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 Inflation, recession, soft landing? Economist has not been ‘this optimistic about the economy in a long time’  

Economists are seeking many answers related to the economy in 2024. But optimism prevails. (Photo by Matias Baglietto/NurPhoto via AP)

Will we have a recession or a soft landing? Is inflation licked, or will it roar back? Will the housing market thaw? 

Economists peering into a crystal ball for 2024 are seeking many answers and — as they often do — are ready to point out many things that could throw a wrench into the United States economy.

“Making a bold prediction for the economy is always a hard thing, because economists are usually so dismal,” Northeastern University Labor Economist Alicia Modestino says, laughing. 

But might there be cheer in the new year? 

“I haven’t been this optimistic about the economy in a long time,” says Nancy Kimelman, assistant teaching professor of economics at Northeastern. “I’m an economist, so I have to come up with something (to be nervous about), but I’m not particularly nervous — we’ve seen a lot worse in the past three to four years.”

Unemployment has been below 4% for 22 months, a 50-year record. After hitting a 40-year high last year, inflation has fallen from 9.1% to 3.2%. As of the end of November, the S&P 500 has posted a total return of about 21% this year and is approaching a new high. The Nasdaq is up over 37%, and the Dow Jones Industrial Average recently breached 37,000, a record high, after the Federal Reserve’s most recent meeting ended with regulators holding interest rates steady and forecast three rate cuts in the upcoming year.

Gross domestic product grew at 5.2% in the third quarter, and the latest jobs report, which showed an addition of 199,000 jobs in November, has President Joe Biden touting an economic “sweet spot.”

Of course, consumers are not as optimistic as economists

Just 33% of the public approves of Biden’s handling of the economy, and only 16% of American adults say in an October AP-NORC poll that the economy was even “somewhat good.” More than 7 in 10 Americans in the poll labeled the economy as some level of poor, with 31% calling it “very poor.”

So, what might the future hold? Here’s what experts predict concerning the big economic questions of 2024.

A soft landing 

Will the Fed be able to bring down inflation without causing a recession? Economists were not unanimous in predicting a victory declaration, but they were pretty optimistic we’d avoid a recession.

“If a soft landing means the inflation rate has come down close to the Fed’s objective without there being a recession, then yes we seem to be on a path to a soft landing,” says Bob Triest, professor and chair of the Department of Economics at Northeastern University. “We’re not quite there yet, but the inflation rate has gone far down and economic conditions look quite good, so we’re almost there.”

In fact, Kimelman says, “I don’t know if there’s going to be a landing at all.”

“I try not to use the words ‘soft landing,’ which is everybody’s statement for what the next year is going to be like,” Kimelman says. “I don’t know what about it is going to be soft, and I don’t know if it’s going to be a landing at all — meaning I don’t think we’re going to have a recession. I don’t think we’re going to go kerplunk at all.”

Bill Dickens, professor of economics and public policy at Northeastern, concurs, albeit a little more concisely when asked about the possibility of a recession.

“No. Most certainly not,” Dickens says. 

But what will this mean for consumers? Modestino, an associate professor with appointments in the School of Public Policy and Urban Affairs and the Department of Economics at Northeastern, was a little less rosy.

“It looks to me like we’re in for a soft landing, which is excellent news for the Fed, although for probably lots of workers and consumers, it’s a ‘glass-half-empty-glass-half-full’ scenario,” Modestino says. “The soft landing means inflation will be down to around the 2% level, but price levels won’t drop — so whatever you’re paying now for rent, gas, groceries, you will be paying for the next year.

“So, we’re going to see a soft landing, and it will be a total non-event for consumers and workers but economists will be jumping up and down,” Modestino continues. “To say ‘look what we’ve avoided’ doesn’t feel so great now. People are much more focused on ‘what have you done for me lately.’”


And while inflation has dropped pretty rapidly to just over 3%, that trajectory is probably going to level off, economists say.

Dickens predicts an inflation rate next year of between 2.5% and 4%. That is higher than the Fed’s professed target of 2%, but is a level that Dickens thinks the Fed will find acceptable.

“There has been plenty of talk around the Fed that the 2% target is a symmetric target, which means that they’re indifferent between erring on the high side or on the low side,” Dickens explains. “Look what happened in the Great Recession: monetary policy has nowhere to move if there is low inflation and low interest rates.”

Experts differed, however, on what side the Fed will err.

Kimelman predicted that if the inflation rate changes, then it may rise slightly because of increased economic growth and workers continuing to get raises.

“My suspicion is it might increase a little bit in 2024, but not go haywire,” Kimelman says. “I think inflation numbers are going to not improve that much from now, but it’s fine — nobody’s going to quibble over 3% inflation, and what we saw (with the December Fed decision) is the Fed is not going to quibble: if we have economic growth and 3% inflation, they’ll take it.”

Modestino predicted the erring to be on the low side.

“Right now inflation is at 3%, which is not quite at 2%, but the Fed just held rates steady for the first time in a while, and it takes some time for interest rate hikes to move through the economy,” Modestino says. “So there’s potential for us to see more softening of inflation in the coming year, but not drastically.”

I haven’t been this optimistic about the economy in a long time. I’m an economist, so I have to come up with something (to be nervous about), but I’m not particularly nervous — we’ve seen a lot worse in the past three to four years.

Nancy Kimelman, assistant teaching professor of economics at Northeastern

Interest rates and the housing market

The Fed’s forecast of three interest rate cuts in 2024 added some predictability for markets — and they approved resoundingly. 

But will the Fed follow through? After all, interest rate changes are a major tool against inflation, and economists differed on whether that would rise or fall (albeit not drastically) in the next year.  

“I’m worried that inflation may be a little higher and derail the Fed’s preference to lower interest rates,” Kimelman acknowledges. “But making cuts two times versus three times is not devastating to the economy, but markets would be disappointed.”

That being said, any cuts in interest rates will benefit the housing market and businesses looking to invest and expand, Kimelman says.

“I think you’ll see more housing getting built and more businesses expanding and that is a huge plus for the economy,” Kimelman says. “What makes for ups and downs in the economy really comes in the form of business investment spending. If business investment spending is good, I think the economy will grow.”

Modestino says the predicted rate cuts “should feel like good news” for potential homebuyers and people looking to refinance their mortgage or buy a car. 

“That will help things out,” Modestino says. 

But don’t expect the housing market to drastically thaw.

“We need more supply coming on,” Modestino says.  

And Dickens saw housing being affected by political decisions much more than economic ones.

“Barring some big changes in zoning policies in big cities, I think that housing prices will continue to rise,” Dickens says. “(The housing market) is still pretty darn hot, and I think it will remain that way as long as real incomes are rising — which they are, despite the pessimism about the economy.”

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Potential problems

Now, to be sure, there are many ways that things could deteriorate economically in the next year.

All of those interviewed mentioned concerns about the Israel-Hamas war turning into a larger conflict in the Middle East, particularly if oil-producing nations get involved.

“We do have the possibility that if something unexpected happens, inflation could spike again,” Modestino says, describing the economy as “a little bit of a vulnerable spot.”

“We saw how quickly things can get out of control as when we came out of the pandemic,” Modestino continues. 

Dickens agreed, adding concerns about U.S.-China tensions — especially involving Taiwan and U.S. naval exercises in the region.

“Forget the economy, it would be very bad for the world in general if we were to go to war with China,” he says.

And U.S. politics is, of course, a wild card. 

“I was one of many people who predicted that Trump winning the presidency in 2016 would result in an economic disaster, and it didn’t — the economy did very well until COVID,” Dickens says. “This time could be different. … The plan to hire only loyalists and expand the range of political appointments as people are talking about, would mean losing an awful lot of really skilled people who are important to the functioning of the economy and its relationship to government.”

Overall enthusiasm

But these concerns were overshadowed by economists’ enthusiasm.

“I’m really excited about the investments we have made coming out of the pandemic,” Modestino says, citing specifically the Inflation Reduction Act. “Nobody will be untouched by climate change and the need to adapt and prepare for it, but I think it will open up a lot of innovation, job opportunities, etc. and all the ancillary jobs that go along with supporting that area of opportunity. I think that’s a great area of opportunity for us as a nation.”

Dickens agrees.

“There’s an awful lot of good news over the past several years that I’m not sure people are aware of about how much the cost of green energy has come down,” Dickens says. “I expect to see increased investment in green energy, some spurred by government policies but more because it’s economically viable, and I am excited to watch as Detroit transforms from making internal combustion engines to electrical engines and hybrids and the rest.”

Kimelman was excited about productivity numbers

“It’s like the silver bullet in economics,” Kimelman says. “It means companies are getting more work out of workers and they are being more productive, which is good for business. And it’s good for workers who have the opportunity to get paid more.”

And Kimelman sees more productivity coming as artificial intelligence is adopted.

“I’m really optimistic about the fact that as the economies of the world start to incorporate AI into their business models, I think it’s going to be a boost in productivity and that is an unequivocal good thing for our economy,” Kimelman says. 

“I’m looking at 2024 to be good,” Kimelman says. “There’s good stuff happening in the economy right now.”