Economic Landscape: Fed’s Response and Household-Led Growth

December 14, 2023

Perc Pineda, PhD
Chief Economist, PLASTICS

The recent decision by the Federal Open Market Committee of the Federal Reserve to maintain the Fed funds rate at 5.25% to 5.50% reflects the current economic landscape where inflationary pressures have alleviated, particularly against the backdrop of a robust labor market. Notably, November saw headline consumer inflation at 3.1% and core inflation at 4.0%, marking a decline from their peaks of 8.9% and 6.6% in June 2022 and September 2022, respectively. Additionally, headline producer-price inflation dropped to under 1.0% in November, primarily attributed to reduced energy prices and trade dynamics, while core producer-price inflation stood at 2.5%.

Household sector: driving growth, taking on debt, despite interest rate challenges.

The household sector has been a driving force behind the U.S. economy’s performance over the last three quarters, boasting an impressive 5.2% GDP growth in the third quarter. In an environment with a lower aggregate price level, sustained consumer engagement is anticipated. Factors like decreased gasoline prices are expected to bolster consumer activity. November witnessed a 0.3% increase in retail and food services, amounting to an estimated $705.7 billion without adjusting for inflation. Adjusted for inflation, a monthly increase of 0.2% in retail and food services further indicates stable consumer demand.

Business expectations are out of sync with household confidence.

The economic landscape presents a challenge as the household sector exudes confidence while the business sector portrays a different sentiment. Insights from the Federal Reserve Bank of Atlanta’s forward-looking sales revenue growth projections reveal a downward trend from its peak of 6.9% in April last year to 3.5% in November this year. The adequacy of this rate in addressing excess inventory across manufacturing industries in the last twelve months remains uncertain.

Layoffs have become increasingly prevalent across diverse sectors, spanning manufacturing, business services, technology, and entertainment. Companies attributing these actions to enduring market challenges from the past year anticipate ongoing difficulties in 2024. Following earlier substantial layoffs, such as Meta’s announcement of a 13% reduction in its workforce, major industry players have continued to implement significant cutbacks since December. Hasbro recently downsized its workforce by 20%, affecting around 1,900 employees. Additionally, Citi eliminated three hundred management positions.

The Federal Reserve foresees rate adjustments amid economic rebalancing.

Amidst the ongoing reconfiguration toward its long-term growth rate, the Federal Reserve has adjusted its GDP projections. Anticipated GDP growth in 2024 is forecasted at 1.4%, following a projected 2.5% growth in 2023. These figures surpass PLASTICS’ more conservative estimates of 2.1% and 1.0% for GDP growth in 2023 and 2024, as outlined in its third-quarter Plastics Quarterly forecast. The projection of weaker growth in 2024, aligned with subdued inflationary pressures, forms the basis for contemplating interest rate cuts next year.

Currently, the Federal Reserve expects a 2.4% inflation rate in 2024, potentially reaching 2.0% by 2026. Forecasts indicate Fed fund rates at 4.6% in 2024, suggesting a possible three 25-basis point rate cuts, and a further decline to a 3.6% Fed funds rate by 2025. This outlook reflects a strategy to navigate the evolving economic landscape while managing inflation and fostering sustainable growth through strategic rate adjustments.


The prevailing high-interest rates are unlikely to uphold the 2023 economic growth rate in 2024. Consequently, the Fed has signaled potential rate cuts in 2024, responding to decelerating inflation and weakened economic growth. However, this adjustment does not imply a significant downturn or a contraction in economic output. The outlook for the manufacturing sector, including industries like plastics, might exhibit uneven performance across sectors in 2024.