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As we begin 2024, the US economy appears to be enjoying the soft landing many argued was impossible. Inflation has dropped dramatically, unemployment remains low, and the Federal Reserve has signaled that the interest rate hikes are over.
According to Justin Wolfers, a Professor of Public Policy and Economics at the University of Michigan, the economy hasn't just bounced back from its fastest-ever recession; it has also weathered challenges like the war in Ukraine, oil price shocks, and political turmoil with surprising resilience. He aptly describes it as the "little engine that could” and believes 2024 will bring American families back to a sense of normalcy.
Here are five compelling reasons to embrace a positive outlook for the 2024 economy:
Incredible Inflation Decline:
Inflation, which had skyrocketed to four-decade highs in June 2022, has experienced an astonishingly swift reversal. Consumer prices increased by just 3.1% year-over-year in November, a sharp drop from the alarming 9.1% recorded in June 2022.
The speed of this inflation cool-down is nothing short of remarkable. Mark Zandi, chief economist at Moody's Analytics, predicts that inflation will return to the Federal Reserve's 2% target by the end of 2024.
Low Gas Prices:
After surpassing $5 a gallon in 2022, gas prices have significantly decreased throughout 2023. Projections from GasBuddy suggest that the annual average for US gas prices will continue to decrease in 2024, putting an estimated $32 billion back into consumers' pockets compared to 2023. This decline in gas prices will undoubtedly bolster consumer spending and economic well-being.
Federal Reserve's Optimism:
The Federal Reserve's decision to halt aggressive interest rate hikes, which had previously caused anxiety among investors and consumers, speaks volumes about its confidence in the economic outlook.
Furthermore, the Fed is now considering rate cuts for 2024, marking a significant victory in the battle against inflation. These rate cuts, expected to start between March and May, will lower the costs associated with mortgages, car loans, and credit card balances. Mortgage rates have already plunged from nearly 8% in October 2023 to 6.6% at the end of the year.
Thriving Stock Market:
The combination of receding inflation, waning recession fears, and anticipated rate cuts has ignited Wall Street. The year ended on a high note, with the S&P 500 experiencing its longest winning streak since 2004, and the Nasdaq posting impressive gains, coming close to its best performance in two decades.
Low Unemployment and Wage Growth:
In a remarkable feat, the unemployment rate remains remarkably low at just 3.7%, nearing a half-century low. Initial jobless claims, a strong indicator of layoffs, have remained consistently low at 218,000, indicating employers' reluctance to shed workers.
According to Mark Zandi, chief economist at Moody’s Analytics, claims are extraordinarily low. “For alarm bells to go off, claims would have to be closer to 300,000. We are a long, long way away from that.”
This trend bodes well for consumer spending, a pivotal driver of the US economy. Moreover, the recent shift toward wage growth catching up with inflation paints an encouraging picture for 2024. As incomes gradually outpace inflation, people will likely feel more financially secure and content.