The Top 3 Global Economic Trends of 2024: What They Mean for Your Wallet

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2024 could bring slowing inflation, interest rate cuts, and rapid developments in AI. Find out how these big economic factors could impact your money. [[{“value”:”

In an increasingly globalized world, what happens in the wider economy can have a direct impact on your personal finances. From decisions by central banks to technological advancements, here are three trends to watch in the year ahead.

1. Inflation is slowing

You don’t need to be an economist to know how much high inflation can eat into your bottom line. It pushes up prices and means our dollars just don’t go as far. The good news is that inflation is slowing. Overall, the U.S. cost of living rose by 7% in 2021, 6.5% in 2022, and 3.4% in 2023, according to the Bureau of Labor Statistics.

Various experts say we might finally see the back of the inflation bogeyman in 2024. JPMorgan predicts that living costs will rise by about 2.4% in 2024, though there will be variations in different spending categories.

What it means for your wallet

Sadly, while inflation has slowed, it doesn’t mean prices will come down. They will just rise at a slower rate. That means many of your living costs will still be significantly higher than they were a few years ago. For example, the U.S. Census data shows the average household spent $4,935 a year on food at home in 2020. By 2022 that figure was $5,703.

If you’re having trouble making ends meet, don’t wait for prices to fall. Instead, see if there’s any non-essential spending you can cut that might give you some wiggle room. Perhaps there’s a subscription you aren’t using or some utility bills you could reduce. You might also look for ways to bring in some extra cash — whether that’s a side hustle, taking on some extra work hours, or asking for a pay raise.

2. Interest rates may fall

Higher interest rates are the bitter medicine we’ve all had to swallow as the Federal Reserve attempts to bring inflation under control. We deal with several interest rates in our daily lives, including the interest we pay on credit cards and mortgages and the rate we get on our savings.

The federal funds rate, which is the rate that banks pay when they loan or borrow money overnight to or from other banks, has a big influence on all of them. The Fed reduced the rate to 0% to try to offset the economic impact of COVID-19. But over the past two years, it has increased it to over 5%, the highest it’s been for over two decades.

2024 might be the year those rates start to come down. If inflation eases, various analysts, including those at EY-Parthenon, predict rate cuts could come in late spring or early summer.

What it means for your wallet

A reduction in rates could ease pressure on borrowers and would-be borrowers. The impact isn’t always immediate and there can be unexpected side effects. For example, mortgage rates might go down, but this could increase housing demand, which may also push house prices up. Rates on credit cards and personal loans could also fall.

If you carry a balance on your credit card, even a reduction of 1% or 2% can make a difference. For example, let’s say you owe $5,000 in credit card debt. You plan to pay it down at $200 a month. According to our credit card interest calculator, here’s how that might play out:

On the flip side, the high savings rates we’ve seen could wane as well. Some high-interest savings accounts have APYs of 5% or more right now. If rates fall, so could these returns. If you want to secure higher rates now and are prepared to lock your money away for six months or a year, you might consider opening a certificate of deposit. Learn more about the differences between a CD and a savings account.

3. Artificial intelligence will get more intelligent

AI has been around for some time, but it really came to mainstream attention in 2023 with the launch of chatbots like ChatGPT. In 2024 we can expect to see AI develop even further and reach even more aspects of our lives. An IBM article said, “Nations worldwide are expected to prioritize its development in a manner reminiscent of a new space race.”

What it means for your wallet

A recent Gallup survey showed that 22% of workers fear AI could replace them at work. AI will certainly change our workplaces and may cause job losses. But try to see it as something that could make your life easier, rather than something that might take your job. Look for ways to keep learning new skills, and think about ways AI can help you do your job better.

If the worst does happen and you do lose your job, an emergency fund can make a big difference. If you don’t already have three to six months’ worth of living expenses socked away, see if you can save a small amount each month until you do.

Bottom line

Change is one of the few things we can always count on, and there are some strong global economic winds at play as we head into 2024. If you can live within your means and even save a portion of your income, you’ll be better equipped than many to navigate whatever the global economy throws at your finances.

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