The average private student loan interest rates spiked for borrowers with credit scores of 720 or higher who used the Credible marketplace to take out 10-year fixed-rate loans and 5-year variable-rate loans the week of June 12, 2023. 

10-year fixed rate: 7.39%, up from 7.16% the week before, +0.23

5-year variable rate: 12.73%, up from 6.95% the week before, +5.78

This year is set to be a big one for Federal Reserve officials: They are expecting to cut interest rates several times as inflation comes down steadily, giving them a chance to dial back a two-year-long effort to cool the economy.

But 2024 is also an election year — and the Fed’s expected shift in stance could tip it into the political spotlight just as campaign season kicks into gear.

The post-COVID-19 economy was finally supposed to stop defying gravity and topple into a recession this year.

Instead, the stock market is roaring on the growing belief that the Federal Reserve is on track to wrestle down inflation without causing a downturn, a rare feat known as a “soft landing.”  

To be sure, growth is expected to slow amid the delayed effects of the Fed’s aggressive interest rate hikes, the depletion of households’ excess pandemic savings and a pullback in federal government spending.

Call it a Christmas miracle: Inflation around the globe is slowing way faster than expected. If economists are right, that gift will keep on giving next year, bringing inflation back to normal levels for the first time in three years.  

Goldman Sachs economists estimate that core inflation, which excludes food and energy, in the group of economies that experienced the post-Covid inflation surge—the U.S., Europe and several emerging markets—ran at a 2.2% annualized pace over the three months ended November.

The United States avoided a recession in 2023, but the economy is still not out of the woods heading into a 2024 filled with uncertainties.

The Federal Reserve has raised interest rates to highs not seen since before the Great Recession. The Fed’s current rate target is 5.25% to 5.50%, a level designed to tamp down demand and thus inflation. Historically, though, rate-hiking cycles raise the risk of an economic downturn.

The Federal Reserve appears to be creeping closer to an outcome that its own staff economists viewed as unlikely just six months ago: lowering inflation back to a normal range without plunging the economy into a recession.

Plenty could still go wrong. But inflation has come down notably in recent months — it is running at 3.1 percent on a yearly basis, down from a 9.1 percent peak in 2022. At the same time, growth is solid, consumers are spending, and employers continue to hire.

Money is the economy’s fuel. When it surges, nominal GDP (real GDP plus inflation) surges. When it plunges, spending plunges. This is what the well-known and robust quantity theory of money, which has been around since the 16th century and was in recent decades championed by Milton Friedman, tells us. It’s also what common-sense, do-it-yourself economics tells us: Substantial changes in the money supply, broadly measured, make the real economy and prices, with lags, go up and down.

Calling for recession is contrarian now

At the start of 2023, it was banal to forecast a near-term recession. Today, it’s a risky call. Most economists now see a soft landing as the likeliest way this cycle ends, for good reason. Inflation keeps surprising to the downside. Consumption has powered through high rates. Behind it all is a rock-solid labour market, which added another 200,000 net jobs in November, 50,000 above consensus estimates. As Claudia Sahm argued in our latest Friday interview, supply improvements foiled recession calls.

The Federal Reserve said Wednesday it will hold interest rates steady at a 22-year high for the third consecutive meeting, as US economic growth slows and investors look toward the beginning of rate cuts sometime next year.

The Fed has raised rates 11 times since March 2022 to combat high inflation, which has slowed markedly after hitting a four-decade high last summer.

The Federal Reserve held interest rates steady and signaled inflation had improved more rapidly than anticipated, opening the door to rate cuts next year.

Most officials penciled in three interest rate cuts for 2024 in projections released after their two-day meeting on Wednesday.

Officials have hesitated to declare mission accomplished and were careful not to rule out higher rates in their policy statement, which was little changed from recent versions that have said tighter policy remains possible.