Fall is upon us - looking forward to long weekend up on Michigan's Leelanau Peninsula. College football has begun - Go Little Giants and Go Blue!

And for Community Banks, September is the kick-off for annual planning and budgeting season. Something bankers look forward to every year!

This remains an important component of your overall annual planning cycle (strategic planning, M&A planning, technology planning and annual operating plan and budget). And while you are very familiar and experienced in leading this process, this year may be more challenging in forecasting how everything will play out than years in the recent past.

Uncertainty - and the risks that arise from that - seems to be in greater abundance today. Uncertainty on actions (or inaction) in Washington continues: Will you see regulatory relief during 2018? Will tax reform occur? What will really happen with healthcare reform - and when? Uncertainty and tension on the international front seems to be very elevated.

Uncertainty exists around the Fed and monetary policy's impact in 2018. Will the Fed increase interest rates in December? And will they increase in 2018 - and how many times? Will the commencement of the Fed's balance sheet normalization have any impact on interest rates in 2018 (and beyond)?

Uncertainty has increased across various sectors of the economy - agriculture, automotive, retail and housing are examples. And, as this economic cycle ages, there are questions as to how and when this cycle ends. Uncertainty is also elevated due to recent hurricanes, earthquakes and other natural disasters across the U.S. and the world and the rebuilding efforts and investments that will be necessary in these communities. The list goes on.

However, you still must develop and document a planning scenario for 2018 and prepare your annual plans around that scenario. And to assist you, we have created a "Base Case" scenario, including interest rate assumptions that may give you some insights as you begin to finalize your 2018 planning scenario and key assumptions. One key element -and most important - that is missing will be your own perspective on your local and regional economies, communities and customers that ultimately drive your final planning scenario, goals and objectives. This is where community bankers play such an important and impacting role.

Here is our concept for a "Base Case" 2018 Scenario for the economy and interest rates. We have incorporated a variety of publicly available economic forecasts and surveys for 2018 into the development of this scenario.

2018 PLANNING ASSUMPTIONS - A "BASE CASE" SCENARIO FOR INTEREST RATES:

National Economy: General economic conditions softening with GDP growth moderating (~2 percent GDP growth); unemployment rate leveling off (~4.4 percent) as job growth slows or levels off.

Inflation: Inflation remains low continuing into 2018 with CPI ~2 percent and core CPI slightly less.

Housing Sector: Home sales and starts continue at recent levels; Housing price appreciation is expected to slow to 5 percent or less - although this will vary dramatically by market; Mortgage originations will be slightly lower (2017 was an outstanding year).

Key Risks & Uncertainties: Impact of global economic and political events and uncertainties; Impact of Hurricanes Harvey, Irma and Maria. Uncertainty and inaction in Washington, D.C.

Federal Reserve and Monetary Policy: With the September Fed meetings complete, the Fed held federal funds unchanged and announced the commencement of their balance sheet normalization with reductions in both their U.S. Treasury bond and MBS holdings. The median forecast in the Fed's Summary of Economic Projections aligns with an interest rate hike in December 2017 and three hikes in 2018 - call it "3 & Out" just like expected this year (as a lifelong White Sox fan, I apologize if "3 & out" conjures up memories that you have suppressed!).

So with this as background, here is a concept for interest rates in 2018:

This is a concept for where interest rates may be in 2018 and provided to further your bank's thinking, discussion and debate as you finalize your own 2018 Base Case planning scenario and key assumptions. Factor your perspectives on the national, regional and local economies and your views on interest rates into your final planning scenario.

As always, good luck and continued success in 2018!

Terry Wise

www.bankingstrategist.com