Predictions for Rates, Economy, Member Behavior

NEW YORK–The start of a new year always brings with it new starts and new hopes, along with new forecasts for the year ahead.

Below, CUToday.info has compiled some of the predictions that have been made for what 2024 may hold for rates, member deposits, the economy, credit cards and more.

All Eyes Will be on the Federal Reserve

WASHINGTON–Perhaps no institution will be watched more closely in 2024 than the Federal Reserve, with nearly every economist and forecaster predicting it is finished raising rates. Instead, the debate is over whether and how often the central bank will cut rates. 

As CUToday.info has reported, in recent weeks some of the governors with the Federal Reserve have offered additional insights into their thinking around the direction of rates in 2024, although there is some disagreement around how many rate cuts might take place and when.

San Francisco Fed President Mary Daly said her outlook for interest rates and inflation was “very close” to the median of projections from 19 Fed officials who met last week and opted to leave rates steady, indicating as many as three rate cuts could take place in 2024.

But Raphael Bostic, president of the Atlanta Fed, said he sees no “urgency” to lower borrowing costs. According to separate reporting, his rationale is that inflation could yet remain stubbornly high over the next six months. Loretta Mester, John Williams and Austan Goolsbee, his counterparts in Cleveland, New York and Chicago, have made similar comments, according to the Wall Street Journal.

Bostic predicted no more than two rate cuts in 2024, and none in the first six months.

The full story can be found here. 

Fannie Mae: Economic Growth Likely to Decelerate

WASHINGTON—Economic growth is likely to decelerate and ultimately result in a mild recession in 2024, followed by a return to growth in 2025, according to the November 2023 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group.

While the combination of ongoing employment gains and decelerating inflation has increased the likelihood of a soft landing, the ESR group contends that, between a likely slowdown in consumption growth stemming from an imbalance between spending and incomes and the rising real federal funds rate weighing on consumer and business activity, a downturn remains the most likely outcome, Fannie Mae said.

For the full forecast, go here.

The CUNA Economics Forecast for the New Year

WASHINGTON–A new economic update for 2024 has been released by CUNA’s senior economist, Dawit Kebede as part of the association’s November 2023 CUNA Economic Update.

The predictions, made by CUNA’s forecast group, which includes seven current and former CUNA economists, include:

• The odds of recession through year-end 2024 are one in three.
• The Federal Reserve will hold rates and not continue rate hikes. 
• Gross domestic product (GDP) will track 2.5% growth in 2023, with CUNA forecasting 1.5% GDP growth in 2024 as consumer spending slows. 
• The unemployment rate will remain around 3.9%, but will increase to 4.3% in 2024. 
• Loans will grow 4% and savings by 3% in the new year. forecast 4% loan growth and 3% savings growth.  

Member Savings to Continue to Decline in 2024

MADISON, Wis.–After years of discussion around “excessive savings” held by the average consumer, that talk is now finished, according to TruStage’s chief economist, who is predicting a decline in member savings in 2024.

Writing in the company’s new Trends Report, which is based on credit union performance data through September, Steve Rick noted that excess savings had been defined as the additional savings balances accumulated  during the COVID-19 pandemic due to three COVID-19 stimulus checks and a reduction in spending on services.

“This was the biggest increase in savings per member in credit union history,” he said. “But these excessive savings have been eliminated due to member deposit withdrawals and higher inflation.

“Going forward into 2024, consumers will be reluctant to reduce further their dollar amount of savings because continued deposit withdrawals would reduce their real savings balances below the level consumers would feel comfortable,” Rick forecast. “Therefore, expect 2023 to  be the weakest year for deposit growth, and 2024 to see 3% deposit growth.”

Changes in Card Rewards are on Tap

NEW YORK—Look for more credit card rewards offers in 2024, but issuers will make it harder to redeem some of the offers, according to one new forecast. “Overall, we expect increased amounts of credit card debt and shifts in the types of credit cards many consumers seek out,” stated the Points Guy. “However, this behavior is unlikely to change for those who are heavily invested in the points and miles hobby; here, people will still look for large sign-up bonuses and premium credit cards, despite the continued trend of rising annual fees.

“Moreover, we have predictions about what credit card issuers are likely to do in 2023. There's good and bad news here,” the forecast continued. “The most glaring example is that new benefits will be added, but we don't think they'll be easy to use or offer the value banks claim when announcing these benefits.”

Additional Predictions

More 2024 predictions from The Points Guy include:

• Bonuses will continue, but “best ever” offers will be rare 
• Applications will shift from premium cards to those with financial benefits
• Credit card debt will increase
• There will be an increase in buy now, pay later offerings and usage
• There will be less interest in crypto-earning cards
• 2% cash back is the standard going forward
• Annual fees will continue to climb
• There will be more niche and partner products
• There will be fewer business-related travel perks
• The market will see more complimentary subscriptions and tough-to-use credits
• Customers will look for travel protections after headaches in 2022
• Niche access and products with costs to card issuers will go away
• More cardholders will spend their way to elite status

And the Top 10 Financial Trends for 2024 Are…

NEW YORK—In a new report, Finextra has offered its forecast for the top 10 tech trends for banks and fintechs next year.

According to Finextra, those trends include:

• Intelligent Automation
• AI-powered Advisory and Asset Management
• Generative AI in Fintech
• Blockchain Integration
• Embedded Financial Solutions
• Quantum Computing
• Open Banking
• Cybersecurity
• Sustainability aligning Gen AI and ESG with COP28
• The Rise of Digital Currencies and Tokenization

For the details around each of those 10 points, go here.

What’s Ahead for Mortgages in 2024 and 2025?

WASHINGTON–Total mortgage origination volume is expected to increase to $1.95 trillion in 2024 from the $1.64 trillion expected in 2023, according to a new forecast from the Mortgage Bankers Association (MBA).

In addition, the MBA is predicting loan count, or the total volume of mortgage origination, will increase by 19% to 5.2 million loans in 2024, up from 4.4 million loans expected in 2023.

The MBA added it expects purchase originations will increase 11% to $1.47 trillion in 2024.

“Both fiscal and monetary policies have contributed to the much higher level of mortgage rates in 2023,” Mike Fratantoni, chief economist and senior vice president for research and industry technology at MBA, said in a statement. “The Fed’s hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected. Lower rates should help boost both homebuyer demand and increase the inventory of existing homes, thereby supporting purchase origination volume in 2024.”

For the full story, go here.

Where Fintechs Will Focus in New Year

NEW YORK—What should credit unions expect fintechs to focus on 2024? Finextra shared its forecast for the top seven fintech trends next year, including:

• Embedded Finance
• Central Bank Digital Currencies (CBDCs) Momentum
• Decentralized Finance (DeFi) Maturity
• Rise of Super Apps
• Banking-as-a-Service (BaaS) Challenges
• AI-Powered Personalization in Fintech
• Open Banking Expansion

For the details around each of those seven trends, go here.