Tom Welch thinks the U.S. economy in 2018 will perform much as it did in 2017 with steady growth and further tightening of the labor market, the latter of which rates as his biggest concern. He said that, mixed with high business confidence and a boost from the expected passage of federal tax reform, the economy should generate plenty of commercial lending opportunity for Cincinnati, Ohio-based Fifth Third, the deposit market leader in West Michigan. Welsh also believes the Federal Reserve will raise interest rates further in 2018, while inflation should remain relatively low.
“We expect to see similar growth to what we’ve seen in 2017, which is high 2-percent to low 3-percent growth. One thing that will be potentially important for our industry will be demand for borrowing to finance capital investment, which is potentially inspired by higher business confidence and a new tax code. As it is being discussed now, that will offer expensing of capital investment and expenditures and a lower marginal tax rate, both of which should drive loan demand. There is a potential loss of interest deductibility — but we believe that will take a back seat. In addition to the tax bill’s positive impact, inflation is still low and while we think it will tick higher in 2018, we don’t see it exploding higher. We will likely hit the Fed’s target of 2 percent by the end of 2018, so we don’t anticipate the Fed will be aggressive with rate hikes in 2018. I would expect good — but not great — growth that doesn’t cause the Fed to panic and raise rates too aggressively. So, if interest rates rise modestly over the year and the job market stays strong, housing should have another good year here in West Michigan and nationally. As for what this means for Fifth Third Bank in West Michigan, we have the products and services to meet the needs of businesses, large and small, as well as our non-business banking customers. I am confident that as financing needs increase, we can service them.”