The CEO of Walmart just predicted that the US Economy could face deflation in 2024. This is a dire warning that suggests the economy is not as strong as people think it is. And that consumer prices could drop in the coming year while the unemployment rate surges.
Because most historical episodes of deflation in US History have led to the unemployment rate crossing above 10%. Like in the panic of the 1890s, the Depression of 1921, the Great Depression, and the 2008 Financial Crisis.
But of course – Deflation isn’t all bad. If it does happen, it would mean a reduction in prices for consumers. With items such as new houses, used cars, airline fares, and various commodities have already gone down in price by anywhere from 20-50% since the peak of the pandemic.
So combining these initial price declines, with the warning from Walmart – America’s largest company by revenue with over $600 Billion in sales – should cause many homebuyers and investors to stop in their tracks and consider whether deflation could in fact happen in 2024.
However, for real deflation to unfold, we will likely need to see the Housing Market in America crash further. Because the cost of rent, as well as mortgage payments, is a huge share of the typical consumer budget. Both home prices and rent will need to get cheaper for real deflation to unfold.
I believe this could happen if the Federal Reserve continues to operate with tighter monetary policy. Not only are short-term interest rates still between 5.25%-5.50%, but the Fed and Jerome Powell are also taking money out of the system through quantitative tightening. This quantitative tightening is effectively “destroying money” and resulting in a contraction of the money supply in America. The first such contraction since the 1950s and the largest since the Great Depression in 1929.
Of course – the Fed could always pivot and cut rate rates, and start printing money again in 2024. Which could send the money supply higher and result in a re-ignition of inflation. No one truly knows what the Fed will do in the future.
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