Q1 Economic Review: Interest Rates As Key Indicators

By Max Fogel

Through the 1st quarter of 2024, economic growth continues to be steady with competing opinions as to the direction of interest rates. Market participants are anticipating near-term rate cuts by the Federal Open Market Committee (FOMC), while the Fed seems to be resisting lowering rates too quickly and allowing inflation to take hold again.

At Fogel Capital Management, we pay careful attention to key economic indicators to determine the best possible decisions for our clients so they can meet their own unique financial objectives. Interest rates have a significant influence on the economy, markets, and investor portfolios. 

Here are some areas we’re watching carefully as key indicators to economic and market growth, now that Q1 has passed. 

Economic Outlook

S&P Global Ratings has revised their projections for U.S. economic growth in 2024 and 2025:

• The cost of capital for businesses is expected to rise this year, curtailing capital expenditures and hiring initiatives.

Employment Trends

• Unemployment figures are expected to tick up over two years, from 3.9% currently to 4.6% in 2025.
• Despite this forecast, new job growth remains steady and robust, as evidenced by the March 8 jobs report of 275,000 jobs created in February, exceeding expectations.

Inflation and Federal Reserve Actions

• Global consumer price inflation is expected to decrease to 4.6% in 2024 and 3.1% in 2025, down from an average of 5.6% in 2023.
• Expectations are now for the first Fed funds rate cut to occur in June, followed by further rate cuts, totaling 75 basis points by year-end as disinflation and normalization in product and labor markets continues.

Mortgage Rates Overview and Forecast

• Mortgage rates have held steady just below 7% so far this year. Despite a slight surge, mortgage rates are expected to recede during 2024. Expectations by many mortgage experts are for rates to decline to the lower end of the 6% – 7% range by year-end, especially as the Fed follows through with rate cuts later in the year.
• Despite this, mortgage rates are expected to drop later this year while home prices are expected to increase 3.7% nationwide.
• Lower rates and low housing inventory may invigorate a hot housing market, however, in the longer term, rates are expected to drop into 2025.
• CPI reports for January showed inflation dropping to 3.1% instead of the expected 2.9%. Stubborn inflation may cause the FOMC to wait longer before considering rate cuts.

Federal Open Market Committee (FOMC) Decisions

• The FOMC (the Fed) did not change its key interest rates in January, as expected.
• The Fed said it needs to see lower inflation indicators before it can consider easing rates and stated that it was unlikely that such lower data would occur by its March meeting.
• The Fed did state, however, that raising rates any further was also unlikely. 
• The decision to keep rates steady could mean that interest rates on consumer credit (especially credit cards, mortgage rates, and auto loans) will remain at the highest levels in decades, putting a financial pinch on consumer spending.

The Fed’s Economic Projections

• In its post-meeting conference, Fed Chair Jerome Powell emphasized the strength of the U.S. economy and noted the success of recent Fed policies to bring inflation under control. Despite these efforts, however, Powell flatly cautioned that “inflation is still too high” and “ongoing progress in bringing it down is not assured and the path forward is uncertain.” The Fed Chair emphasized that more evidence of receding inflation is needed before rate cuts could be considered. The Fed is focused on achieving its goal of consistent 2% inflation.
• Despite these warnings, Powell did suggest that the Fed was on track to cut rates sometime in 2024, up to three times as stated in December, though he did not provide any comments as to the timing, emphasizing “the need to see continued evidence to build confidence that inflation is moving toward our goal.”

While it appears that the Fed funds rate and mortgage rates should decline over the course of the year, the timing of these declines remains uncertain, countered by a continued robust economy and housing market. 

We’re Here to Help

Navigating this complex economic and interest rate environment can be overwhelming. Let us guide you to sound, thoughtful strategies, custom-designed to your unique financial goals, objectives, and risk tolerance. If you’d like to learn more about how we can help, give us a call (772) 223-9686 or email mcfogel@fogelcapital.com.

About Max Fogel

Vice President, Private Wealth Advisor

Max joined Fogel Capital Management in the fall of 2022. As an Investment Advisor, Max works closely with our clients to help them confidently pursue their financial goals. Max began his career in finance in 2019 as a Financial Analyst on the Merchant Capital team at Maxim Group, where he advised pharmaceutical companies on raising capital through private placements. He quickly moved into traditional investment banking and joined Canaccord Genuity – Global Capital Markets, where he worked in the Technology, Media, and Telecommunication (TMT) division. During his time at Canaccord Genuity, Max advised on transactions totaling $350 million. In the summer of 2021, Max took on a role as a Senior Analyst at Madison Alley Global Ventures, where he provided expert advice on numerous transactions in the TMT sector. Max attended Indiana University, where he earned a Master of Science in Finance degree from the Kelley School of Business and a Bachelor’s of Science in Public Financial Management. He is registered as an investment advisor in Florida, New York, and New Jersey, and holds Series 7, 63, and 65 licenses. Max’s commitment to providing the highest level of service and expertise to our clients is evident in his work. He brings a wealth of knowledge and insights to the team, and we are proud to have him as an Investment Advisor on the Fogel Capital Team. To learn more about Max, connect with him on LinkedIn.