Spring is here, which has us in a cheery mood as we wash the pollen off our cars and enjoy some wonderful weather. We hope this season brings you all of the excitement associated with renewal, and none of the allergies!

With another quarter of data in hand, the US consumer and overall economy are proving somewhat resistant to the Federal Reserve’s best efforts to tamp them down. Employment remains historically strong, wages continue increasing, and many households are not affected by higher mortgage rates – nearly 80% of us have mortgage rates below 5%. So consumers are still spending, especially on services and experiences that they enjoy. In response, many businesses continue to grow and invest for their future and are able to pass along price increases to customers with relative ease. Taken together, these forces are inflationary and provide some explanation for inflation that is staying stubbornly higher than the Fed wants. This leads us to possibly the only bad news about an economy that is thriving despite climbing interest rates: the climb (or at least the plateau) isn’t over.

In December, Federal Reserve officials signaled that their attention had turned to reducing interest rates in 2024 with inflation easing and risks to the economy if they kept interest rates higher for longer. Just a few short months later, their tone has changed again to signal an intent to keep rates higher for longer because inflation is proving stubborn and the economy appears able to handle current rates without slowing. The market’s expectations for Fed actions have adjusted dramatically in that time. As of January 1, 2024, the market consensus was that the Fed would cut rates 7 times in 2024. As of April 23^rd, 2024, not even four months later, the market’s highest probability is that the Fed will cut rates only once this year (the September meeting is the likeliest time frame according to these projections). This illustrates just how quickly conditions are changing in the market. We believe this volatility will continue with each month’s inflation and economic data, which will result in quick changes to interest rates on everything from mortgages to deposits. These changes, however, are not likely to be massive each time they move. We expect smaller, more frequent interest rate changes that add up to a general picture of one statement: the Federal Reserve is likely to cut rates in the coming months. When that process starts and how quickly it will continue are the main questions.

With so much focus on interest rates, it can be easy to lose sight of good news. The economy is growing. Unemployment is low. Businesses are profitable. Consumers are consuming (we can argue how much consumption is good, but it certainly drives much of the economy). Nowhere are these things more true than in the Southeast, in the markets we call home and care deeply about. We are grateful to serve these communities and you. Together, we partner to create more opportunities for people, each one of whom is a friend, loved one, neighbor, fellow-church-pew-sitter, or any other kind of connection. This is the power of community and of a bank whose mission is to Impact Lives. Thank you for partnering with us to strengthen one another!

by Cal Hurst, President