Why Banks Should Anticipate a Return of the ‘Roaring ’20s’
No one can predict when or how severe the next U.S. economic recession will be, but current economic factors do not indicate drastic changes in the behavior of consumers and businesses. Favorable factors could spur the 2020s to an economic burst similar to the 1920s.
By Neil Stanley
It may be that decades from now, when people mention "the roaring 20s," they won’t necessarily be talking about the 1920s. Data suggests the U.S. economy may soon merit that title. For banking executives, it means they should begin planning now for a seemingly unlikely economic path.
Inflation, employment, demographics, and credit capacity suggest strong economic growth for the United States. Yet, the Federal Funds rate projections from the nineteen Federal Open Market Committee members (as of September 2024) showed rates declining in 2025 relative to 2024 and continuing downward during the following years. Executives should zoom out from today’s news from the FOMC and instead consider the broader economic data.
Inflation and unemployment data tell one story. Does the Fed Fund’s trajectory tell a consistent story? Which is it: Will inflation decline, allowing rates to continue on a downward trajectory? Or will the economy continue to show strength to the point of heating up again?
I’m not predicting what will or won’t happen. Still, banking executives must acknowledge the data, the Fed’s projections, and potential disparities between them so their organizations can prepare. Right now, there’s good reason to forecast strong economics.
Rates Higher for Longer
Relative to the period between the Great Recession and 2022, interest rates will likely remain higher for longer in 2025 when the Fed pursues the dual mandate of maximum employment and price stability. These data points now sit at levels consistent with a booming economy. The median effective Fed Funds rate since 1960 is 4.64%. Are today’s rates high or close to "normal?"
Did you know core inflation is now at the same level as in 1972, just before it skyrocketed to double-digits for nearly a decade? Nothing in the current Consumer Price Index indicates inflation has been defeated. In fact, in November 2024, when looking at the monthly compounded annual rate of change, CPI reached the highest figures since April, which is in line with the levels seen throughout 2023. And it’s not just CPI that’s trending upwards; all four major inflation indices have risen together.
Inflation: Rising Month to Month

Source: St. Louis Federal Reserve
Jobs data tells the same story. Job openings remain at lev19bieels above 2019 before the return from the pandemic caused unprecedented growth. Unemployment also remains near historic lows for this century.
Job Openings: Still High, Excluding Post-Pandemic Years

Source: St. Louis Federal Reserve
Yes, past Fed’s dot plots suggest a slow decline in the target rate. If these inflation and jobs market indicators remain unchanged, lower rates may combine with an accommodative policy from the new administration to propel growth the country has not seen for some time.
Unemployment: Low by Historical Standards

Source: St. Louis Federal Reserve
The Demographic Difference
Demographics add to the rosier perspective on employment. According to the U.S. Census Bureau, the number of Baby Boomers (those born between 1946 and 1964) turning 65 will peak in 2025. Between 2025 and 2030, all Baby Boomers will be age 65 and over; afterward, the growth in the older population as a percentage of the overall population is projected to slow. Their exit from the labor force will create a greater demand for jobs for younger demographics.
According to The Mortgage Note, Baby Boomers aged 60 and older makeup two-thirds of the homeowners who no longer owe money on their homes. According to the National Association of Realtors, some 26% of home buyers—a record number—are paying cash for their homes.
Americans have roughly $156 trillion in net worth, according to Nasdaq. Half that wealth ($78.1 trillion) belongs to the baby boomers.
What does all this mean for the economy? How might it affect monetary policy and interest rates?
Baby Boomers have half the wealth and represent the largest cohort of mortgage-free homeowners. They do not need to borrow to participate in the economy as consumers. And, as they retire onto their pensions, retirement capital, and social security, they will not need a job to contribute to the economy. Those who have money are unlikely to have their spending habits changed by a recession or higher interest rates. That means even much higher rates may not curb consumption or cool rising prices should inflation begin to rise again.
The pending wealth transfer will set records and affect where savings sit, likely in unprecedented ways. If you’re young, how do you invest capital? Do you keep it safe and growing at 4% or less in a bank? Or do you put into the stock market with a horizon of 30 years to generate an average 12% return per year? The next generation will also have more aggressive spending habits with their wealth. Think of what that could do to the level of economic activity. What could it mean for the volume of deposit funds available to financial institutions at interest rates materially below fed funds?
High Capacity to Lend
Since the 2008 financial crisis, the loan-to-deposit ratio of all banks has declined from 91.6% in the second quarter of 2008 to 64.2% in the same quarter in 2024. Credit unions’ loans-to-shares ratio was 84% as of the second quarter and has steadily risen since 2011. (2011 is the earliest data available from the National Credit Union Administration.)
During the pandemic, bank loan-to-deposit ratios bottomed out at 56%. We’ve seen loan growth go up since then, but we’re far from what the industry has had in the past.
What does this all mean for the U.S. economy? Banks and credit unions can lend relative to their deposit bases. Creditworthy borrowers will find institutions ready and willing to generate economic activity supported by healthy credit availability.
Anticipating a Strong Economy
For banking executives, the distinct possibility that we will not see steadily declining Fed funds rates should be top of mind because they could be looking at a higher cost of funds either way.
If rates continue declining, the Fed incentivizes loan refinancing and additional borrowing as consumers and businesses respond to more affordable debt. If loan demand increases, so does the need for funding. In an industry where each institution’s funding base is different, those banks with loan demand will have the need and the capacity to pay for deposit acquisition from other institutions.
If inflation drives rates higher, non-maturing deposits can leave immediately, and non-maturing deposits are banks’ largest deposit category, representing $10.6 trillion of the banks’ $17.5 trillion in domestic deposits. An industry assumption might be that we’ve come through the worst of high rates, and now we can reprice money markets and savings accounts down.
Savers, however, will have learned a lesson if their savings account rate declined during the fall of 2024: non-maturing deposits reprice. Banking institutions may face a different reality than expected if they plan to lower rates parallel with Fed Funds when they did not raise their rates in sync with Fed Funds. They may find lowering rates now opens the door to deposit attrition of currently profitable funding. They would be doubling down on the game of chicken they were already playing with their sleeping deposit bases.
Each of the conditions I’ve outlined suggests a roaring U.S. economy is quite possible and could result in significantly different challenges than executives now anticipate. Executives should consider measures to address each of these potential outcomes now.
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