submitted by
Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast
Will the economy cause the Fed to slow rate cuts? The probability of another Fed rate cut in December has come down from upwards of 80% to about 66%. As we move into 2025, the pace of cuts is expected to slow, counter to expectations at the advent of the rate-cutting cycle. There are two primary reasons for the expected slowing of cuts: a strong economy and the stickiness of inflation.
The Fed led the cutting cycle with an unexpected reduction of 50 basis points. This was in the middle of an existing strong economy and inflation, while lower than the start of the year, had still not reached the target of 2%. The Fed will reduce in December, but expect January odds to come down after the release of economic data, shifting the odds to no reduction in January.
For the strength of the economy, we can look at gross domestic product (GDP), which is the market value of goods and services produced by the macroeconomy. The latest figures show that GDP increased by 2.8%, from the 2nd to the 3rd quarter of 2024. This is well above the average quarterly growth since 2022. And the consumer is driving this growth, responsible for a whopping 85% of the 2.8%.
While consumer sentiment remains depressed, largely due to the negative effects of inflation, consumers remain confident due to a couple of ongoing dynamics. One is the labor market. While the labor market has softened, the unemployment rate remains at relatively low levels and job openings continue to exceed the number of unemployed. Layoffs, as measured by new claims for unemployment, are at historically low levels. Current levels are just over 200,000 weekly, and these are nowhere near levels needed for any hints of a recession. The other factor driving consumer spending is household balance sheets. The net worth of households is at an all-time high, driven by home values and the equity markets. During the Great Recession, it took about 5 years to recover the net worth lost during the housing crash and equity market losses. Coming out of Covid, household wealth suffered declines in 2022 but has been climbing since. Strong balance sheets encourage spending, and this is showing up in sustained consumer spending, the big driver of gross domestic product.
Since the Fed began its rate-cutting cycle, inflation is higher than it was at the end of September. The post-Fed cut inflation rate was 2.41% at the end of September and the most recent data places headline CPI at 2.6%. The core rate, CPI minus food and energy, is even higher at 3.3%. We see the impact of this sticky inflation on the 10-year yield, higher now than levels that existed just prior to the September Fed rate reduction. For the consumer, this means elevated mortgage rates compared to the recent low of 6.1%.
In summary, the Fed will likely cut in December. The absence of a cut would signal the mistake that was made in September, but unless the data deteriorates considerably, expect a pause for January.
Regional Updates
As 2024 comes to an end, the Louisville Metro area will see slower payrolls this year compared to 2023. Latest preliminary estimates show that Louisville payrolls are up about 3,700 from the prior year, and the unemployment rate about 3/4% higher than 2023, 4.2% compared to 3.5% last year. The region saw gains in education and health services, transportation and warehousing, and professional and business services. However, losses in leisure and hospitality, manufacturing, financial activities, retail and information provided headwinds to overall payroll growth.
We see similar patterns in Southern Indiana. The most recent county data show that Southern Indiana gained over 1,000 jobs in the second quarter of 2023, compared to the prior year. Healthcare and transportation and warehousing were the dominant growth sectors and manufacturing saw another decline, over 1,000 payrolls.
These most recent changes for Southern Indiana are consistent with the pattern that emerges from pre-Covid to now. Since 2019, the year prior to Covid, the largest gainer for Southern Indiana is transportation and warehousing, followed by health care and social services. Accommodation and food services is up just over 1,000 positions. The greatest loss is observed for manufacturing, down more than 2,500 jobs since 2019. Even with this significant decline, both total wages and average weekly wages are higher, pointing to productivity gains in regional manufacturing. Despite the decline in payrolls, manufacturing also remains as the sector with the highest level of total wages across Southern Indiana, reinforcing the role as an impactful economic development sector.
As we exit 2024, the region can expect an acceleration of payroll growth and an unemployment rate that remains relatively flat. Expect volatility in the markets, but the U.S. will avoid a recession.
As the macroeconomy accelerates in growth, the battle between growth and inflation will ensue. Supporting both growth and disinflation will be a supply side boost to the economy, brought about by a deregulatory environment, and incentives that boost labor force participation and capital investment.
LOUISVILLE, Ky. (Nov. 22, 2024)—
Rachel Gumbel is a member of the Business Litigation Service Group. She earned her J.D. from the University of Louisville Louis D. Brandeis School of Law, summa cum laude, in 2024. In law school, Gumbel served the University of Louisville Law Review as the senior notes editor for Volume 62, where she published a note, and as a member for Volume 61. Gumbel also was a research assistant for Professor Lauren Rothstein. Her honors include the Samuel L. Greenebaum Excellence in Legal Writing Award, the Runner-Up Best Note Award, the Brandeis Leadership Initiative (inaugural fellow) and the Brandeis Honor Society. Prior to joining Stites & Harbison, she was a legal extern for Judge Eric Haner, Division One of the Jefferson Circuit Court in the fall of 2023. She also participated in Stites & Harbison’s summer associate program in 2022 and 2023. She is admitted to practice in Kentucky.
Jackson B. Hurst-Sanders is a member of the Business Litigation Service Group. He earned his J.D. from the University of Kentucky J. David Rosenberg College of Law, summa cum laude and Order of the Coif, in 2023. While in law school, Hurst-Sanders was a BARBRI ambassador and a student representative of the UK Rosenberg Diversity Committee. For the Kentucky Law Journal, he served as editor-in-chief of Volume 111 and was published in that volume; he also served as a staff editor of Volume 110. His other honors include a Best Brief Award and a Best Source & Cite Award for Weaver Note, Book 1. Prior to joining Stites & Harbison, Hurst-Sanders was a judicial law clerk for Judge David J. Hale of the U.S. District Court for the Western District of Kentucky, 2023-24. He was a summer associate for Stites & Harbison in 2021 and 2022. He was also a legal extern for the Fayette County Attorney’s Office, spring of 2022, and a judicial extern for Judge Brian C. Edwards, Division 11 of the Jefferson Circuit Court, spring of 2023. He is admitted to practice in Kentucky.
James E. Myers is a member of the Business & Finance Service Group. He earned his J.D. from the Vanderbilt University Law School in 2024 and completed the Law & Business Program. In law school, he was a Vanderbilt Law School ambassador, a representative for the Vanderbilt Law and Business Society, a treasurer of the Vanderbilt Law School Transfer Association and a member of the Investment and Securities Law Club. Prior to joining Stites & Harbison, Myers was a summer associate for the firm in 2023 and a summer law clerk for an Asheville, N.C., firm in 2022. He is admitted to practice in Kentucky.
April M. J. Sain is a member of the Business Litigation Service Group. She earned her J.D. from the University of Louisville Louis D. Brandeis School of Law, magna cum laude, in 2021. While in law school, Sain was editor-in-chief of the University of Louisville Law Review, Volume 59, and chaired the Student Bar Foundation. She received the Samuel L. Greenebaum Award for Achievement in Legal Writing in Spring 2021. Prior to joining the firm, Sain clerked for the Honorable Claria Horn Boom, U.S. District Judge for the Western and Eastern Districts of Kentucky, from 2022-24, and for the Honorable Regina S. Edwards, U.S. Magistrate Judge for the Western District of Kentucky, from 2021-22. She is admitted to practice in Kentucky.
Harper B. Anderson is a member of the Torts & Insurance Practice Service Group. She earned her J.D. from the University of Kentucky J. David Rosenberg College of Law, magna cum laude, in 2024. In law school, she was president of the Moot Court Board and captain of the Moot Court National Competition Team. She also was a member of the Appalachian Law Caucus and the Trial Advocacy Board. She served as education chair of the Women’s Law Caucus and social events chair of the Student Bar Association. Additionally, Anderson earned a Class of 2024 Pro Bono Award. Prior to joining the firm, she participated in Stites & Harbison’s summer associate program in 2023 and was a legal extern for Judge Lucinda Masterton in Fayette Circuit Court in the fall of 2023. Anderson is admitted to practice in Kentucky.
Holly A. Couch is a member of the Construction Service Group. She earned her J.D. from the University of Kentucky J. David Rosenberg College of Law in 2023. In law school, she served the Kentucky Law Journal as a staff editor for Volume 110 and the special features editor for Volume 111. She also was president of the Women’s Law Caucus. Couch worked as a certified legal intern at the University of Kentucky Legal Clinic, 2022-23, and was a law clerk for the National Labor Relations Board Region 9 in the summer of 2022. In 2023, she earned the Allison Connelly Seek Justice Award and the UK College of Law Pro Bono Award. Prior to joining the firm, Couch was a law clerk for Magistrate Judge Edward B. Atkins in the U.S. District Court for the Eastern District of Kentucky, 2023-24. She is admitted to practice in Kentucky.
Robert H. Dean is a member of the Real Estate & Banking Service Group. He earned his J.D. from the University of Kentucky J. David Rosenberg College of Law, cum laude, in 2023. While in law school, Dean was a senior online staff member of the Kentucky Law Journal, Volume 111, a staff editor for Volume 110 and served as president of the Business Law Society. His honors include being a recipient of the Book Four Source and Cite Award and the Online Publication Source and Cite Award. Before joining Stites & Harbison, Dean was a law clerk for Judge Patrick J. Urda, U.S. Tax Court in Washington, D.C., in September of 2023 and a 2022 summer legal associate for the IRS, Office of Chief Counsel in Washington, D.C. He is admitted to practice in Kentucky.
Mackenzie Miller is a member of the Real Estate & Banking Service Group. She earned her J.D. from Georgia State University College of Law, magna cum laude and Order of the Coif, in 2024. While in law school, Miller was an articles editor for the Georgia State University Law Review for Volume 39 and the articles editor for Volume 40. She served as president of the American Constitution Society, vice-president of the Georgia Association for Women Lawyers and a graduate assistant for the Academic Success Program. She received a recognition from the White House and Department of Justice Eviction Prevention Program. Prior to joining the firm, Miller participated in Stites & Harbison’s summer associate program in 2023 and was a business immigration analyst for an Atlanta firm, 2019-21. She is admitted to practice in Georgia.
Lauren Towell (Ren) is a member of the Torts & Insurance Practice Service Group. She earned her J.D. from Emory University School of Law, with honors, in 2024. In law school, Towell was a member of the Moot Court (ABA competition team) and the American Constitution Society. Prior to joining the firm, she participated in Stites & Harbison’s summer associate program in 2023 and was a summer judicial intern for Henry County Superior Court in 2023. She also was a data analyst for Hilton Worldwide, 2019-21. She is admitted to practice in Georgia.
Pamela Bennett Martin exemplifies a life of service, dedicated both to her clients and her community. As the former president of Bennett & Bennett Insurance, Inc., an independent agency with locations in Corydon and New Albany, Pamela built her career in the insurance industry, becoming a Certified Insurance Counselor in 1994 and specializing in health and commercial coverage. After 45 years in her family-owned business, she oversaw its successful merger with Shepherd Insurance on December 31, 2021, leaving a legacy of expertise and commitment to service.
Jerry Roby is a seasoned entrepreneur and dedicated civic leader with diverse business interests and a lifelong commitment to service. He is the Owner and President of Creditors Insurance Service, LLC, Co-owner and CEO of Dennis Ott & Company Construction Services, a partner in BEK Consultants, and the Owner of Roby Advisory Group. A former co-owner of Steinert’s Grill & Pub, a Southern Indiana landmark, Roby brings vision and leadership to each venture. His career reflects a commitment to giving back to the communities and institutions that shaped him.
