Current State of the Economy
Article By: Mark Oldenberg, SFB President & CEO
Uncertainty and volatility are the words that come to my mind when I think about the current economy. There have been few times in recent history that we have had so many variables to consider. A war in Ukraine that no one seems to know when will end but is causing lots of uncertainty in the supply chain from fertilizers to precious metals. Supply chains that haven't recovered from disruptions due to COVID-19, and now we have companies reimagining their business models to go from just-in-time deliveries to abundant warehouse storage. COVID-19 continues to circulate and cause disruptions in China with its zero-tolerance policies and continued impact on labor supply in the US as many people still haven't returned to the workforce.
All of these forces, and others, have culminated to drive inflation to levels not seen in decades. As a result, the Federal Open Market Committee (FOMC) has begun to try slowing the US economy, as measured by Gross Domestic Product (GDP), by raising interest rates. Inflation has proven itself to be more entrenched than many people thought, however, leading to the FOMC increasing rates by 75 bps at its latest meeting. Current expectations are for the FOMC to raise rates another 50 - 75 bps in July as well. A direct result of these actions and expectations has already been the decline in home sales as both increasing costs and interest rates have made buying a home more expensive. Early indications are that the economy is slowing, with first-quarter 2022 GDP measured at 1.5% and the Atlanta Fed's GDPNow tracking model at zero for second-quarter 2022, with about half of the data being reported so far.
As the FOMC has very few tools to use in reducing inflation, they will keep increasing rates until inflation not only starts to decline but falls substantially from the current eight percent level. Keep in mind the FOMC wants longer-term inflation to be closer to two percent, so there is a long way to go. This reality has increased the odds of a US economic recession as stated by the likes of Jamie Dimon and Elon Musk.
I continue to believe in the long-term success of you, our customers, and SFB as we deal with short-term uncertainty and volatility together as we have before. Rely on your trusted advisors including your relationship manager at SFB to help you make informed decisions and reliable projections and together we will continue to be successful.
Mark Oldenberg, president and CEO of Security Financial Bank (SFB), has more than 25 years of experience in community banking. He earned degrees in both finance and accounting from the University of Wisconsin-Eau Claire and now serves as an Advisory Board member for UW-Eau Claire's College of Business. To contact Mark, call 888.254.0615 or email moldenberg@sfbank.com.
