For some time, the proverbial crystal ball has been decidedly hazy. Anyone who tells you otherwise is either lying or doesn’t have a crystal ball.
However, this hasn’t stopped me from giving numerous recent presentations about the economy to outside groups. In truth, there seems to be a strong positive correlation between uncertainty and the demand for my speaking abilities.
What’s more, the more uncertain people feel, the more precise they expect me to be with my — shall we call them — predictions. Trust me, even under the best possible conditions, soothsaying is a questionable art.
These days it is almost a fool’s errand. Why? Because we are living through a strange period of societal and economic change, perhaps even revolution. If things seem topsy-turvy to you, they are.
For instance, each group to which I have spoken is extremely interested, if not concerned, about the impact Artificial Intelligence (AI) will have on the economy. More specifically, the impact it will have on peoples’ jobs.
They are also concerned about tariffs. Housing affordability. The competency of global leadership and public institutions. The veracity of the economic data. The Federal budget deficit and accumulated public debt. Their grocery bill. Why crude oil prices are going down but their electric bills continue to go up.
Trust me, there are numerous bricks in their walls of worry. Shoot. I had one person ask me if the fascination surrounding Lane Kiffin, and the crazy money LSU is paying him, means our collective priorities are out of whack.
Yes.
So, with everything that is happening in the world, how do we filter out the noise and focus on that which will drive economic activity and, therefore, potential investment returns?
Historically, many people would base their economic forecasts on two primary variables: interest rates (cost of capital) and crude oil (cost of energy). Intuitively, this makes sense. Essentially, what does it cost to do just about anything?
As for the former, money is cheaper than it has been recently, but still not as cheap as it was before. From the end of 2008 through the middle of 2022, the powers that be were practically giving the green stuff away. The overnight rate was next to nothing for most of that time, and the Federal Reserve had blown its balance sheet up to around $9 trillion.
Throw in an explosion in the public debt, and brother. Let’s just say it was an unprecedented time of both monetary policy and fiscal stimuli. As a result, M2, the most commonly used money supply index, soared from roughly $8.205 trillion at the end of 2009 to $21.721 trillion at the end of the 1st quarter of 2022.
To put that into perspective, at the end of 2009, M2 was about 58.1% of nominal Gross Domestic Product (GDP). At the end of March 2022, it was around 86.0%. Admittedly, that is a bit nerdy. However, there are no two ways about it. The supply of money in the U.S. economy grew much more rapidly than the economy itself for well over a decade.
Then, in 2022, the Fed started raising the overnight rate and shrinking its balance sheet. In essence, it went from being very, shall we say, accommodating, to being pretty restrictive in a short period of time. Not surprisingly, M2 growth effectively came to a halt. In fact, it was lower at the end of 2024 than it was the end of Q1 2022.
In hindsight, it is sort of amazing we didn’t have a recession of some variety. Truly.
But now, here at the end of 2025?
- The Fed has cut the overnight rate 150 basis points from 5.50% to 4.00%.
- Also, it has officially stopped shrinking its balance sheet.
- As such, money isn’t as cheap as it was from 2009-2022. Nor is it as expensive as it was from 2022-2024.
As a result, it is hard to forecast an economic or financial system collapse when the Fed is already loosening the reins. On the flipside, it is hard to forecast a liquidity-fueled surge in economic activity when the Fed isn’t really flooding the system with liquidity.
Therefore, the truth will have to be in between the worst-case and best-case scenarios, as it almost always is.
Now, as for energy, yes — crude oil is much lower than it was. At the end of Q1 2022, according to my Bloomberg Terminal, the so-called “generic 1st CL future” for crude oil was $100.28/barrel. That is pretty steep stuff. At the end of November 2025, this same definition was only $58.55/barrel.
Clearly, energy prices are much lower than they were. Historically, this has always been a positive for future economic growth. Hey, the less pain at the pump, the more gain at the store. Or something along those lines.
Unfortunately, a pretty steep increase in electricity has helped to offset whatever gains U.S. consumers and businesses were getting from lower crude prices. According to the St. Louis Federal Reserve, the index for electricity in the Consumer Price Index (CPI) climbed 21.23% from the end of March 2022 through the end of September 2025.
That is a 5.65% annualized rate of change over that time period. That isn’t insignificant, and it sort of means energy is something of a wash. Better than it was, but not as cheap as we would all like.
But how can this be? How can crude oil fall over $40/barrel AND electricity climb in excess of 20% over the same time frame? That doesn’t make sense.
Well, it does when you consider the U.S. doesn’t effectively use crude oil to generate electricity any longer.
Taken together, the current cost of capital and the cost of energy, the United States is likely staring somewhat-modest growth in the face for the foreseeable future. Essentially, we probably won’t have economic Armageddon or Nirvana. Put another way, things will likely be better than Chicken Little thinks they will be. Unfortunately, they won’t be as good as Pollyanna was hoping for.
There you have it. Those are the probable-case scenarios. The low-hanging fruit. The lowest odds. The safest bets. Of course, anything can and will happen. Further, these likely modest results won’t be uniform across the board. Some will do better than others, and some will do worse.
Just as is always the case.
If you have heard me speak recently, you have heard me conclude my prepared remarks with a sentiment along those lines. To be sure, past performance is not necessarily indicative of future results, and there is no guarantee of anything.
However, no matter what we do today, the sun will come up in the East in the morning. On that, my crystal ball is decidedly crystal clear.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
Chief Economist/Chief Investment Officer, Oakworth Asset Management
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as well as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.
Opinions and forward-looking statements are subject to change without notice and may not come to pass. Past performance is not indicative of future results.
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