Inflation has come down noticeably over the last year, while the economy has continued to add new jobs. But there’s still a way to go before interest rates start to come down, leaving Wisconsin industries uncertain about what the next year will bring.
That was the message from a Federal Reserve official who addressed Wisconsin banking and economic development executives during a virtual Midwest Economic Forecast Forum Thursday.
The same day, the federal government released the final consumer price index, or CPI, report examining 2023. From December 2022 to the same month last year, CPI inflation fell from 6.5 percent to 3.4 percent. The CPI also rose by 0.3 percent from November to December.
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Fed official talks inflation forecast
Ron Feldman, first vice president and chief operating officer at the Federal Reserve Bank of Minneapolis, said the declining rate is encouraging, but it’s still short of the central bank’s goal of bringing inflation down to 2 percent.
“A lot of progress (has been) made on inflation, not at the point at which we are comfortable because we are not at our target,” he said. “We’re likely maybe near a peak (in terms of interest rates), but we’re not at the point at which we can sort of say, ‘We know exactly what we’re going to do.’”
Feldman said projections from the Fed show inflation is expected to continue to come down slowly through 2024, and it’s expected to return to the goal of 2 percent in 2026. During that time, he said unemployment is expected to hover around 4.1 percent.
Feldman also said the Fed may begin lowering interest rates as inflation gets closer to the 2 percent target, but said it’s still too early to know when that will happen.
“If things continue the way they’re going, there’s gonna be some decreases,” he said. “But when those happen, how those happen, and if they happen at all are going to be dependent on the data that comes in.”
Although the Federal Reserve chairman is a position appointed by the president, Feldman also said he does not expect this year’s presidential election to factor into the central bank’s strategy for combating inflation.
Wisconsin industries uncertain about the economy
In addition to the presentation by Feldman, the Wisconsin Bankers Association also provided a report with 2024 economic outlooks from several state industry associations. Most expressed uncertainty about the economy over the next year.
Kurt Bauer, president of Wisconsin Manufacturers & Commerce, wrote that individual businesses continue to be optimistic about their company’s future but are more pessimistic about the overall economy.
“While this inconsistent view of the economy may just be a sign of troubled times, 2023 was a chaotic year,” he wrote. “I would expect more of the same in 2024. There will continue to be contradictory economic information, geo-political conflict, domestic political polarization, and unrest.”
Tom Still, president of the Wisconsin Technology Council, offered a more optimistic view, while also acknowledging the uncertainty around the economy.
He wrote that Wisconsin is well positioned for growth, as technology and innovation are changing in ways that touch every sector, from agriculture and manufacturing to financial services and tourism.