Ryan Severino: Expert Analysis of 1H 2024 Economic Trends and Federal Reserve Predictions
In the latter half of 2023, numerous reports and articles predicted a moderate decline in economic conditions, slower job growth, and a “soft landing” or mild recession for the year ahead. These forecasts also anticipated three cuts to the Effective Federal Funds Rate (EFFR) by the Federal Reserve.
However, as we approach mid-2024, there has been no sign of a mild recession or any interest rate cuts. Connect CRE sought out expert opinions on how the first half of 2024 has played out so far and whether we can expect any changes to current interest rate strategies from the Fed.
The First Half – Expectations vs Reality
Most experts agree that overall economic performance in these past six months aligned with initial predictions.
“The first half of 2024 met our expectations quite well,” says Ryan Severino , Chief Economist at BGO . “We anticipated an economic slowdown which would support fundamentals in commercial real estate markets.” Ray Perryman Group President & CEO Ray Perryman concurs that “performance thus far is largely consistent with our forecast.”
Omar Eltorai , Director of Research at Altus Group notes some surprises such as continued inflation despite not being expected. He adds that he underestimated investor appetite for public securities but remains perplexed by high equity indices concentration and investors’ willingness to pay for future earnings growth.
On another positive note, job market performance exceeded all expectations with over one million jobs added within five months this year alone. Radix Chief Economist Jay Denton explains this was necessary due to increased levels of new multifamily supply while maintaining steady occupancy rates around 94%.
Eric L Enloe , Senior Managing Director at Partner Valuation Advisors notes an expected rebound in transactions hasn’t yet occurred but sees positive trends emerging particularly within industrial and multifamily sectors. Trepp Research Director Stephen Buschbom adds that while the increase in CMBS delinquency rates was expected, private-label CMBS issuance has been stronger than anticipated due to single-asset, single-borrower transactions.
The biggest surprise has been the Federal Reserve’s decision to continue with its “higher-for-longer” policies. Buschbom says that at the end of 2023, market consensus predicted rate cuts by mid-2024. However, we are now approaching this timeline and it seems likely that a cut may occur in fall instead.
What Does The Fed Say?
With apologies to Ylvis and their hit song about foxes from 2013 , recent Bureau of Labor Statistics numbers have raised questions about what actions (if any) will be taken by the Federal Reserve at their upcoming meeting on July 30-31st. CPI numbers released on July 11th showed a promising year-over-year increase of all-items index by three percent but also saw a month-over-month drop for CPI among urban consumers.
However, experts suggest not expecting immediate EFFR cuts just yet as Severino points out there is still room for inflation reduction despite current economic slowdowns: “We did not expect any Fed action before late this year at earliest.” Jay Denton explains with four meetings remaining in this year alone; it’s uncertain if immediate cuts will take place or not: “The November meeting falls two days after elections which many believe should be avoided due to political issues.” If there are any changes made they’ll most likely happen either September or December according to Denton.
Chandon Economics Vice President & Head of Research Jonathan O’Kane believes markets anticipated three-in-five chances for rate-cuts come September and nine-in-ten chance before years end but expects GDP growth forecasts might delay these decisions further into next quarter saying: “…I’d expect some kicking down road…odds favor some move [by] FED [but] not by much.”
Perryman also expects the Fed to continue its wait-and-see approach until there is more clarity: “I expect at least one interest rate reduction this year and believe there will be opportunities for more.” Buschbom adds that if inflation remains low, we may see gradual easing of current policies as long as job growth slows down. Enloe notes that while a 25 basis point cut before years end seems likely, it’s important to keep an eye on 10-year Treasury yields which have already dropped by half since April despite no action from the Fed.
In conclusion, experts agree that economic performance in first half of 2024 has been largely consistent with initial predictions but some surprises did occur. While immediate EFFR cuts are unlikely according to most sources; they do anticipate possible changes later this year depending on future data and market conditions.
