Economic Outlook - January 2024
- The Federal Reserve kept the federal funds rate at a 22-year high in December, but seemed to indicate the hike in July could be the last for the foreseeable future. The Fed has been raising rates in an effort to bring inflation under control, after the CPI reached a four decade high of 9.1% in June of 2022. At the press conference, however, Federal Reserve Chair Jerome Powell noted that the Fed members are aware of risks created by keeping rates too high for too long. When questioned about potential rate cuts, he stated, “There’s a general expectation that this will be a topic for us looking ahead. That’s really what happened in today’s meeting.”
- In December, the Federal Open Market Committee had a median federal funds rate projection in 2024 of 4.6%. This is down drastically from September when they projected 5.1%.
- The yield on the 10-year Treasury continued to fall in December after briefly touching 5% in October, the highest since 2006. The 10-year Treasury, a key market indicator that affects student debt, auto loans and mortgage rates, now sits just below 4%.
- The market was not alone in closing the year on a bright note as mortgage rates fell in December to 6.61%. The U.S. Census Bureau and U.S. Department of Housing and Urban Development stated that building permits in November 2023 were 4.1% higher than November 2022, and housing starts were 9.3% higher. This could be the turnaround that home buyers, sellers and realtors are desperately looking for as the National Association of Realtors reported that November existing home sales – seasonally adjusted to 3.8M – was up slightly from the thirteen-year low reported in October. With that said, there could be fits and starts to the housing turnaround, as affordability is still challenging.
- The U.S. Department of Labor announced 199,000 nonfarm payroll jobs were added in November, moving the unemployment rate down slightly to 3.7%. The sectors that had the most gains were healthcare and government. Although the U.S. is still adding jobs, the growth is diminishing. Moderating job gains, combined with low employment and easing inflation, suggest a soft economic landing might be possible.
Sources: FactSet, Federal Reserve, Federal Reserve Bank of St. Louis, Freddie Mac, U.S. Department of Labor, U.S. Department of Commerce, National Association of Realtors
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