March 6, 2024

The U.S. economy isn’t in a recession yet, and the Federal Reserve is making progress toward lowering inflation, according to a representative from the Federal Reserve Bank of Minneapolis.

“I can tell you very confidently we’re not in a recession yet,” said Joe Mahon, regional outreach director, who spoke Wednesday in Sioux Falls at the second annual SiouxFalls.Business CEO Summit, in partnership with MarketBeat. “We’re still seeing growth in most categories.”

Adjusted for inflation, real GDP in 2023 grew an estimated 2.5 percent, which is “a little bit above average over the last 100 years or so,” he said, adding that while businesses are continuing to invest in equipment, machinery, research and development, and marketing, there’s less building activity, which is “what you expect to see in a time of increasing interest rates.”

The Federal Reserve seeks to fulfill a dual mandate of maximum employment and price stability, generally targeting a 2 percent inflation rate.

In terms of job growth, the nation sits at 3.7 percent unemployment, and Sioux Falls is at 1.8 percent, Mahon said, with increased labor force participation in recent years and an economy that continues to add jobs.

“There are more people working in America than there ever have been,” he said, adding the number of people working multiple jobs also is up, though not to pre-pandemic levels.

“All of those broader measures of unemployment are in historically pretty strong territory.”

Inflation is coming down, though not enough for the Federal Reserve to declare victory just yet. Consumer price index inflation is at 3.3 percent, and while grocery inflation has come down, the perception from consumers is still negative, Mahon acknowledged.

“People are still accustomed to what they used to pay for things two or three years ago, so that’s why this is sort of cold comfort to a lot of people,” he said.

Inflation “eats away at real earnings. It’s a hidden tax essentially on all of us,” he continued. “We want to get it back to 2 percent and quickly.”

After signaling last year that it wasn’t sure it was done raising the benchmark rate, the Federal Reserve in recent meetings has held rates because “there’s this lag effect that policy has,” Mahon said. While certain sectors, such as real estate, feel the impact of higher interest rates quickly, others take longer to show the full effect.

The tone from the Federal Reserve now has shifted to one of not signaling yet that it’s time to start cutting rates, he said.

“It’s a slight change in emphasis, but the net effect is they’ve been holding rates unchanged.”

The Federal Open Market Committee will meet again March 19-20 and April 30-May 1.

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