What to Expect From the Economy in 2024

At this point, it would be more than fair to say that 2023 ended up being a pretty good year for the economy. Inflation cooled, unemployment remained low, and the economy (as measured by gross domestic product) grew nicely. Despite many financial experts calling for a 2023 recession, the economy has been anything but sluggish this year.

But what's in store for 2024? Without a crystal ball, we can't say for sure. But here are some predictions based on what we know so far.

GDP could slow and unemployment could rise

During the third quarter of 2023, gross domestic product (GDP) rose 5.2% on an annual basis. But the Federal Reserve Bank of St. Louis expects GDP growth to slow in 2024. It also anticipates a modest uptick in unemployment in the new year.

Before you panic, though, realize that this does not necessarily mean the U.S. economy will enter a recession in 2024 -- even though some financial experts are still cautioning that might happen. The aforementioned projection still calls for relatively low unemployment, even if current levels rise.

Inflation will be the big wild card

As of October, annual inflation, as measured by the Consumer Price Index (CPI), was 3.2%. That's still a notable notch above the 2% inflation rate the Federal Reserve likes to target in the long run.

Inflation will no doubt play a big role in shaping the economy in 2024. And right now, it's hard to say whether inflation will hold steady at or around its current level, rise, or continue to cool.

Now, interestingly enough, inflation is actually a sign of a healthy economy. That's because it stems from there being more demand for goods and services than there is supply.

But the Federal Reserve wants to see inflation continue to fall. If it doesn't, the central bank might opt to raise interest rates the same way it did numerous times last year and earlier this year.

Those interest rate hikes could do the trick of bringing inflation back down to 2%. But they could also cause damage to the economy.

When interest rates rise, consumers tend to face higher borrowing costs for everything from credit card balances to auto loans. And if more rate hikes come down the pike, consumers might cut their spending to avoid taking on such high interest rates.

That could narrow the gap between supply and demand that's been causing inflation to remain stubbornly high. But it could also fuel a broad economic downturn.

To be clear, that's not what the Fed wants, so it will no doubt aim to tread lightly in the context of interest rate hikes. But it's hard to know what to expect.

How to set yourself up for 2024

Clearly, we don't know exactly what's in store for the U.S. economy in 2024. If you're worried about things getting worse, do yourself a favor and work on boosting your savings account balance. The more money you have set aside, the more protection you buy yourself in case the economy worsens and you end up losing your job or seeing your hours reduced.

It's also a good idea to work on paying off high-interest debt, like a credit card balance, in case interest rates continue to rise in 2024. Having less debt could also make it easier to get through a period of unemployment.

There's no clear reason to expect bad things from the economy in the coming year. But we can never really write off the possibility of a recession.

So keep that in mind as you map out your savings goals in the coming months, and also, pay attention to economic news for signs of a downturn. That might motivate you to do things like not only boost your cash reserves but perhaps avoid committing to larger expenses, like a new loan, in the near term.