2024 Macro Economic Watch List- Beyond the Fed Funds Rate and Inflation

The macro economy has been dominated by news and speculation about the Fed Funds Rate and inflation. While those two factors will remain front and center for the foreseeable future, we’re highlighting four other macroeconomic factors from our 2024 watch list this week.

#1) Long-term rates

Figure 1 shows the market yields on 10-year and 1-year U.S. Treasuries. Since 2022, short-term rates have been higher than long-term rates, which raises the question of how and when the yield curve becomes un-inverted. Given the Fed’s December announcement that they may lower the Fed Funds Rate in 2024, how will long-term rates adjust? Long–term rates – which heavily affect farmland loans and values – might be sticky or even drift higher as the Fed adjusts short-term rates. (Still curious? Read more here.)

Figure 1. Market Yield on U.S. Treasuries, 10-year (blue) and 1-year (red), 2010-2024. Data Source: St. Louis Federal Reserve, FRED.

#2) Unemployment rates

One reason the Fed has been able to raise interest rates so aggressively is the economy has been resilient. The Fed’s other mandate – full employment – hasn’t shown any stress cracks and remains historically low (Figure 2). Furthermore, unemployment rates were low before the 2020 pandemic and recession.

The Fed’s job will get incredibly difficult if unemployment rates rise and inflation remains high, which the Fed confronted in the early 1980s.

Figure 2. U.S. Unemployment Rate, 1948-2023. Data Source: St Louis Federal Reserve, FRED.


#3) Federal debt

You never know what D.C. will focus on next, but, at some point, the federal debt will be an issue. After several decades of the federal debt as a share of gross domestic product (GDP) trending higher (Figure 3), there may be a point when there is less interest or capacity for economic rescues or ad hoc government programs. The current farm bill negotiations may sneak through this time, but future spending and tax programs will have to confront these challenges.

Figure 3. U.S. Federal Debt as Percent of Gross Domestic Product, 1939-2022. Data Source: St. Louis Federal Reserve, FRED.


#4) The Fed’s shrinking balance sheet

In addition to the Fed Funds rate, the Fed has been using its balance sheet to regulate the economy (Figure 4). The Fed expanded its balance sheet – by buying assets – during the recession in 2008 and 2009, during a few rounds of Quantitative Easing (QE), and in response to the 2020 pandemic and recovery. While the Fed has signaled plans to ease short-term interest rates, their balance sheet plan is unclear. Will they continue to shrink in 2024?

Figure 4. Total Asset of the U.S. Federal Reserve (Size of Balance Sheet), 2022- 2024. Data Source: St. Louis Federal Reserve, FRED.


Wrapping it up

There haven’t been many periods in history of rising interest rates. While there is good reason to hope the worst is behind us, it’s important to avoid mind-locking on short-term rates and inflation.