'Tangled up in blue' and the possible 2024 puts and takes

"We always did feel the same. We just saw it from a different point of view. Tangled up in blue" sang Bob Dylan in the very last verse of this classic song. We can apply analysis to the same set of facts we all look at every day, both at the micro and macro level but have different approaches and many times come to different conclusions about what it means and where it maybe will eventual lead to. 

I see the set up for 2024 as having a lot of potential big time trade offs. Nothing ever is smooth and I lay out here some of those possible puts and takes. 

1)The Fed is going to cut overnight interest rates in 2024 but it's possible that long term rates rise in response as markets would see the Fed pulling back from the inflation fight. The battle against inflation is being won with the rate of change slowing but there is no victory yet in the war as we need a sustainable drop in inflation, not a cyclical one. Also, the dollar should weaken further on rate cuts that then raises inflationary risks and could lead to a rise in commodity prices, particularly oil. And if the Fed is cutting because growth is faltering, the budget deficit blows out further, Treasury supply spikes, a problem in 2023 that is only going to get worse in 2024, and long rates jump. Also impacting long term rates is the BoJ finally getting out of NIRP which could lead to more bond market volatility on the long end.

2)Moderating inflation is obviously very positive for the consumer, especially as wage growth is still pretty good at around 4-5% but consumers live on the level of inflation, not its rate of change. 

3)Also with receding inflation, on the corporate side revenue growth is going to slow as price increases become more difficult. Can double digit expected earnings growth estimates for 2024 can really be met as nominal GDP slows?

4)Lower interest rates is a definite pain reliever for those with debt but we still have about $750b of corporate debt needing to be refinanced in 2024, mostly investment grade, according to Goldman Sachs and $500b of commercial real estate debt according to Trepp. The new interest rates paid on these new loans will be notably higher than on the rates on the loans maturing. The trade off is that many small and medium sized businesses that have floating rate debt have already experienced the acute phase of higher interest rates over the past 18 months and should see at least some relief as the Fed cuts assuming SOFR follows.