Another year has come and gone without a serious economic downturn, despite issues like continued high prices. That meant a victory lap of sorts for the Federal Reserve’s Patrick Harker at this year’s Lyons CEEE Economic Forecast at the University of Delaware.
Harker, president and CEO of the Federal Reserve Bank of Philadelphia, had been positive about the Feds’ ability to reign in inflation at last year’s forecast, and this year he could point to statistics backing up his predictions. He stayed bullish this year about continuing that momentum.
Harker did point to some worrying signs. Other panelists at the event also offered a mix of cautious optimism and concern about an economy that, while normalizing, still doesn’t seem to have fully recovered from the whipsaw of the pandemic.
The Economic Forecast is hosted annually by Lyons Companies and UD’s Center for Economic Education and Entrepreneurship at the Alfred Lerner College of Business and Economics. It brings together expert analysts to peer into market trends and offer insights on what could lie ahead.
A large crowd of nearly 300 filled the seats at the Audion in the Tower at UD’s Science, Technology and Advanced Research (STAR) Campus. Economic experts in addition to Harker included Michael Farr, chief market strategist for Hightower Advisors and founder and CEO of Farr, Miller and Washington; and Hilary Provinse, executive vice president, production and capital markets at Berkadia. Nick Timiraos, chief economics correspondent for the Wall Street Journal, led the panel discussion.
Here were some of the topics at the forefront of the discussion about what’s to come in the 2024 economic year.
Future of interest rates
With the ongoing specter of inflation, and with Harker in the room, whose opinion on interest rates carries considerable weight, a major topic of conversation was what to expect from the Fed on rates.
Last year, Harker suggested rates would continue to rise, despite investors clamoring for a break. This year, he predicted rates could start coming down slowly as the economy cools, with the goal of promoting a “soft landing.”
The disinflation pace has picked up, Harker said, consistent with the target of 2 percent annually.
“I do believe that we may be in a position to see rates decrease this year,” he said. “But I would caution anyone from looking for it right now, and right away. We have time to get it right.”
Don’t look for a dramatic rate reduction, though. “I find our greatest economic risks coming from acting to lower the rate too early, lest we reignite inflation and see the work of the past two years unwind before our eyes,” he cautioned.
Harker is keeping a close eye on transportation, food and shelter, he said, as those most directly impact American families.
“It’s the labor market that I’m most focused on right now,” he added, saying it has come back into a better balance.
Recession fears aren’t gone
Last year, Farr predicted a recession. It didn’t happen, but his worry has been shared by investors and economic observers for years now.
As Farr summed it up, “Bull markets don’t last forever, and they don’t die of old age.”
He likened the dragged out uncertainty to slowly ripping off a Band-Aid.
“I know (the market is) coming down, and I don’t know how it’s stayed up as high as it has.”
He gave credit to federal policymakers for their careful handling of rates and inflation. “I didn’t expect the Fed to get it right. They got it right, so I got it wrong. So far.”
Farr eased off on his predictions this year, but noted people’s pandemic savings are depleted, economic inequality abounds, banks have tightened their lending standards, and interest rates are still up. He also slammed the government’s deficit spending, calling it unsustainable. “Guess what we’re doing about it? We’re adding to it,” he said.
He wasn’t alone in his concerns, as the other panelists pointed to what they saw as some of the same weak spots, returning to themes raised last year as well.
While consumer spending is still strong, Harker noted — and is a large part of what’s keeping the economy humming — delinquencies among some borrowers are rising, including among young people and lower-income families, as people burn through their savings and put more spending on their credit cards.
“It is something clearly that we have to watch,” he said.
What markets, economists and Americans in general are looking for more than anything is a reduction of uncertainty, Harker said. The Fed can’t give perfect certainty, Harker added, but “I do think we can give some certainty in terms of a consistent process to move us back.”
Commercial real estate has its struggles
A decade ago, Provinse said, she never would have expected the economy to keep thriving so long and feature such low interest rates.
“It was an amazing run, but it came to a screeching halt — commercial real estate — this past year,” she said, pointing to a “precipitous rise in interest rates that … almost created this slamming of the brakes in the commercial real estate market.”
At the same time, rate hikes have flushed out speculators, she said. “We attracted too much hot money over the past decade,” with flipping of commercial real estate because of the low rates.
Now, a more normalized market will return, Provinse said.
Another major factor she pointed to that could influence this year’s commercial real estate market is a major percentage of debt coming due — 20 percent matures in 2024 alone.
“We have almost a trillion dollars of commercial real estate loans coming due,” she said. That percentage drops sharply in the years following, according to figures she cited, so 2024 poses a bit of a unique challenge in this area.
The expectations they’re hearing from clients is that this year will be tough, she said, prompting a common phrase in the industry, “Survive till ‘25.”
The housing shortage continues to loom
Timiraos asked Harker how housing is playing into the inflation discussion. If interest rates drop, that could possibly overheat the market again.
It’s a risk, Harker acknowledged, but he noted Fed policy plays only a partial role in this, and the issues with housing supply goes back to the Great Recession in 2008.
At that time, housing speculation was a major contributor to the economic downturn, and investors in the sector pulled back.
“It is a really, really challenging problem that I think will be exacerbated over the next decade,” Provinse said.
Rent control efforts can backfire by chilling development, she said, and there are limits to recent efforts to promote the building of more low-income housing through government subsidies. The issue, she said, is zoning.
“There should be some nationwide zoning changes to encourage development, which I don’t see ever happening,” she said.
Politics and the Fed don’t mix
A question he gets from readers, Timiraos told Harker, is whether the Fed puts its thumb on the scales in politics, trying to influence the economy in favor of a particular candidate.
Harker started shaking his head even before Timraos was done speaking.
“Absolutely not,” he said, and he’s never heard any colleagues bring up political ramifications to their decisions. “We stay completely out of it, and this is something that is not even on our radar. Because once we get on that path, we would absolutely destroy the independence of the Fed.”
That, Harker asserted, would be devastating to the economy.
Getting the mojo back
The economy isn’t the only part of life that had to bounce back after the pandemic. Live events did too, and Carlos Asarta, James B. O’Neill Director of CEEE, said this year’s turnout showed good momentum.
“Last year was the first time we brought it back face-to-face (after COVID),” he noted. “The attendance this year is significantly higher than it was. I’m very happy.”
It’s a great way to bring the University and CEEE to the center of an engaged conversation on economics and personal finance, Asarta said.
“You have access to some of the brightest economic minds in the country,” said David F. Lyons Jr., executive vice president for sales and acquisitions at Lyons Companies, noting it’s a way for anyone to come and get insights on the economy.
Greg Lavelle receives O’Neill Award
Before the panelists spoke, former Delaware lawmaker Greg Lavelle was awarded the 2024 James B. O’Neill Award for Excellence in Economic Education and Entrepreneurship, which was created to recognize an individual who has made substantial contributions to promoting economic, personal finance and entrepreneurship education. Lavelle, a managing director at Puglisi and Associates, is treasurer of the Delaware Council on Economic Education. He has been actively involved over the years with several community organizations including the Fresh Start Scholarship Foundation, Girls Incorporated of Delaware, Westside Health Service, and Sharpley Civic Association.
“When you can find somebody who’s effective, does a good job and has a sense of humor, then you’ve struck gold and that’s what we have with (Lavelle),” said Asarta, thanking him for his volunteer contributions at the Delaware Council on Economic Education and other civic and nonprofit organizations. “Additionally, thanks to his and his wife’s philanthropic support, we are making sure that the CEEE will continue its impactful vision to see all students graduate as economically literate and productive citizens for many decades to come.”
In accepting the award, Lavelle said, “If our young people, and perhaps even some of our not-so-young people, don’t have an understanding of economic and financial fundamentals, which is what the Center does, our future and their futures will be challenged, less full of opportunity and less fortunate.”