growth.
Speaker 3 (08:55):
Was rising faster than income growth. You can't have that
happen forever. But the question is why that happen.
Speaker 2 (09:01):
My view, it has very much to do with the
you know, the net worth impact we've seen over the
past couple of years. You know, your your home value
goes up forty percent, your form K goes up forty percent,
you feel more comfortable spending a.
Speaker 3 (09:13):
Larger portion of your income every month.
Speaker 2 (09:15):
But what we've seen recently, and I think especially since
the you know, whether you want to call this a
new trade war and extension of the prior trade war,
but either way, all this uncertainty, you've definitely seen more
of an impact. I think the sp five hundred entered
a correction, and I think you're you're seeing more people
probably cognizant now, well, maybe those things that have supported
my spending of the past two years, maybe they're not
(09:36):
doing so well. Maybe I may be cut back a
little more now.
Speaker 1 (09:38):
Yeah, I think that's probably a good a good point
that if you if you think you're going to make
more next year, and if you keep seeing your investment
balances go up, you may feel a little more confident,
like yes I'll book that trip, Yes I'll buy that thing,
Yes I'll start this home improvement project. So you know,
as you think about then how that relates to lending,
the credit environment, credit markets. I think we may have
talked last year a little bit about real estate, and
(10:01):
you know, rates had been super low for so long,
and so this idea that people weren't going to, you know, move,
you're not going to sell and walk away from a
three percent or two percent mortgage, and that people were
going to do more home improvements. And so now that
rates have increased rather substantially and seemed to be pretty
sticky both on the on the mortgage side, where do
(10:23):
you see the opportunities maybe for lending or the credit markets,
or what may be the kind of products or asset
classes that are coming into favor in the current environment.
Speaker 2 (10:32):
Yeah, I think it's kind of interesting because, like we
mentioned earlier, like the economy really came into twenty twenty
five in a good place, and I think you can
generally say that as well when looking at the credit environment.
So you know you had seen really over the past
since you know, late twenty twenty two, lending standards has
tightened very substantially. Interest rates were high, but coming into
(10:53):
the back end of twenty twenty four, you know, lending
sentans were generally, at least for banks and the broader
market were still tighting, but not tightly nearly.
Speaker 3 (11:03):
At the pace.
Speaker 2 (11:03):
And you did see some You did see some loosening,
you know, large banks loosening, and autos you sell some
loosening helocks. And I think what you can see like
the pickup in lending and FinTechs. You know, we don't
have an exact measure of linding standard tightness for FinTechs
like we do with banks when the Senior Loan Off
Survey comes out, but fintech's generally tightened lending standards earlier.
(11:24):
I think maybe got a head of some of their
delinquencies earlier. I mean I was listening to you, like
I said, your earnings call. I think your CFO said
peak defaultiness was early twenty twenty four, and that's what
I hear from most most FinTechs. So I think coming
into the back end of twenty twenty four, the credit
environment was stabilizing into where you had more people, more
market participants, starting thinking maybe I can step my toes
(11:46):
in the water a little bit here Now as we
enter twenty twenty five, obviously the uncertainty is challenging. But
what I do think about some opportunities. You know, obviously
there's there's a fog of uncertainty, so there's risk this
year for sure. But when I think about opportunities, I
think about some of the constraints that some lending segments have. Like,
for instance, you can see it in the lending data
(12:08):
of credit unions. You know, early on credit unions and
during the pandemic, you know, they're big auto lender, made
a lot of auto loans. Some of those auto loans
are not performing I think as well as they expected,
and so credit unions have pulled back from the auto
lending space. We can see in our origination data. You
can see it in the balance sheets of credit unions,
(12:28):
and so that constraint started. Findex have started moving to auto.
They're not huge in there, but they're starting to move in.
And like I said earlier, big banks have it loosened.
I think maybe three quarters in a row, lending standards
for autos maybe moving a little more in there. So
I think about opportunities like that, but using that kind
of framework that some constraints that happened during the pandemic
(12:48):
may open the door to other entrants. This year, I
think about the same thing with business lending. So my
general view this year is that the uncertainty may be
most impactful to business lending. And the reason why I
say that is if you look in the twenty eighteen
(13:08):
twenty nineteen period, research shows that the rise and trade
uncertainty caused banks to pull back from lending, not just
to those firms that were impacted by tariffs, like, obviously
you're going to be cautious if your manufacturer that you
do business away with now their input costs on by
fifty percent, are they going to be able to survive?
(13:30):
Not only cautious there, but they raise interest rates. So
it kind of basically in essence, just reduced the supply
of lending that they were doing, but also businesses themselves
pull back out of caution. But anyway, so banks pulled
back in twenty seventeen, twenty eighteen, twenty nineteen because.
Speaker 3 (13:47):
Of the prior trade war. Uncertainty now is higher than
it was then. But the other thing is that banks
during the pandemic era, when had all these deposits they
didn't really have, they didn't know what to do with them,
and so they bought a lot of longer dad securities,
you know, a lot of mortgage backed securities, you know,
tenue treasuries, those kind of things. As interest rates have
risen in recent years, right the bond value goes down,
(14:10):
and so now they have large kind of unrealized losses
on their balance sheets. A lot of regional banks are
still working through some of the commercial real estate portfolios
that aren't performing really well, and so those constraints they're
not like, I don't necessarily think them and themselves are
not a risk at the moment. As long as interests,
it's more of a function of interest rates. As long
(14:31):
as interest rates remain high, it causes though a little
bit of I don't know, additional caution on the balance sheet.
Researcher does show that large unrealized losses, you know, other
concerns on the balance sheet will cause institutions to pull
back from lending or at least remain extra cautious in
an environment of uncertainty, which is what you have now
you so you have higher uncertainty to you now you
(14:53):
have some of these balance she challenges at banks that
may make them extra cautious. At the same time, business
loan delinquent see is rising quite a bit faster than
consumer delinquency, which again I think will cause that a
little bit of a pullback.
Speaker 2 (15:07):
But what that means in terms of opportunity is so
like right now, we were creating you know, north of
four hundred thousand. Uh we have north of four hundred
thousand new business starts or filings every month prior to
the pandemic is like two hundred and eight thousand, So
a significant more new businesses are being created, and many
of them are very young businesses. And so that when
(15:28):
I think about opportunities FinTechs, I think FinTechs are moving
more into that space you lend, you know, have a
lot of technology, a lot of data to lend to
those kind of thin file new businesses. So I think, like,
when I think about opportunities, I think about that where
are some maybe market participants who has some constraints coming
into this year may hold back be more cautious and
what does that open the door for.
Speaker 3 (15:48):
Other market segments?
Speaker 1 (15:50):
Now? I think that you know, we did a a
kind of small pilot into the small business lending space
kind of early in the pandemic, and then for a
variety of market reasons, decided to suspend that for a
period and and have not had reopened our business lending.
But we are seeing growth in in the auto space, uh,
(16:10):
in the auto business, particularly in REFI at the moment,
you know, certainly as you're talking about that as just
thinking about just the sher complexity of the global environment
and the even the political and economic environment just in
the US, and as you think about you know, the
maybe the regional banks, the community banks, the smaller lenders,
and the credit unions, you know what, how do you know,
(16:33):
what what would you suggest they do to to think
about just all of these different levers that are moving
in the market, and how to think about managing their
portfolios and managing their business strategy, Like how how can
they be at least most effective in understanding what may
be happening out there and how it relates to their business.
(16:54):
I think it's certainly a challenge, and so I don't
know if there's a great answer.
Speaker 2 (16:56):
Yeah, I don't know if if there's there's definitely not
a one size fits all. You know, when you start
zooming into community banks and you know, credit those those
organizations to operate more regionally, you know, those are very
much Obviously there's a lot of different shifts happening right now,
and I think, no doubt labor market is key to watch,
but especially regentally, Like if you operate in the DC market,
(17:18):
you're gonna have a little more stress now or are
those markets that have large concentrations of uh, federal employees.
Speaker 3 (17:24):
That's that's definitely something to watch. Yeah.
Speaker 1 (17:26):
So you know, we talked a little bit about fintech
and the opportunities for for FinTechs to kind of come
into some of the spaces. You know, I think it
is true that you know, and I've said this as
somebody who used to work in banking before I worked
in fintech, you you don't get fired for uh not
taking risk in a bank. Uh that's it's a safe
place to be unless you're on the trading side, and
(17:48):
then then you could potentially lose your job for not
taking risk. But you are incentivized to be more more
risk averse, and on the fintech side you can be
a little more uh more forward. Are there any other
kind of technological in or maybe even changing consumer behaviors
that you think that banks need to monitor closely as
they're going into twenty twenty.
Speaker 3 (18:09):
Five, Well, one area, I do think.
Speaker 2 (18:13):
So one dynamic that's playing out in the economy right
now is that really over the last year is you've
seen one just a general weakness in hiring. So the
overall hires rate is very low, and outside of the pandemic,
it's near a decade low, and that just means that
the labor market is.
Speaker 3 (18:34):
Not fast to absorb people who are looking for work.
Speaker 2 (18:36):
So whether you get laid off or you're coming off
the sidelines looking for work, whether you're graduating college and
now you're looking for work, so on and so forth,
and that lack of absorption is actually the cause of
most of the rise and overall unemployment, not necessarily layoffs.
So when I think about technological change, I think specifically
(18:59):
this dynamic, this low hiring rate is also happening a
lot in the white collar, higher income segments. So you
can see in the higher rate for those kind of industries.
You can see it in people with bachelor's degree who are
moving from unemployed to employ That rate is very, very low,
and so it's okay if you have a job, not
(19:19):
so great if you're looking for a job. So when
I think technological advancement, I think about things like, Okay,
what's going to play out in AI? How are companies
going to take this up? And then my general view
this year is that we could see the hiring rate
remain generally fairly low this year, and then you have
companies who are cautious about the environment, maybe saying, hey,
instead of hiring the software engineer, let's see what we
(19:41):
can do with AI here, and that perpetuates I think
that could perpetuate a kind of labor market that's not
great at absorbing people.
Speaker 3 (19:48):
But that's problem.
Speaker 2 (19:49):
That's one reason why I do think the FED may
cut more than twice this year, because they realize that
an environment that the labor market's not absorbing workers very quickly,
that a large pick the layoffs could result in a
very fast uptick in unemployment.
Speaker 1 (20:03):
No, I think, and we certainly see that. You know,
in the teams that I manage, not that we are
you know, we we can hire, and we are hiring
as a company, but we're also saying, how can we
use AI to be better and more efficient, more scalable
the things that we're doing, and we're you know, I'm
implementing a couple different AI solutions and how we do
diligence and how we do B to B customer support
(20:26):
as we think about accelerating both the self serve capabilities,
the accuracy, the efficiency and scalability. So I think that's
definitely playing out across not just technology companies, but but
a lot of kind of more legacy businesses that don't
just want to keep keep growing on the on headcount. So,
(20:47):
you know, as we look through into twenty twenty five,
you know, we're already a quarter in to the year,
so we've got three quarters left. You know, what what
piece of advice would you offer to either lenders financial
institutions to think about navigating what's ahead this year?
Speaker 2 (21:03):
Yeah, I mean I think this year in particular, all
I would say and is the advice that I try
to take myself all the time, which is stay humble
because and don't cling too strictly to your assumptions, because
I think in this kind of environment, things can change
very rapidly in one direction another, either for the negative
or for the positive.
Speaker 3 (21:23):
Even great.
Speaker 1 (21:24):
Yeah, and I think we even saw that reflected in
the questions we'd prepared for this session, where had a
much more robust Jago economy and now it's a little
more uncertainty coming into the year. Well, anyways, Joseph really
appreciate you having on the podcast again. Thanks for taking
time to share your insights with us as thank you.
Speaker 2 (21:42):
Lane
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