Where the American Economy Stands

Ryan Heshmati

May 3, 2024

In an election cycle, the economy, which is already a pretty important issue for Americans, can often take center stage. In fact, Democratic political strategist James Carville is famous for asserting that often in elections, it comes down to “The economy, stupid!” This week has been an important one for economists, as the Federal Reserve announced its decision to keep rates steady on Wednesday, and unemployment data came out on Friday.

On interest rates, the Federal Reserve has taken a cautious approach, fearing the reignition of inflation that plagued the economy only a couple of years ago; Chair Jerome Powell has been in no rush to lower rates. The impact on Americans has been significant, however. Not too many years ago, homebuyers were locking in 30-year fixed mortgages with interest rates in the 2-3% range. That party, however, came to a screeching halt as the Federal Reserve raised rates to combat inflation. In turn, mortgage rates were affected, and as of May 3, 2024, CNET Money pegs the average 30-year fixed rate at 7.36%. With the Federal Reserve’s move Wednesday to keep rates still, the timeline for an easier environment for borrowers got lengthened.

Friday, the Bureau of Labor Statistics released unemployment data indicating a tick upwards to 3.9% for April, compared with 3.8% in March. The cooling job market, as Reuters reports, could be a positive for the Federal Reserve, indicating its contractionary monetary policy is effectively reigning in the economy. With inflation on virtually everyone’s mind, this development could signal a more receptive Federal Reserve to the prospect of rate cuts. 

Inflation struck fear into the pocketbooks of American consumers when, in mid-2022, it rapidly rose to the 9% figure. Of course, inflation is nowhere near those levels today, but that may not be how the average consumer looks at the situation. While the rate of inflation may have decelerated, prices did not go down. As a result, frustrations may still permeate amongst those who compare their grocery bills to those of five years ago.

Ultimately, the Federal Reserve has determined it has not finished fighting off inflation with elevated interest rates. While that may continue short term pain for recent and prospective homebuyers, the cooling of the labor market could be cause for optimism. Of course, all of this occurs during an already unprecedented election for a litany of other reasons. With that in mind, how the economy looks like today may be less important than how it does in November.