2023- A year of caution and significance

Some decisions the central banks take at the beginning of a new year- do make a significant impact in terms of the course of the economy for the entire year. It is an important aspect observed by the entire world's central banking community. One of the aspects noted in this year’s central bank policies was to prevent a recession; and keep the inflation levels in check. The aspect of employment levels at stable levels was said to be a criterion for keeping the economy stable. The major economies have taken steps, and the highlights of important sectors- housing and job markets will be dealt with in detail.  

The U.S. Federal Reserve decisions so far

However, the interest rate hiking cycle did not come into the picture at the beginning of the year. However, the February meeting of the U.S. Fed saw a hike in the interest rate hike- of 25 basis points from 4.5 percent to 4.75 percent. It is said to be significant since it is the first-rate hike of the year. Since the fall of one of the prominent banks S.V.B, the Fed is said to be in a state of caution. It invariably affected the further calls on the economy-controlling the inflation and the employment statistics of the nation. The sharp increase in borrowings and the high interest rates on loans were some of the key points of highlights for this year. With close to 100 basis point rate hikes, the target to keep the economy in the safe zone – is what the Fed wanted to achieve for this year. With improved employment trends and the controlled inflation figures though not in their targets, the Fed has kept the economy from a major catastrophe. In 2023, the market expectations and the Fed decisions of a rate cut and a hike were mismatched during the year, it remains to see if the prediction of how long the slowdown or a recession for 2024 is to stay.

With a pause announcement in the rate hiking cycle and a considerable number of cuts announced in the December meeting, we can hope the economy remains in good hands for the rest of next year. The housing market was more of a challenge in 2023 since there is a problem of high-interest rates that the consumers need to tackle. The sales however have seen an improvement during the year and recorded a decent level of sales in the market. The high mortgages in the U.S. market saw a high rate of distress sales of properties, which is to improve with the holiday season and through 2024.

Japan-with a unique twist

The Japanese economy was under a dilemma during the beginning of the year, under the leadership of Haruhiko Kuroda who kept the interest rates at ultra-low levels. This was done to keep the wages at a higher level and also to keep the foreign currency inflows using tourism and international investments. With his term ending at the beginning of this year, the new governor Kazu Ueda, continued his predecessor’s legacy of ultra-loose monetary policy and low interest rates. The economy did see a wage-adjusted inflation drop in the recent months of 2023. However, the prospect of reaching a 2 percent inflation target is more likely to be seen in 2024, with their tweak in policies. Though the central bank has not moved away from the yield curve control policy due to their reservations, their argument to stay was on the companies in Japan to see some level of growth. However, this will prove to be an increased risk in terms of the risk of inflation levels in the economy. The real estate sector seems to have shown an increased level in prices by close to 10 percent compared to the previous year. There is said to be an oversupply of office spaces in Japan, owing to the redevelopment of certain old towns in Japan. Demand for homes is said to have remained relatively stable during the year in Japan. The employment levels showed an improvement during the beginning of the second quarter with increased hiring levels and the introduction of new investments leading to the creation of jobs in the economy. Interestingly, many of the manufacturing giants have seen to take an exit from the market due to factors like an aging population and economic uncertainty. In the coming years, we can expect a policy overhaul and a change in the demographic to bring the economy to its faster-growing trends.