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As 2023 wraps up, here are 10 big predictions for the new year...
1. The economy will dodge recession
The economy will dodge recession, barring an unforeseen shock to the system. A year ago, we believed recession was likely, in light of the classic warning indicators that were flashing. Yet the economy has proved unexpectedly strong, and that strength looks poised to continue in 2024.
Growth is likely to slow down, though. Figure on 1.7% GDP growth for the year, vs. 2.5% in 2023, as higher interest rates weigh on consumers and businesses alike. The first half of the year’s pace stands to be particularly slow, with activity picking up in the second half as interest rates start to ease a bit.
2. Inflation will finally get mostly reined in
Look for the headline inflation rate to fall to 2% before the end of the summer, but then turn higher, ending the year around 2.7%.
Core prices — inflation that strips out food and energy costs — will trend down from 4% now to 2.4% toward the end of next year.
3. Easing inflation opens the door to rate cuts
Look for the first cut in May, provided the Federal Reserve is certain that inflation really is coming down. More cuts could come at its June and November meetings. Still, that would leave interest rates much higher than they’ve been for most of the past two decades.
Wall Street’s hopes for rapid, frequent cuts look like wishful thinking. The Fed is only going to move fast if the economy stumbles badly — not the scenario that bullish investors have in mind.
4. The housing market won’t see much of a rebound
After a rocky 2023, home prices won’t fall, but they stand to rise at a slower pace. Modestly lower mortgage rates should help revive sales a bit. For sellers, it’ll be a tougher market. Demand should still be strong, but with more supply coming on the market, selling a house won’t be as simple as putting up a for-sale sign.
In general, homes will get fewer offers than this year, and more offers will require home inspections and other contingencies.
5. The global economy won’t thrive in 2024
Growth figures to be slower in every major economy than it was this year. The recent jump in interest rates is a headwind just about everywhere. Inflation is still painfully high in some regions. That said, there are some positives that should ward off a global downturn. Supply chains are largely repaired. Food and energy prices are cooling off. Most central banks will be cutting interest rates in 2024.
In short, it looks like a year of muddling through for most big economies and for global commerce. Of course, a host of geopolitical risks looms, as we note in our special issue. A new war or crisis could tip weak global growth into something far worse.
6. Odds favor a 2024 presidential rematch
The presidential rematch that polls show no one wants.
Joe Biden is on track to be the Democratic nominee again next year, despite a nominal primary challenge from Rep. Dean Phillips (D-MN). Phillips can’t beat Biden, but his campaign reflects discontent within the Democratic Party that will make it more difficult for Biden to hold together his 2020 winning coalition.
Donald Trump, meanwhile, continues to dominate the GOP primary. While Republican opposition to Trump is more united than it was in 2016, Trump has only grown stronger, despite legal woes that could ultimately land him in jail. We won’t speculate on a victor yet, but here are some wild cards to consider.
Biden lags Trump in the polling. But that could change as the election draws closer if Trump’s legal woes worsen and the economy continues to shake off inflation without stumbling. Biden could be dinged by the House GOP’s impeachment inquiry.
Trump is making inroads with nonwhite voters — Latinos in particular, a key factor in states like Nevada. But the GOP’s recent midterm disappointment suggests that Trump remains toxic among many white suburban voters, who helped propel Biden in 2020.
Third-party candidates threaten to take votes from both candidates: Cornel West, an independent likely to draw votes from Biden, and Robert F. Kennedy Jr., from Trump.
Most notably, two men as old as Biden and Trump may have unforeseen health issues.
7. Congress likely to OK a significant immigration reform bill
With Republican lawmakers adamant that further military aid to Ukraine come paired with stepped-up border security, and Biden desperate to prevent a Ukrainian defeat, the White House is prepared to make a deal. What exactly that will include isn’t clear, but it will entail increased powers to detain and expel migrants at the southern border. Progressive Democrats are crying foul. But Biden feels he must ignore them, to win more funding for Ukraine and to stem criticism of his handling of the border.
8. House Republicans will impeach Biden
There is no clear evidence of an impeachable offense yet. Time will tell on that. But Senate Democrats are sure not to convict.
The impeachment inquiry that the House GOP passed this month opens the door to a tougher investigation of the president’s son’s business dealings and tax cheating charges. A recent series of closed-door depositions will soon give way to high-profile hearings on Capitol Hill, focused on whether Biden engaged in an influence-peddling scheme with son Hunter.
Expect plenty of accusations and heated rhetoric from both sides. But not much else. In a closely divided Congress, it is hard to imagine any president being convicted now.
9. Speaker Mike Johnson will have the worst job in Washington
The speaker of the House is going to struggle to hold his GOP caucus in line, given how internally divided it can be. Plus, come January, he’ll be down to just a three-vote majority, which could slip to two votes after a February special election.
He won’t be booted out like his predecessor, Kevin McCarthy (R-CA), was. Republicans can’t afford another bitter fight over a speaker in an election year. But he’ll be constantly herding cats to pass bills over Democratic nay votes.
10. A new era of VR headsets that can win over regular folks
Apple’s much-awaited foray into VR is a big reason, with its Vision Pro costing $3,500. Don’t underestimate the tech giant’s ability to sway consumers to try, and eventually buy, a niche gadget, which hits Apple Store shelves early in 2024.
Meanwhile, market leader Meta and others continue to push the envelope with capable low-priced and high-end products. Meta’s Quest 3 headset runs $500, its Meta Quest Pro costs $1,000. Expect Meta to unveil new, low-priced models in 2024.
The current batch of VR headsets is impressive, with stunning graphics and an overall futuristic experience. Headsets have to get slimmer and other issues, like motion sickness and lack of content/apps, need fixing. That will take a few years.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
