The Economic Landscape

Ryan Heshmati

December 15, 2023

Earlier this week, Federal Reserve Chair Jerome Powell sent a positive jolt through equities. After indicating the potential for several rate cuts in 2024, the major indices all popped upwards on Thursday. Equities finally recovered from their significant falls in 2022, bringing the enthusiasm lacking for the last couple of years. The inflation issue, however, which has been plaguing the economy in recent years, has not entirely subsided, leaving uncertainty moving ahead.

This week, the Consumer Price Index saw inflation pegged at 3.1%, which, while significantly down from the 9% figure the economy was grappling with not too long ago, is still not at the target rate of 2%. Inflation has been incredibly concerning to Americans for quite a while now, but in a recent article, CNBC’s Rebecca Picciotto notes, “…surveys released in recent days suggest consumers may be starting to feel more optimistic about inflation.”

Much has been reported on what has been dubbed “Bidenomics,” with consensus among experts being that the economy is in much better shape than many believe. If consumer sentiment is improving, as Picciotto indicates, the gap between the economy’s true health and the perception of its health may be closing, 

On the other hand, it is important to note that several economic challenges should be of concern moving forward. While there is reason for optimism, bonds are still down, and rates remain high for now. While CNN’s Anna Bahney reports that mortgage rates are now falling below 7%, they are still ways away from the historic low rates seen only a few years ago.

Another form of debt Americans are deeply entrenched in is also worth concern: credit. In September, CNBC reported, "Credit card companies are racking up losses at the fastest pace in almost 30 years, outside of the Great Financial Crisis, according to Goldman Sachs.” This rise in delinquencies, in a nation where the average American household owes thousands on credit cards, certainly poses a problem, especially since the economy is supposed to be strong.

On a broader level, the American economy is at a critical point. Interest rates, firmly in the hands of the Federal Reserve, remain high, and inflation has not reached its target. Nevertheless, optimism seems to ring in both the Fed’s ears and the American consumers’. While there is cause to be positive about what the future holds for the American economy, mortgage rates also remain high, and credit card losses are up as of September. Should the Federal Reserve follow through and cut rates in 2024, the way that plays out in the American economy will determine whether or not current optimism is well-founded.