Legendary baseball player Yogi Berra famously said, “The future ain’t what it used to be.” Indeed, what used to be a time of looking forward to flipping the calendar has metastasized into a feeling of dread. If 2020 was horrific, 2021 was terrible, 2022 was torturous, and 2023 was awful — why would 2024 be any different? So, what should the United States and the rest of the world expect for the upcoming year?
It’s the Economy, Stupid
Will the US economy achieve the much-anticipated soft landing? This appears to be the consensus on Wall Street and among Ivory Tower economists. The odds of a recession have been lowered, with many discussing the likelihood of anemic growth, lower inflation, and a resilient labor market. This means it might be time to carve Federal Reserve Chair Jerome Powell’s head on Mount Rushmore and pledge allegiance to the Federal Open Market Committee (FOMC). Or would it be premature to declare mission accomplished? It might depend on inflation, potentially producing a rerun of what occurred in the 1970s and 1980s.
The Evil Tax
Do you want the good news or the bad first? The good news is that the annual inflation rate throughout 2024 is unlikely to mirror the pain in 2022. The bad news? Price pressures will persist during the year as many institutions, from the Fed to the Congressional Budget Office, anticipate above-trend growth in the consumer price index and the personal consumption expenditure price index. In fact, officials do not expect inflation to return to the 2% target level until 2025. So, in addition to the 18% cumulative inflation, the American people will endure modest price increases in the marketplace.
Higher for Longer?
The Eccles Building signaled at the final FOMC policy meeting of 2023 that the central bank is cutting interest rates three times in 2024 and two additional times in 2025. This led to some good old-fashioned irrational exuberance on Wall Street, fueling the Dow Jones Industrial Average’s rise to a record high. But this does not mean that the ride down will be swift. The Summary of Economic Projections suggests the median Fed funds rate will be 4.6% next year and 3.6% in 2025. Moreover, the talk of the town is that central banks are unlikely to return to the era of zero-interest-rate policy that was prevalent before and during the pandemic.
Banks: Do or Die Time
When Silicon Valley Bank and Signature Bank failed, the Federal Reserve launched an emergency lending facility, known as the Bank Term Funding Program. It was a one-year loan for troubled financial institutions that is still being used nearly a year removed from the banking crisis. These loans will be due for repayment in March 2024. If there is even a hint of difficulty paying back the funds, it could indicate that the industry, particularly the regional and community entities, is in worse shape than what public policymakers have asserted.
Brother, Can You Spare a Job?
In 2022, economists anticipated a sharp slowdown in the labor market. A year later, they forecast a crash in the jobs arena. In 2024, they have all but conceded defeat and penciled in modest growth. It is safe to say that the US labor market will not repeat the last couple of years as the Fed’s rising-rate efforts begin to be fully realized across the economic landscape. Plus, job creation could come to a screeching halt if the economy slows down and consumers take a break from swiping, inserting, and tapping. Either way, observers might want to pay attention to the revisions after what occurred in 2023!
Oil and Gas Prices
The United States is producing record volumes of crude oil, exceeding far beyond 13 million barrels per day. Is this sustainable? The Baker Hughes Oil Rig Count, which measures the number of active drilling rigs nationwide, has plunged to its lowest level since early 2022. But even if the United States maintains this solid output rate, the global energy markets remain susceptible to many factors: OPEC production, Middle East tensions, the US and Chinese economies, global GDP, and the weather. Market analysts believe oil prices will average around $80 a barrel over the next two years, down from earlier forecasts of above $92. As international petroleum markets witnessed in 2023, anything can trigger a spike or a crash.
US National Debt
This is simple enough: The national debt will continue growing without any respite in sight. While it will most likely top $35 trillion, interest payments will be the key story for the US government and taxpayers. They have already topped $1 trillion on an annualized basis, and there is little reason to doubt this can happen again in 2024.
The 2024 Election
Finally, the main event of 2024 will be the presidential election. Current polls suggest it will be a 2020 rematch between former President Donald Trump and incumbent President Joe Biden. The early numbers show the Republican challenger pulling off a victory. However, like every electoral contest since 2016, the polling figures can be wrong. Now, will the election result immediately impact the financial markets? Strategists do not think it will lead to any ultra-bullish rally or steep selloff the day after Nov. 5. But any outcome will be good for the popcorn business!