A new year is always a time of hope. Will this be the year the Cubs win the World Series? The year that winter in the Northeast ends before May?
However unlikely some developments may be, when nothing has happened yet, it is always possible to have high hopes for the new year. Below are several key questions about what economic developments 2014 will bring.
Will 2014 be the year that ...
- Unemployment gets below 6.5 percent? This has long been the goal of the Federal Reserve's stimulus policies -- though at its last meeting the Fed noted that it may keep stimulative measures in place even after unemployment dips below 6.5 percent. So far, the unemployment rate has dropped from a high of 10 percent in October 2009 to 7 percent this past November. Previously, the unemployment rate had gone from March 1994 to October 2008 without getting as high as 6.5 percent, so perhaps that is one key indicator of what a healthy economy looks like.
- Bank rates return to normal? In January 2009, short-term bank rates dropped below 1 percent for the first time ever, and they have yet to recover. These interest rates are an important component of income for many retirees. As much as low interest rates may encourage borrowing, a rise in savings account interest rates would give savers a little more income to put back into the economy.
- Wages get a little more robust? Over the past 10 years, wages have grown at an annual rate of just 2.2 percent, while inflation is increased at an annual rate of 2.4 percent. Stronger wage growth would be both a sign of a stronger economy now, and a source of more fuel for the economy moving forward.
- Decent growth is sustained over multiple quarters? The 4.1 percent growth rate for the third quarter was encouraging, but real GDP growth has not stayed above 4 percent for two consecutive quarters since 2003. Perhaps the stop-and-start economy will finally lock into a higher gear in 2014.
- The housing market stands on its own two feet? Housing prices have been on the upswing, but so far only with the help of extremely low mortgage rates. This is a little like a 100-meter dash time that has been ruled as wind-assisted -- the recovery could prove itself for real if it continues even as mortgage rates rise to more normal territory.
- Retirement savings improve? The percentage of American workers currently saving for retirement has dropped for four straight years. If that does not turn around in 2014, it bodes ill for the future of the economy -- and for the future of those individuals who are not preparing for retirement.
- Inflation finally becomes a problem? Many positive assumptions about the economy are based on inflation remaining benign, as is Fed monetary policy. Year-over-year inflation has been at 2 percent or less for over a year now. A rise to a more normal inflation rate would represent a new obstacle for the economy to get over in 2014.
With enough of the right answers to these questions, 2014 could be the best year for the economy since before the Great Recession.
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