Another great, fun, tiring, hot, and entirely too short summer is nearing an end, and our Southern First team is busy as always Impacting Lives. I hope you have seen us out in the community – check out our social media pages for great pictures of our folks helping others (and pictures of puppies. Always puppies.)

I must admit: my first draft of this Economic Update started out differently than this version. Until a couple of weeks ago, the economic headlines came at their normal pace, Federal Reserve comments dominated, and the most likely next steps were becoming clearer. Then things changed. Those stories took a backseat to the first assassination attempt on a former president or presidential candidate in a couple of generations and a sitting President dropping out of a race long after his primary election. Fair to say that the upcoming election has taken on an entirely new shape and now even further dominates most of our thinking about the next 6 months or so. I’ll do my best to briefly outline some economic direction here but with the disclaimer that, as we’ve seen over the past two weeks, things can change drastically in a moment, maybe now more than ever.

After making great progress in bringing down inflation for most of 2023, the Federal Reserve, along with the rest of us, has had to be more patient than expected as we await inflation’s next leg downward. Thankfully, the most recent data suggests that the patience is paying off. Core inflation is creeping into the 2% ranges as of June, and though the data will likely continue its choppiness, the Fed is seeing the kind of progress that will pave the way for them to start cutting rates. The real question becomes When. The futures markets now show a 100% chance of a rate cut in September, along with 100% chance of another cut before the end of 2024. This is good news! But now for the bad news: the futures markets have been 100% wrong several times over the past year or so. Our view is that the market is closer to correct this time around, and we are cautiously optimistic that there will be at least one rate cut before year end.

At the same time, we are eyeing scenarios that could change the Fed’s plan of action. First, if they see that any rate cut creates too much positivity by spurring consumers to spend more or markets to overprice, they have surely signaled their willingness to do everything possible to curb that kind of inflation-producing activity. We don’t expect dramatic moves in either direction, but we are cautioning our clients not to expect too much from the Fed or build business plans based on unmitigated interest rate cuts for the next 12 months. Second, and on the other side of the coin, if economic data begins weakening quickly and a recession becomes more likely, then that kind of economic weakness will matter much more than interest rates. We think this scenario is unlikely, especially in our growing markets where businesses can continue employing people and investing for the future. This kind of regional economic focus will become more important if weakening occurs broadly and we feel encouraged about the chances of our markets to weather any such storm better than most.

To be sure, the US is the economic winner for now. China’s economy is showing troubling weakness, much of Europe is mired in continued sluggish activity, and most emerging economies have not been able to break through due to interest rate and currency issues. Here at home, the next several months will be action-packed with elections nearing and interest rate moves on the horizon. Despite the inevitable volatility in this environment, we are very optimistic and encouraged about our markets and our clients’ continued success, and we are always so proud to play our part in that. Thank you for that privilege!

by Cal Hurst, President