Economists see brighter outlook for 2024. Here's why.
The U.S. economy is having what some experts are calling a "Goldilocks" moment.
A panel of economists expect this year to be characterized by faster growth, shrinking inflation and healthy job creation — a far cry from the widespread fears of a recession that marked 2023. The National Association for Business Economics (NABE) on Monday predicted that gross domestic product — a measure of the value of goods and services — will rise 2.2% in 2024, a significantly more bullish forecast than what the group projected only two months ago.
Inflation, which drives up the cost of groceries, rent and car insurance, among other spending categories, is expected to continue slowing this year. NABE forecasts that the Consumer Price Index — a basket of common goods and services — will decline to an annual rate of 2.4% this year, compared with 4.1% in 2023 and 8% in 2022. Another closely watched gauge used by the Federal Reserve to assess price changes, Personal Consumption Expenditures, is also expected to continue easing.
NABE predicted the Fed will start cutting its benchmark interest rate between April and June, which would lower borrowing costs for individuals and businesses.
Still, economists note that the U.S. central bank is likely to move cautiously in lowering the federal funds rate.
"Based on comments from Fed officials this week, we now expect the Fed to wait until June to begin cutting interest rates," analysts with Capital Economists said in a report. "Moreover, when it does begin to loosen policy, we suspect that the Fed will initially adopt a gradual approach — with the intention of cutting at every other meeting."
Americans' economic outlook has brightened somewhat of late. A February poll by CBS News found that people's assessments of the economy are at their highest level in more than two years, although sentiment remains negative overall.
Buoying the mood has been the red-hot stock market, with both the S&P 500 and Dow Jones Industrial Average climbing to record highs last week.
"As occurred during the second half of the 1990s, the stock market is having a significantly positive wealth effect on the economy now that the major stock market indexes are at record highs," Ed Yardeni, chief investment strategist for Yardeni Research, said in a report predicting that the economy will remain resilient.
Gregory Daco, chief economist with EY, noted that the U.S. economy is growing much faster than other developed economies in Europe and Asia. He points to the job market as a key source of strength in 2024.
"The increased value of talent post-pandemic has meant that business managers are more reluctant to let go of their prized talent pool despite cost pressures and expectations of slower final demand growth," Daco told investors in a report. "Solid employment growth, combined with robust wage growth, has translated into strong real disposable income growth, which in turn has allowed consumers to continue paying high prices for goods and services."
NABE expects the nation's unemployment rate, now hovering near a 50-year low of 3.7%, to peak at 4% in 2024.
In a statement on NABE's forecast, White House economic adviser Lael Brainard attributed the country's economic resilience to President Biden's policies, underscoring the strong investment climate.