What’s in store for 2024? Will the Fed cut rates? If so, will it be because everything is awesome and the fabled soft landing has been achieved? Or will rate cuts just be a small part of a new multi-trillion-dollar bailout package? If the latter, who will bear the brunt of the blame?
Those on Wall Street seem largely unperturbed. On the final trading day of 2023, CNBC reported that:
Stocks fell slightly on Friday, but the S&P 500 closed out 2023 with a surprising gain of 24% as inflation slowed, the economy remained strong and the Federal Reserve signaled an end to its rate-hiking campaign.
Even better:
The S&P 500 rose for nine straight weeks to end the year, its best win streak since 2004.
The largest win streak in the last 20 years is impressive. Should we believe it’s because "inflation slowed," as measured through price indexes coupled with the promise of upcoming rate cuts?
Whether the stats follow the narrative or the narrative follows the stats is debatable. However, the St. Louis Fed's webpage shares the “Pulse of the Economy” below, showing somewhat favorable data.
Additionally, Chair Powell's press conference in December announced:
Inflation has eased from its highs, and this has come without a significant increase in unemployment. That’s very good news. But inflation is still too high … As we look ahead to next year, I want to assure the American people that we’re fully committed to returning inflation to our 2 percent goal.
Many so-called experts continue to endorse the Fed’s narrative, as CNBC shares:
The forecast among many economists for a recession in 2023 did not come to pass … history may consider this year to be a good one, as low unemployment and rapidly declining inflation prevailed.
They even quote a senior vice president and chief economist at PNC Financial:
It [a recession] is less likely now than it was three or six months ago, just because of the ongoing strength we’ve seen.
Certainly, we can never predict the future with pinpoint accuracy, considering the infinite and immeasurable variables that cannot be factored into any financial model. It's also important to recognize that the aforementioned perspectives likely vary widely from those on Main Street. While some of these perspectives can be quantified, for example, CNBC goes on to highlight that it's estimated that:
…60% of Americans now live paycheck to paycheck.
Other factors exist that are fraught with uncertainties, such as the effects of the soon-to-be $34 trillion US debt level, the upcoming Presidential election, and the boom-bust cycle, which, despite the Fed's sincerest efforts to achieve a never-ending era of prosperity, must eventually confront the reality of its policy actions.
The effects of the 2020 boom/bailout and the easy monetary policies will run their course. It's best to anticipate a scenario worse than a slowdown or soft landing. The when will always be the question, so all one can do is continue making predictions to prepare for whatever unfolds in 2024.
If there's a glass-half-full perspective, it might come from understanding the ebb and flow of the Fed's policies. At this stage, the longer the bust/recession is postponed, the more severe when it eventually occurs. This, in turn, will prompt the Fed to buy any bond necessary as it implements emergency measures to salvage the economy once again.
