Economic forecast: 3 things to know for 2024's 2nd half

The Federal Reserve indicated the likelihood of interest rate cuts in 2024—is this still on the horizon for the second half of the year?

So far in 2024, the U.S. economy has remained surprisingly strong amidst high interest rates and inflation that remains higher than comfortable for many. The most recent jobs report in June was stable, along with wage growth.

The question on everyone’s mind now seems to be, when will the Federal Reserve start to cut interest rates? Eric Freedman, chief investment officer at U.S. Bank, and Beth Ann Bovino, chief economist at U.S. Bank, share three things to expect for the second half of the year.

1. Inflation is falling, but not uniformly.

While inflation has slowed considerably from its peak in 2022, it’s still higher than the Fed would like to see before beginning to cut rates. The Fed has a 2% inflation target, and the annual inflation rate was 3.3% for the last 12 months through May.

Freedman doesn’t think the Fed needs to see that 2% before lowering interest rates, but they’re instead watching the data for evidence that it’s slowing at a steady pace.  

The sectors that have shown the biggest drop in costs are in the travel and leisure space, such as airfare, car rentals, hotel rates and gas prices. The main cause of still-elevated inflation are home and apartment costs, which continue to rise. While the latest data shows that apartment rents have been cooling for months in some cities, the risk is that housing costs remain elevated.

2. A “higher for longer” interest-rate situation.

There are several factors that the Fed takes into account when deciding to raise or lower interest rates:

• Inflation
• The job market
• Wage growth
• The real estate market
• Consumer and business spending

As stated previously, both the most recent jobs report and wage growth remained stable in June. Bovino notes that this is good for workers but not good for the Fed when it comes to cutting interest rates.

Additionally, consumer and business spending has been resilient so far in 2024, driven by the strong job market and wage growth. However, both Bovino and Freedman say that spending is slowing and debt is climbing among people of all income brackets.

Bovino says her team originally projected two rate cuts in 2024. However, with still-elevated inflation, a stronger-than-expected jobs report, wage growth and resilient consumer/business spending, she now wouldn’t be surprised if it were “one and done.”   

3. Consider moving extra cash into stocks and real assets.

The stock market has been trending upward over the last year, and Freedman and team see potential further gains in domestic large-cap stocks, particularly in asset classes like Information Technology and consumer discretionary stocks (vehicles, furniture, vacations, etc.). Freedman also mentions real assets like silver and gold as potential investment opportunities.

More important than what the markets or economy are doing is having and sticking to a financial plan. Focus on your financial goals and the time in the market it will take to achieve them rather than trying to time the market to score quick gains.

Want more details? Read the full interview with Freedman and Bovino or take a deep dive into the Q3 2024 investment outlook for the markets and economy.