Economists forecast what’s to come in 2024 from interest rates and real estate to inflation and jobs

In 2024, the nation’s economic path is navigating uncertainties driven by the Federal Reserve‘s historic decision to raise interest rates by 5% over 18 months in March 2022. Before the new year, the Federal Reserve shifted its stance, opting for a downward adjustment of interest rates in 2024 after a period of rate hikes. This shift has sparked discussions about the economic landscape anticipated in the coming year and what people can expect to see, both in Idaho and nationwide.

2024 interest rates and Fed policy

According to Robert Spendlove, senior economist at Zions Bank, the Federal Reserve’s dramatic interest rate increase was the largest and fastest in the Federal Reserve policy history.

“The effect of that, is the Fed is slamming on the brakes of the economy — it caused interest rates across the board to go up dramatically,” Spendlove said. “We were expecting it to cause the economy to dramatically slow in 2023, but that didn’t happen, and the overall economy remained strong.”

In Dec. 2023, the Federal Reserve announced a shift in their strategy from raising rates. Their plan for 2024 involves a downward adjustment of interest rates.

Italo Morais Santos, visiting assistant professor in the Department of Economics at Boise State University, noted the challenge in predicting the extent to which these rates will shift.

“Right now, the forecasts are very uncertain,” Santos said. “ I think the picture for forecasting this is of high uncertainty, but we will not have something like higher interest rates in the near future.”

Impact on real estate in Idaho

The real estate market in Idaho has been significantly impacted by these interest rate changes. According to Spendlove, in 2020 and 2021, rate cuts led to a booming housing market, but the subsequent rate hikes saw a reversal with home prices dropping in 2022 and 2023.

“In the last few months, those fluctuations have kind of evened out, as the impact of those changes were built into the market,” he said. “If we see a dramatic drop in mortgage rates, we could see the potential for the Idaho housing market to start to overheat again.”

Spendlove emphasized that the Federal Reserve is navigating a delicate balance, aiming to prevent a housing market collapse while also avoiding a recurrence of the overheating that took place a few years ago.

“I think that’s going to be one of the big trends that I’ll be watching in 2024,” he said.

Inflation dynamics and consumer behavior

While overall inflation has improved from its peak in 2022, people still feel the pinch of higher prices, especially in the service sector. In the summer of 2022, inflation topped out at 9% nationally, and in Idaho it topped out at 10%.

“Inflation is better than it was, but people are still grumpy,” Spendlove said. “The prices are still too high, and people are feeling the effect of higher prices. Even if the inflation comes down the prices are a lot higher than they were pre-pandemic.”

According to Spendlove, the Federal Reserve’s objective is to achieve a 2% year-over-year inflation rate and approximately 3% wage growth. This would result in real wage growth of around 1% per year. The wage growth currently stands at approximately 4%, while inflation is at 3%.

“And then you add into that, housing inflation,” he said. “If we start to see the Idaho housing market reheating, that could drive overall inflation higher as well.”

When it comes to the labor market, Santos points out the recent inflation without a corresponding adjustment in wages, anticipating that this adjustment is bound to happen in the coming year. He predicts that when wage adjustments occur, unemployment numbers will return to a more sustainable level, as the current strong labor market is seen as unsustainable in the long run.

“One factor is we had a lot of inflation recently, but not adjustment in wages,” Santos confirmed. “So this is bound to happen this year or next.”

Consumer spending and economic strength

Spendlove noted the unexpected strength in consumer spending despite elevated prices. However, he drew attention to a potential concern: The rising delinquency rate on consumer loans, suggesting that consumers may be nearing their financial limits. If consumers become more sensitive to prices, it might result in reduced spending and contribute to economic weakness in 2024.

“People that are falling behind on their debts are increasing, which to me says that people are starting to get tapped out and consumers are starting to run out of extra money,” he said. “There’s still a lot of extra money in the economy, but most of that money is held by the upper income, and it’s the lower income that are really getting squeezed.”

Political and international influences

In the upcoming year, economic trends in 2024 will likely be influenced by international events, notably conflicts in the Middle East, introducing uncertainties. On a national level, Spendlove highlighted the significance of the upcoming debt limit debate and how it could shape fiscal policy.

“There’s going to be this big debate about what’s the proper role of government,” he said. “Should we be focused on addressing the national debt and pulling back on government spending or continue to have expansionary policy that supports those lower income consumers?”

According to Anne Walker, economics lecturer and chair at Boise State University, fiscal and monetary policies take center stage during elections. The focus is on maintaining consistency while acknowledging potential uncertainties in trade policies. Additionally, the interaction between domestic and international factors adds complexity to the economic outlook for the upcoming year.

“I believe that when it comes to elections, there is significant continuity between monetary and fiscal policies. Both parties, more or less, follow a similar approach. The only notable difference is that Republicans tend to cut taxes,” Walker said. “There is considerable continuity, and not much uncertainty on that front. We can anticipate discussions revolving around raising the debt ceiling and increasing the national debt.”

Idaho’s economic growth and job market

Overall, Idaho stands out as one of the strongest economies in the country, with notable employment growth.

Before the pandemic, Idaho saw a significant employment increase of 11.5%, the highest in the country. In the past year alone, job growth in Idaho remained strong at 3.1%, ranking second-highest nationwide, compared to the national average of 1.8%.

“We see this really strong growth in Idaho employment — it’s the second highest job growth in the country over the last year,” Spendlove said. “Despite the economic uncertainty across the nation, Idaho remains at the forefront.”