It's the early days of fall, though it feels like we forgot to tell the sun that! Our team enjoyed a busy and fun summer with all kinds of pictures of our pineapple in far-flung vacation spots. In between, the Southern First team was hard at work helping clients grow and navigate a confusing but healthy economy. Let's get into a few themes that we have seen in recent weeks.

Earlier this month, the Federal Reserve resumed its rate cutting direction with a 0.25% reduction in the Fed Funds rate - the first reduction since December of 2024. This cut was fully expected in the weeks leading up to this meeting because, to many Fed officials and market observers, it appears that the labor market is showing noticeable weakness while inflation risks seem fairly tame at the moment. If these conditions continue, the market expects the Fed to reduce rates at least once more in 2025 and again in early 2026. In mid-2026, a new Fed Chair will be appointed and will be expected (possibly required by his/her appointer) to lower rates meaningfully once in that position.

The inflation picture seems to be settling in a 3% range as the still-employed-and-spending consumer continues to drive activity even in a slightly higher cost environment. Tariffs are only now starting to weave their way into onshore costs and will continue to do so in the coming months, but we think businesses and consumers will figure out how to make those costs as low-impact as possible such that inflation does not get out of hand. However, we see a "stacking" effect occurring now, in which the previous high costs of pretty much everything are still rising slowly and beginning to strain businesses and consumers who are running out of ways to stretch their dollars. We expect this to simply temper, but not stop, what has been a very healthy economy in coming quarters. 

The labor market has evolved into a "slow to hire, slow to fire" dynamic that can continue to support growth broadly but is beginning to make the employment picture look slightly weaker. We find that our clients are not rushing into any hiring decisions but are adding to their teams with discipline and on a targeted basis. At the same time, job openings are slowing because those with jobs are choosing more often to stay in stable positions rather than testing the market. While AI gets massive headlines and spending from major players, its impacts in the job market are mostly incremental and not displacing humans in large numbers. In fact, we most often hear clients ascribing to the idea that AI's best use is in the hands of humans who know how to use it effectively, and we certainly agree. We foresee a labor market that continues on this path in the coming months without threatening to derail what has been a very productive economy overall.

We have been living in a "soft landing" for many months now and conditions appear set for this to continue into 2026 with a Federal Reserve prepared to address labor market weakness and businesses and consumers still managing higher costs without stopping growth. Especially in the still-growing Southeast, these conditions can allow for businesses to invest and grow responsibly while managing the risks present. We are excited about the coming months in our markets! You will see us being very active, seeking to Wow every client we have and earning the chance to do business with others as we invest in a client experience that exceeds expectations. Here's to a great fall together and to your success!

by Cal Hurst, President