S&P Global U.S. Forecast Update January 2024

Jan. 8, 2024

By Delaney O’Kray-Murphy, EBRC Research Economist

Given improved inflation outlook, Fed rate cuts expected to begin in March 2024

S&P Global have released their January 2024 forecast update for the U.S. The current forecast is based on the following assumptions:

The forecast includes the Fiscal Responsibility Acts of 2023. The forecast reflects current corporate tax law and personal income tax policy. Pandemic-era programs expire on time (Child Tax Credit, SNAP extension, Medicaid increase). Forbearance on student loans ended August 31, and payments resumed October 1. Scheduled Social Security and Medicare benefits are paid beyond the projected exhaustion of those funds.
The Fed is assumed to maintain its policy rate at a range of 5.25%-5.50% until March. Starting in March, the Fed cuts its policy rate four times in 2024, to the range of 4.25%-4.50% by December, and eventually to 2.50%-2.75% by early 2026. The Fed’s balance sheet declines by about one-third through 2024.
Tariffs and trade agreements between the U.S. and China since 2017 are assumed to continue.
Real foreign GDP contracted by 4.7% in 2020. Growth rebounded to 5.6% in 2021 and then decelerated to 3.4% in 2022. The forecast calls for it to slow again in 2023 to 2.0% then rebound to 2.5% by 2026.
The price of Brent crude oil rose to $113 per barrel in the second quarter of 2022, up from $80 per barrel in the fourth quarter of 2021. The price is forecast to drop to $76 per barrel in 2025, in response to slowing global growth.

The baseline forecast (summarized here) is assigned a 55% probability. The pessimistic scenario is assigned 30% and the optimistic scenario is assigned the remaining 15%. These percentages are unchanged from December.

After increasing by 1.9% in 2022, the baseline forecast calls for real GDP growth to edge up to 2.4% in 2023 and drop to 1.7% in 2024. On a quarterly basis, the forecast calls for real GDP to increase through 2033 (no recession).

Headline inflation spiked in 2022 to 8.0%. It is forecast to decelerate to 4.1% in 2023 and 2.7% in 2024.

The unemployment rate peaked at 8.1% for the year in 2020 but fell to 5.4% in 2021 and again to 3.6% in 2022. It is forecast to remain at 3.6% in 2023 and rise to 4.0% in 2024.

Nonfarm payroll jobs nationally dropped by 5.8% in 2020 but rebounded with growth of 2.9% in 2021 and 4.3% in 2022. The forecast calls for jobs to rise by 2.3% in 2023 and 0.8% in 2024.

Housing starts surged in 2021 to 1.61 million units. Activity remained strong in 2022 at 1.55 million. The forecast calls for starts to drop to 1.41 million in 2023 and 1.39 million in 2024, as interest rate increases take a toll on housing activity.

Exhibit 1 summarizes the January 2024 forecast from S&P Global. Exhibit 2 shows the December 2023 projections and Exhibit 3 shows the difference.