In 2024, the United States is poised for a steady pace of economic growth, driven by solid consumer spending fueled by real personal income gains and sustained private investment. These factors are expected to contribute to a growth rate at or near the 1.8% long-run average. This optimistic outlook is further bolstered by policy support from both fiscal and monetary authorities, paving the way for enhanced productivity and growth as inflation settles into a more manageable range of 2.5% to 3%.
Federal Reserve Rate Cuts: There will be a series of four 25 basis-point cuts in the federal funds policy rate, commencing in the second quarter. By year-end, this would place the rate in a range between 4.25% to 4.5%, with a possibility of further reductions. This would bolster spending among Americans on items such as cars and houses, and spur economic growth. Inflation has slowed more dramatically than expected, validating the Fed’s turnabout.
Gross Domestic Product (GDP): Following the robust 2.9% pace of 2023's third quarter, growth is projected to rebound to a rate at or above the trend of 1.8% in the second half of 2024, possibly accelerating into 2025.
Employment and Inflation: Inflation is forecasted to decline from its peak of 9.1% in 2022 to 2.5% or lower by the close of 2025. These dynamics, strong employment, and declining inflation will lead to significant gains in real disposable income for American households, setting the stage for a robust expansion.
Investment in Technology: Companies are actively investing in software and intellectual property to offset labor scarcity, leading to increased productivity. This trend, if sustained, may contribute to expanding overall economic output, particularly due to the supply-side-induced capacity increase. This expansion is driven by private sector investment and government policies targeting enhancing semiconductor supply chains, infrastructure, and environmental sustainability.
Increased yields across various maturities impacting global energy prices will create a soft landing and reduce the probability of a recession. Moreover, a 75% probability of maintaining the current economic expansion is projected, driven by the tailwinds propelling the US economy in 2024.