Economic pressures slowed near the end of 2023, but those affected by increased pricing, high interest rates and growing inflation are by no means out of the woods heading into 2024.
While interest rates in September (3.7 percent) were lower than the recent high of 9.1 percent in June 2022, the mark is still above the Federal Reserve’s target inflation rate of 2 percent.
Rates have steadily declined since June 2022 due, in part, to the Fed’s aggressive interest rate increases over the last year and a half. From June of last year to July 2023, interest rates have spiked 450 basis points (4.5 percent). There hasn’t been an increase since July, with the Fed opting to not raise rates again in November.
Anirban Basu, chief economist with the Associated Builders & Contractors (ABC), sees a possibility by which the Fed begins to slowly drop rates next year and continue through the following few years. It will be dependent on how quickly inflation dissipates, though.
“I expect the target range of the federal funds rate will fall slightly during 2024, with perhaps one cut in the first half of the year, bringing the midpoint of the target range to 5.125 percent, before another two to three cuts in the second half of the year,” Basu says. “While monetary policy should continue to ease in 2025 and beyond, I anticipate the target range will remain near or above 3 percent through the end of 2026.”
Ken Simonson, chief economist with the Associated General Contractors of America (AGC), believes interest rate increases will resume in 2024.
“I see inflation being more stubborn,” Simonson says. “The Fed totally committed to bringing that inflation rate back down to the 2 percent range from 3 – close to 4 – percent, depending on what measure you look at. While they will probably skip a rate increase in December, maybe even at the end of January, I wouldn’t count them out from raising rates again. I would guess rates will be no lower at the end of 2024 than they are at the end of 2023.”
Despite this positive outlook and the country’s avoidance of a recession in 2023 – depending on who is asked – Basu isn’t ruling out a larger economic downturn in 2024.
“A soft landing is certainly possible at this point,” he says. “Though due to a long list of risks that includes the lag effects of high interest rates, rising consumer debt, global economic weakness, maturing commercial real estate debt, the possibility of a government shutdown and increasing geopolitical uncertainty, among others, a recession in 2024 remains a distinct possibility.”
While Simonson agrees with Basu that there are a number of vulnerabilities that exist heading into 2024, he does not expect there to be a recession in the coming year. He points to positives such as strong employment reports, inflation dipping below the level of wage increases, and the profitability of businesses as reasons why the country could avoid a recession.