By Dario Bellot, Chief Financial Officer, Harcum College

With gas prices hovering around $3 per gallon, inflation in decline, and unemployment the lowest in decades, is an economy recovery a reality?

Not necessarily.

The stock market performed well in 2023. The S&P 500 gained 24 percent, the Dow Jones 14 percent, and the NASDAQ soared, increasing by more than 40 percent, in part due to a resilient economy. Investors were also buoyed by a December forecast from the Federal Reserve, which indicated it plans to cut interest rates three times in 2024.

Considering the increases in consumer prices combined with the Federal Reserve aggressively raising interest rates during the last year, some economists agree that the U.S. economy has performed with remarkable resilience.

Does that mean interest rates will go back to the comfortable ‘old normal’ level?

Though high interest rates continue to negatively impact economies and consumer savings in some ways, the chances of a sharp decline in rates are low. Any return to the era of near-zero rates is not likely to happen any time soon.

More likely, consumer spending will continue to drive the economy’s upward turn even if interest rates remain high for the near future.

This is partially because wages and home values remain above pre-pandemic levels, which has helped support consumer spending. A federal spending spree, especially on infrastructure projects, has also supported economic growth of 2.4 percent for the U.S. economy in 2023, higher than 1.9 percent in 2022 but forecasts are not optimistic for a 1 percent GDP for 2024.

However, the solid economic growth in the United States is expected to boost global growth. The world’s two other largest economies, Europe and China, are expected to weigh down the global economy as both struggle with an increasingly difficult environment for trade and rising geopolitical tension.

It is not likely that the conflicts between Russia and Ukraine and also Israel and Palestine will resolve in 2024, furthering the drag on the global economy, resulting in a slower recovery than expected.

Germany, the biggest economy in Europe, is already contracting due to a sharp slowdown in manufacturing activity and waning demand from China, its largest trading partner. Meanwhile, the full 20-member Eurozone and the U.K. economies are slowing down and could have a more difficult time if international energy prices start to recover (which some energy experts seem to agree will happen).

The potential for higher energy prices in 2024 will feed into weaker industrial activity. This may be exacerbated by a continuing slowdown in China’s economy. As a result, many European companies may sit on large inventories in the upcoming year.

While some experts predict the European economy will pick up in 2024, it is likely to be a shallow recovery.

At the start of 2024, the economies of Japan and India seem to be steady and the largest countries where solid growth is expected internationally.

Back in the United States, will the expected rematch of the 2020 election affect the economy in 2024?

While inflation reduction will continue to be the main 2024 economic goal for the Federal Reserve and the current administration, a focus on the Presidential election will capture much of consumers’ and the markets’ attention. A ‘rematch’ of the 2020 election is likely to happen at this point, as well concomitant social media activity. One thing is for sure: Early election polls and predictions will set the mood for the second half of 2024 in consumer prices, investments, and the markets, which are all likely to influence the Federal Reserve.

“A broadening participation [of investment portfolio managers] predicated on falling interest rates and signs of a soft-landing scenario have underpinned the recovery,” noted Adam Turnquist, chief technical strategist for LPL Financial, in a research note earlier this month.

A resilient U.S. economy is a testament to the American consumer and the labor market’s durability. This certainly helped alleviate some of the experts’ worries about a potential recession in the near future. It could still happen, but the risk has declined significantly.

Get to Know Harcum!

Dario Bellot, M.B.A., is Harcum College’s Chief Financial Officer. A native of Argentina, he has over 25 years of education, finance, and operations experience in large global corporations and non-profit organizations. He also completed Wharton’s Executive Education program and the Main Line Chamber of Commerce Leadership Program. In 2023, he was appointed to the Governor’s Advisory Commission for Latino Affairs, Montgomery County.