Phase transition describes a change in the state of an object, such as water going from stasis to boiling once the temperature reaches 212 degrees F, or conversely, freezes at 32 degrees F. Outlook 2024 is about an economic phase transition. After a year of posting positive and surprisingly strong growth, the question is whether, metaphorically speaking, inflation’s falling temperature and the Federal Reserve’s rising temperature will change its state. Could the economy continue to expand, averting a recession, and perhaps even overheat should inflation reignite? Or will the economy slow and even contract as the yoke of high borrowing costs and shrinking savings bears too much weight for the consumer and businesses to carry?
There is even a theory developing that productivity, often quoted but difficult to see and measure, may be the elixir to rescue the economy from a growth-sapping policy of maintaining a tight monetary setting until inflation is ameliorated. That is, even if it comes at the cost of job losses and an accompanying recession. The latest report on that front did hint at such an outcome, giving hope that an upshift in the output/worker will help cure inflation without the need for further heavy-handed monetary intervention. It may be too soon to tell, but the means by which it could happen, via the application and ubiquitous adoption of artificial intelligence, robotics, and various other forms of automation, are among those things that could be the catalyst.
Outlook 2024 establishes a central case with the acknowledgment that new data will be parsed in the coming months that might provide even better clarity as to which phase transition outcome is increasingly likely. In the meantime, also presented are the investment implications to peruse and consider in the context of an investor’s bespoke goals and objectives.
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