The end of the year is the perfect time for investors to start thinking about possible investment themes. In today’s Steady Investor, we look at three themes to consider for 2024:
• Inflation edges lower
• The Federal Reserve’s 2024 interest rate projections
• Why Americans are still unhappy with the economy
Inflation Continues to Moderate – A key inflation metric was released this week, and the data confirmed what the market was hoping: prices continue in a downtrend. The consumer price index measure of inflation rose 3.1% in November from a year ago, an improvement from October’s year-over-year pace. Prices rose 0.1% month-over-month, which was higher than what economists expected but was modest enough not to cause much concern. Falling gasoline and durable goods prices were offset by price increases for shelter (housing), auto insurance, and a few other services. Core prices, which exclude food and energy, were up 4% year-over-year. Overall, it’s a mixed bag for consumers in terms of what is still frustratingly expensive and what goods and services have become reasonably priced again. Anecdotally, one airline recently offered a $20 one-way flight, and TVs are cheaper today than they were before the pandemic. Holiday shopping deals are also expected to continue throughout December, as retailers compete for U.S consumer dollars.1
The Consumer Price Index Continues to Trend in the Right Direction
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The Federal Reserve’s 2024 Interest Rate Projections Tell the Real Story – On the heels of the CPI announcement, the Fed placated markets by making an announcement of their own: that the benchmark fed funds rate would remain where it was—and may even fall in 2024. The market was broadly expecting the Fed to refrain from raising rates at this policy meeting, but what came as a positive surprise was the decision to publish interest rate projections for the following year. In many public remarks leading up to this Fed meeting, Federal Reserve Chairman Jerome Powell had emphasized that while the Fed was happy with the progress made on inflation, there was still work to be done to bring it down to the 2% target. “Higher-for-longer” interest rates were the party line. In comments this week, however, the Fed Chairman appeared to pivot: “You’re getting now back to the point where both mandates [inflation and unemployment] are important,” adding that “We’ll be very much keeping that in mind as we make policy going forward.” What was once unilaterally an inflation fight has now become one where the Fed is more concerned with economic growth and employment, which marks a pivot. The ‘read between the lines’ implication is that the Fed now appears ready to step in to avoid a recession, an idea underscored by their interest rate projections of 4.5% to 4.75% by the end of 2024. That’s 0.75% lower than where the Fed funds rate is today.
Americans Continue to be Unhappy with the Economy – A new Bankrate survey found that nearly 60% of Americans felt like the U.S. economy was in a recession. This comes as the U.S. just posted a 5+% GDP growth rate in Q3, which followed two-quarters of 2+% growth in the first half of the year. Higher prices continue to weigh heavily on consumer sentiment, driving an overall feeling that the economy is in weak fundamental shape when the opposite – at least for now – is true. This is the type of disconnect that tends to move markets when sentiment and expectations are far outstripped by reality. It’s also an example of the “wall of worry” in the current environment, which markets have a long history of climbing.4
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Disclosure
2 Fred Economic Data.
3 Zacks Investment Management reserves the right to amend the terms or rescind the free Looking to Retire Soon? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.
4 Wall Street Journal. December 12, 2023. https://www.foxbusiness.com/economy/majority-americans-us-economy-recession-survey
5 Zacks Investment Management reserves the right to amend the terms or rescind the free Looking to Retire Soon? Here are 4 Things to Consider First offer at any time and for any reason at its discretion.
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