The Federal Reserve, Inflation, and Market Outlook for 2024
Introduction
The sentiment sweeping across markets is that the Federal Reserve is done raising rates and that inflation is tamed. Since Oct. 13, we have seen a surge in the stock market. The “Santa Claus rally,” indeed, is in full swing.
Market Speculation
Many believe that the market may be experiencing a bit of what former Fed chairman Alan Greenspan might have called “irrational exuberance.” While this expression may bring back memories of the mid-1990s, it is important to consider whether the market is getting ahead of itself.
Election Year Influence
One factor drawing buyers into the market is the historical trend of markets being higher on Dec. 31 in presidential election years compared to Jan. 1. This pattern may continue into 2024. However, it is crucial to note that there will be numerous nationwide elections globally, which could introduce uncertainty in the latter half of the year. Even the U.S. election could potentially cause market turmoil, given recent rulings on election cases.
Inflation Concerns
While inflation has come down, it is not yet tamed. With inflation currently at 4 percent, it remains above the traditional target of 2 percent or less set by the Federal Reserve. Additionally, GDP growth is not at the desired 3 percent level. The slowing of China’s economy may help control inflation but could negatively impact GDP growth.
The Federal Reserve’s Stance
The Federal Reserve is currently on hold, with no expected rate declines in the near future. Looking at CME Fed Funds futures, there are no anticipated changes at the next Fed meeting in 40 days. While there is a higher probability of lower rates at the subsequent meeting, this sentiment can change quickly based on economic indicators such as unemployment rates or price indexes. The current downward trend in oil prices alleviates some pressure on overall prices.
Market Outlook for 2024
The first quarter of 2024 is expected to see an increase in initial public offerings (IPOs). Many companies have been waiting for a positive market environment after a challenging year in 2022. The recovery of the market this year has encouraged companies to go public and take advantage of favorable conditions.
Artificial intelligence (AI) companies, particularly in the fields of medicine and supply-chain management, are expected to make significant gains in 2024. Despite being in their early stages, AI solutions have attracted substantial investments, especially in Silicon Valley. For example, Guac, a company that uses AI to predict sales and manage inventory for grocers, recently received funding. This technology can help reduce food waste and improve efficiency, ultimately lowering food costs for consumers.
Economic Policy and Growth
Bidenomics has had a negative impact on economic growth. The economic policies implemented by the current administration have been criticized. However, the resilience of the free enterprise system based on capitalism has historically allowed the American economy to find ways to grow, even in challenging times.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
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