After getting caught off guard by how the economy played out in 2023, economists are being careful and a bit hesitant about what to expect in 2024.
Most people agree that we might see a decrease in growth—maybe even a small recession—and an economy with lower interest rates and less inflation. But there are some who are taking a bolder stance, suggesting the economy might surprise us by being stronger than predicted. They even think interest rates might drop sooner and more frequently than anticipated.
The forecasts mainly rely on changes in how the Fed is planning to handle things. They hinted at a shift during their December meeting—moving away from the quick increase in interest rates we’ve seen for the past year and a half. Also, that crazy spike in inflation we saw from 2022 is expected to slow down and become less intense as we move through 2024.
Economists aren’t expecting a complete return to the super low inflation and interest rates we had before the pandemic. We’re pretty sure those days of incredibly low rates are behind us, and we’re more confident about this now compared to a year ago. So, people who save might see better rewards, and long-term investing might become popular again after a few years of everyone chasing trendy stocks.
The big change for most folks in 2024 will be the slowdown in how much prices are going up. Remember when prices shot up by 9% a year back in mid-2022? Well, now they’re around 3%, and they’re expected to drop even more next year, hitting around 2% or even lower. Sure, things will still get pricier, but not as crazy fast as before. As for interest rates, they hit their highest point in 2023 and are going down from there, although they might settle at a higher level than before the whole COVID mess started.
Expect mortgage rates to level off around 6% or maybe even lower after shooting up to 8% this year. That’s good news for the housing market, which has been picking up steam lately. In 2024, we’ll see a lot of demand driven by changes in the population—baby boomers holding onto homes with super low mortgage rates, and older millennials hitting a pivotal point in their careers. Interestingly, the average age of new homeowners has gone up to 36, three years older than in 2021.
Supply chains took a beating during the pandemic, but they’re mostly back on track now. You can tell things are getting back to normal because car dealerships are offering deals again with their lots filled up. The job market, which surprised everyone by being super strong in 2023, is expected to calm down a bit. There’s some good news on the horizon—productivity has been getting better lately. It hit 4.7% in the last quarter and has been steadily growing at a 4% rate over the past six months. Businesses are putting a lot of money into new manufacturing spaces and cool stuff like robots and AI to make things more efficient.
For the pessimistic folks, there’s plenty to fuel doubts about the 2024 predictions. Well, it’s an election year, and it seems like it’s gearing up to be a big face-off between two very different ways of running things and handling the economy. Right now, it feels a bit like a déjà vu from the 2020 election with Joe Biden and Donald Trump in the spotlight. But hey, things could change as we go along!
Even though Biden hasn’t entirely satisfied the more left-leaning folks in the Democratic Party, he’s taken a hands-on approach in the economy. He’s all about boosting local manufacturing, green energy, and supporting low-income families. On the other hand, Trump’s pitching himself as pro-wealthy, promising tax cuts that mainly benefit the rich. He’s also talking about adding more tariffs on imported stuff, which usually ends up costing us regular folks more when we buy things.
The world stage is pretty tense right now, with lots going on in the Middle East and Europe, and some less intense but still worrisome stuff happening in Asia. There’ve been drone attacks on ships in the Red Sea and Suez Canal area, making folks worry about energy prices shooting up or even a bigger conflict in that region. Plus, China’s economy, which is huge globally, seems to be slowing down, which could affect how well the whole world economy does.