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The Clearing Horizon: 2024 Economic Update

Market Updates
A woman looking out over the horizon at sunset.

2024 – let’s go! Our Southern First team is entering the year with gratitude for a great holiday season and excitement about what is to come. Here’s hoping you and your loved ones are feeling the same.

Maybe the best way to describe the current economic environment is “a clearing horizon?” We see a few clouds lifting in terms of inflation, interest rates, and the economic path forward, but none are full of clear blue sky just yet and the storm is still hovering in certain areas. (Maybe I should have been a weatherman like my grandmother suggested after all!) Let’s look a bit closer at several consistent themes from the past year, which continue today but are changing as we speak.

The Fed’s battle against inflation rages on, but its most recent meeting just a few short weeks ago brought some important changes. The language, tone, and predictions put forward by the Fed in December noted a shift towards possible rate decreases in mid-2024. This is the first time the Fed itself has signaled such a move and it was cheered loudly by markets and consumers. Inflation and employment data are still stubbornly above their targets so the path to cutting rates is not fully in place yet, but the Fed’s inclusion of that possibility is noteworthy. We see it as an important marker and encourage our clients to begin imagining a world where interest rates begin to migrate downward, and the impact this has on your family and business. Planning for a continued “higher for longer” environment, but with interest rate cuts starting later this year, seems prudent and aligns with how we are managing our own efforts.

We see interesting possibilities for a “soft landing” ahead as the economy continues growing nicely but with inflation levels coming down slowly. If this path continues, we all will have pulled off a fairly amazing feat of navigating from a pandemic, to the highest inflation in decades, to the fastest pace of interest rate increases ever, and potentially to a nice landing spot. The risks to this outcome include some notable global activities and the possible impacts on our economy. Currently, militant activities in critical shipping routes threaten to disrupt supply chains, which brings back memories of the COVID-induced supply strains and the inflation they helped create. Ongoing wars in Ukraine and Gaza, and the already-seen possibilities of escalation into broader wars, could impact our economy in material ways. We are also in an election year involving the most countries simultaneously in decades, which in the current political environment can create pronounced economic swings in many countries. There are too many variables here to form any clear predictions so we maintain a view of more normalized movements but are watching all of these factors closely.

However the macroeconomic picture shakes out, we believe the local and regional picture matters most, and could be more pronounced than in previous cycles given demographic trends within the US. As a former colleague used to say, “If you want to know how the most important part of the economy is doing, drive around your own town and pay attention to what you see.” Our Southeastern markets continue to benefit from people moving in, business friendly setups, job creation, and wealth building. Mortgage rates have decreased in recent months so housing activity is poised to pick up. We feel that the Southeast US economic picture is encouraging as we begin 2024 and expect to see continued strength, even if other areas struggle a bit more at times.

We send our very best wishes for a healthy and prosperous 2024 to you and your loved ones, and look forward to the privilege of serving you this year!

by Cal Hurst, President

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