As nearly everyone who can fog a mirror with their breath has offered a prediction about the future course of the U.S. economy, some voices are obviously more highly regarded than others.
Most people will give greater deference to the policy statements of the chairman of the Federal Reserve than your typical teenage TikTok influencer peddling homemade cosmetic products.
But the board of directors of the Federal Reserve — regardless of whether it's headed by Jerome Powell or Janet Yellen or Ben Bernanke or Alan Greenspan — is not infallible and, unfortunately, can make decisions regarding whether to increase or decrease the nation’s money supply, which may cause the proverbial ship of state to run aground.
Their lack of perfection permits casual armchair pseudo-economists such as myself to offer some predictions about the general course of the economy of the United States over the next 12 months that may, by chance, prove to be more accurate than those put forth by the wizards of America’s central bank.
Prediction 1: Interest rates will remain constant.
Here, I am essentially betting against the house because the Federal Reserve determines short-term interest rates based upon its decisions to raise or lower the federal funds rates which in turn affects the borrowing costs of businesses and consumers alike.
The dual mandate of the Federal Reserve as described in the 1977 amendment to the Federal Reserve Act is to promote maximum employment and stable prices.
However, the extent to which the Fed raises or lowers interest rates often depends on whether it believes inflation is increasing or decreasing.
In recent years, the Fed has claimed that it wants to have inflation increase at an annual rate of no more than 2% per year.
Because it has been startled by the surge in inflation in recent years (e.g., 7% in 2021, 6.5% in 2022, 3.4% in 2023 and 3.5% in 2024 so far)
the Fed is unlikely to drastically reduce interest rates in the near term regardless of the deafening whining on Wall Street.
Not so clear is why its dual mandate would not cause it to strive for a lower annual inflation rate of 1% or even 0%, particularly since the Rule of 70 tells us that a 2% inflation rate each year would result in a doubling of prices every 35 years.
Prediction 2: Housing prices will increase by less than 5% overall in 2024. Rising interest rates and increased supply costs have constrained the construction of new housing units in recent years.
Unfortunately, there are no simple answers to increasing the supply of housing units because the inflationary pressures cascading throughout the economy in recent years have caused housing costs to outstrip wage increases.
Indeed CoreLogic’s most recent analysis of home prices reports that home prices rose 5.8 percent from January 2023 to January 2024.
However, this is a general average and does not reflect the variations in local real estate markets across the country.
For example, the San Francisco Chronicle reports that biggest increases in housing prices in 2023 occurred in Knoxville, Tennessee (11.7%) and Irvine, California (11.3%). Yahoo!Finance, by contrast, reports the biggest declines in housing prices occurred in Boise, Idaho (-7.8%) and Austin, Texas (7.7%).
Of course these declines came after years of double-digit increases so these formerly hot markets may have been taking a breather as opposed to beginning a systemic secular market decline.
Unfortunately, the year over year increase in housing prices have averaged more than 4.6 percent from 1992 to 2024 and reached an all-time year over year increase of 19.1% in 2021.
As there do not appear to be any black swan events on the horizon that would cause prices in the overall housing market to careen upward or downward in the next year, the 5% ceiling appears to be a good bet in 2024.
Unfortunately, this is not of much comfort to first-time buyers who are struggling to cobble together a down payment for that increasingly elusive starter home.
Prediction 3: Government deficits will increase.
This prediction is, unfortunately, the most likely one of the three to come true.
Very few policymakers in either the Democratic or Republican party seem to be particularly concerned about the exploding government debt even though increases in the federal funds rates in recent years (e.g., 4.1% in 2022 and 5.1% in 2023) have cause caused a few souls in the wilderness to worry openly about the exploding costs of financing the federal debt.
In the good old days when the Federal Reserve held the interest rates near 0%, the costs of borrowing funds to service the national debt was not of enormous concern to policymakers who seemed to view this abnormal monetary policy as an invitation to ramp up government spending without limit.
According to the statistics provided by the Federal Reserve Bank of St. Louis, President Biden can rightly claim credit for the most impressive increases in deficit spending in any 3-year period in the history of the United States with 2021 having a deficit of -$2,775,350,000,000, 2022 having a deficit of -$1,375,920,000,000 and 2023 having a deficit of -$1,693,725,000,000.
Although these figures did not approach the one-year record of COVID-19-inspired deficit spending reached in 2020 of $-3,132,456,000,000 by the Trump administration, Biden showed a unique talent for ignoring budgetary constraints and, indeed, fiscal reality from the day he was sworn into office, adding an estimated -$5,844,995,000,000 to the national debt before the enormous Waterford crystal ball in Times Square hit the ground on New Year’s Eve 2024.
Jefferson Hane Weaver is a transactional lawyer residing in Florida. He received his undergraduate degree in Economics and Political Science from the University of North Carolina and his J.D. and Ph.D. in International Relations from Columbia University. Dr. Weaver is the author of numerous books on varied, compelling subjects. Read more of his reports — Here.
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