January tends to be an ornery month for economists, and the calendar did not disappoint this year. In the closing months of 2023, it appeared that a Goldilocks economy was unfolding, one that featured a cooling, but still solid, pace of economic activity amid a steady decline in inflation.
No Quit in This Economy. 2023 ended on a high note, punctuated by sharp rallies in both the stock and bond markets, tangible evidence that the economy is on a steady disinflationary growth path, and strong indications that the Fed is poised to cut rates in 2024.
The era of low rates ended in March 2022 when the Federal Reserve belatedly started the most aggressive rate-hiking campaign in a generation, lifting its policy rate 11 times from near zero to a range of 5.25-5.50 percent in July of 2023, where it has remained. Until a few weeks ago, the central bank has wavered over what to do next, raise again or keep them “higher for longer”.
Higher Speed Limit Slows Inflation
The holiday shopping season has officially kicked off , and while some have predicted a less festive Santa might have been coming down the chimney, the nation’s collective stockings will not be filled with coal.
The American public may not be feeling better about things, but economists clearly are. Most households think the economy is going in the wrong direction, and consumer confi dence in one prominent survey is currently at recession levels.
As expected, the Federal Reserve held rates steady at the September 19-20 policy meeting, following 11 hikes over the last 18 months that lifted short-term rates from near zero to a range of 5.25-5.50 percent.
The Economic Engine is Running Out of Fuel
Economists are sounding ever-more like Gilda Radner of Saturday Night Live fame, claiming “never mind” about their recession call of a few months ago.
Will This Time Be Different?
Contrary to revised expectations – and robust economic data – the business cycle has not been repealed. Yes, a recession is coming, but it is taking an awfully long time to arrive. When it does, its shape may look different, more like a mini recession than an outright downturn.
A Pause Does Not Mean Stop. As the curtain rises on the second half of the year, the economy’s growth engine is still running on most cylinders.
Economists are often called dismal scientists, as they are more likely to see the proverbial glass as half-empty than half full. That label is vividly on display now, as the forecast of a recession within the economic community is more pronounced than ever.