National Outlook: United States

The US economy is poised to grow at a 2.3% average pace in 2024 and slow to 1.7% in 2025¹. The US ended 2023 on a high note, which is boosting the average growth rate in 2024, despite a marked slowdown on a quarter-to-quarter basis. 

Growth dropped to 1.3% in the first quarter of 2024, well below the 3.4% pace of the fourth quarter. Much of that shortfall was due to a deterioration in trade and drop in inventories. Consumer spending weakened, with spending pivoting from goods to services, where inflation has proven stickiest.  

We have forecast the US economy will accelerate a bit midyear as inventories are rebuilt and government spending rebounds. The budget battles that stymied federal spending have been resolved.

Uncertainty surrounding the outcome of the election is expected to act as a tax on activity at year-end. The two top presidential contenders are well-known but not well-liked. Polls show them neck and neck. That lack of enthusiasm means we may see a victory in the electoral college, without a majority of the popular vote.

Independent candidates have a nearly impossible path to victory as they are not allowed on the ballot in all states. The only independent candidate ever to win a presidential election was George Washington in 1789.  

Heightened periods of policy uncertainty, which plagued the 2000, 2016 and 2020 elections, tend to act as a tax on economic activity. Firms and households delay big spending decisions until they are sure of how the policy landscape may shift. 

The Federal Reserve is expected to remain on the sidelines until it is convinced that inflation will return to its 2% target. That is not expected to occur until late in the year, with the first rate cut occurring in December.

Consumers have begun to push back on price hikes as goods prices are cooling. However, supply chains remain fragile; additional shocks are likely. The National Oceanic and Atmospheric Administration is forecasting a record number of storms, which destroys property, boosts materials costs and wreaks havoc upon supply chains. 

Insurers are still catching up with the losses associated with a record-breaking 28 disasters which caused more than one billion dollars each in property damage last year². Those shifts are adding to the persistent rise in service prices via higher insurance premiums. This is while wage gains remain well above the levels consistent with a return to the Fed’s 2% inflation target.

The Fed is attempting to cool the economy without sending it into a deep freeze. The threshold to hike rates is higher than the threshold to cut rates. An unexpected weakening in the labor market would prompt more aggressive cuts in 2024. 

We have forecast another five rate cuts for 2025. The Fed is expected to stop cutting with the Fed funds rate in the 2.75% to 3% range, barring a recession. That is well above the 1.5% to 1.75% range prior to the pandemic.

The slow-moving and tepid world we left in the 2010s is being replaced by a more volatile world that is more susceptible to bouts of inflation in the 2020s. Global fragmentation, hot wars, climate change and the federal debt needed to address these problems will add to inflationary pressures. That will leave us with a more activist Fed and prevent it from returning to the ultralow rates of the 2010s for an extended period.