2024 Economic Forecast: Faltering Labor Market and Booming Stock Market

I'm going to make an economic forecast for 2024.

Back in November of 2016, with Trump coming into office, I made this forecast. (The full forecast is

 https://rwrld.blogspot.com/2016/11/a-stimulus-boom-and-white-men-dancing.html
)

"The next four years will be great and it's perfectly plausible that unemployment will drop below 4% within two to three years. We might even see the uninterrupted run of positive job creation run out another four years, as absurd as that sounds."

We did see an uninterrupted run of positive job creation for 3 more years (finally interrupted by a global pandemic).
And unemployment did (absurdly) drop below 4% in less than two years.

No real economist would have made those forecasts so you can be glad that I only play one in my blog.

So what outlandish forecasts do I have for 2024? A booming stock market and a faltering job market. And really, both seem to me simply natural consequences of Powell's rate cuts finally kicking in and the resultant need to quickly reverse that.

First of all, the Fed's higher rates are going to finally have an effect on aggregate demand. Powell has never once spoken to his theory of how long is the lag between his hiking rates and when that would reduce inflation. Inflation has come down but there is little evidence that it worked through the mechanism of higher rates - which lowers investment and borrowing and thus spending and prices. Most of the evidence seems to point to prices simply dropping as post-pandemic supply chains have slowly returned to normal and the world has gradually found substitutes for Putin's oil. I suspect that in early 2024 Powell's higher rates are going to finally impact spending and GDP growth will begin to falter. This will come largely after inflation has abated and we could even see a quarter or more of deflation. This is going to be bad for the labor market and we could see a month or three of job losses before yearend. (I doubt that it'll be anything major but you won't know that from all the cries of alarm.) At that point, Powell will rapidly begin dropping rates but of course ... the lag means it won't change things in the labor market very quickly. It will - though - change things in the stock market. All else being equal, lower real interest rates raise the value of assets and if Powell lowers rates more quickly than expected, the stock market will rise more than expected.

Capital markets will be happy with the sudden rush to lower interest rates. Faltering labor markets will be the reason for this rush.

2024 Forecast?

• Unemployment rate will rise above 4% and we will have perhaps one quarter of job losses.
• Stock prices will rise along with the unemployment rate. Perhaps dramatically.

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These 2 images were generated by DALL-E. One a booming stock market and the other a scone line where people are lined up in a coffee shop looking online for work.