Economic Outlook for 2024: What Investors Should Know | The Art and Science of Successful Planning

Despite high interest rates and ongoing geopolitical tensions, the U.S. economy exceeded most economists’ expectations in 2023. Real GDP grew at an annualized rate of 5.2% in Q3, following 2.1% in Q2 and 2.2% in Q1.

Inflation, measured by the 12-month change in the personal consumption expenditures (PCE) price index, dropped to 3.0% in October 2023, down from 5.5% at the start of the year.

The labor market remained strong, although it cooled slightly. The unemployment rate rose from 3.4% in January to 3.9% in October, still low by historical standards.

2023 Economic Forecasts vs. Reality

These results were encouraging, especially considering that most economists polled in January 2023 expected a U.S. recession by year-end. However, the economy proved more resilient than anticipated.

What Lies Ahead for 2024

If you are an investor, business owner, or employee, you likely care about the economic outlook for 2024. Economic projections rely on educated guesses. Analysts in both public and private sectors use a wide range of indicators, risks, and market conditions to make forecasts.

Current predictions suggest that the economy is entering 2024 from a more stable position. While uncertainty remains, growth prospects look promising, and the labor market continues to show resilience.

Fed policies and official forecasts on the Economic Outlook for 2024

Since March 2022, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve has raised the benchmark federal funds rate aggressively to control inflation, which had climbed to its highest levels in 40 years.^6–7 Raising interest rates is meant to slow economic activity by making it more expensive for consumers and businesses to borrow money, which discourages spending.

In November 2023, the Fed paused its rate hikes for the second meeting in a row, leaving the federal funds rate in a range of 5.25% to 5.5%, a 22-year high.⁸

Economic projections released at the FOMC’s September meeting indicated that slower GDP growth is expected, with a median projection of 1.5% in 2024. This was an improvement from 1.1% in the previous forecast. The committee expected PCE inflation to continue declining and end the year at 2.5%, which would still be higher than the Fed’s 2.0% target, and that the unemployment rate would tick up to 4.1% (based on median projections).⁹

Polling the pros

In October 2023, The Wall Street Journal’s Economic Forecasting Survey found that a recession is no longer the consensus view of 65 top business and academic economists polled every quarter. On average, the group expects real GDP growth will slow to 1.0%, the unemployment rate will rise slightly to around 4.0%, and inflation (measured by the consumer price index) will fall to 2.4% by the end of 2024.¹⁰

Nearly 60% of the economists believed the Fed was finished hiking interest rates, and roughly half thought that rate cuts would begin in the second quarter of 2024, in response to signs of weakening growth.¹¹

At the same time, some economists were still not convinced that the U.S. economy is out of the woods. As recently as November 2023, the Conference Board predicted that a very short and shallow recession will begin early in 2024.¹²

Global growth trends and the economic outlook for 2024

According to the Organization for Economic Co-operation and Development’s September forecast, the global economy is expected to grow 3.0% in 2023 before slowing to 2.7% in 2024. In China, the growth rate is forecast to weaken from 5.1% in 2023 to 4.6%, due to its struggling property market and reduced domestic demand. Growth in the Euro area is expected to improve from 0.6% in 2023 to 1.1% in 2024. Inflation is expected to decline gradually, but to remain above central bank objectives in most economies.¹³

The problem with projections

Economic forecasts can help guide certain financial decisions. However, it is important to understand their limitations. Economists often revise their projections, especially when unforeseen economic disruptions occur. Recent years highlight how difficult it can be to predict the impact of unexpected events.

Potential wild cards in 2024 include:

Losses from severe weather
Fluctuations in oil prices
Political conflict within the United States
Expansion of the war in Israel, which could affect the fragile global economy

Fed Chair Jerome Powell called on Fed forecasters to remain flexible in his November 2023 press conference. “Of course, even with state-of-the-art models and even in relatively calm times, the economy frequently surprises us.” He continued, “Our economy is flexible and dynamic, and subject at times to unpredictable shocks, such as a global financial crisis or a pandemic. At those times, forecasters have to think outside the models.”¹⁴

The financial markets could continue to react — and occasionally overreact — to economic news and policies announced by the Federal Reserve. But that doesn’t mean you should do the same. As always, it’s important to maintain a long-term perspective and invest strategically based on your financial goals, time horizon, and risk tolerance.

Contact us to review your investment portfolio or to set up a new account. Forecasts are based on current conditions, are subject to change, and may not come to pass. All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost.

1, 4–5, 10–11) The Wall Street Journal Economic Forecasting Survey, 2022–20232,

7) U.S. Bureau of Economic Analysis, 20233) U.S. Bureau of Labor Statistics, 20236,

8–9) Federal Reserve, 2023

12) The Conference Board, 2023

13) Organization for Economic Co-operation and Development, 2023

14) thehill.com, November 8, 2023

FAQs:

1. How did the U.S. economy perform in 2023?

GDP Growth: The economy grew faster than expected, with 5.2% annualized growth in Q3, following 2.1% in Q2 and 2.2% in Q1.
Inflation: PCE inflation dropped to 3.0% in October 2023, down from 5.5% at the start of the year.
Labor Market: Unemployment rose slightly from 3.4% in January to 3.9% in October, still historically low.

2. What is the U.S. economic forecast for 2024?

GDP Growth: Federal Reserve projections indicate 1.5% median GDP growth, while some surveys of economists expect around 1.0% growth.
Inflation: PCE inflation is expected to fall to about 2.5%, slightly above the Fed’s 2% target.
Unemployment: Forecasts predict a modest increase to around 4.0–4.1%.

3. Will the Federal Reserve raise interest rates in 2024?

Most economists believe the Fed has paused rate hikes as of November 2023, with no further increases expected in the near term.
Roughly half of economists anticipate that rate cuts may begin in Q2 2024 if growth weakens.

4. Is a recession expected in 2024?

Opinions vary:
- Some economists and surveys no longer expect a recession.
- Others, like the Conference Board, forecast a short and shallow recession early in 2024.
The economic outlook remains uncertain, with multiple factors influencing growth.

5. How is the global economy expected to perform in 2024?

Global growth: Projected at 2.7%, down from 3.0% in 2023.
China: Growth expected to slow from 5.1% to 4.6% due to a weak property market.
Euro area: Expected to improve from 0.6% to 1.1%.
Inflation: Likely to decline gradually but remain above central bank targets in most economies.