The central question for the 2024 economy — one that underpins everything else — is whether 2023's relatively pain-free disinflation can continue.

Why it matters: So far, inflation has fallen to near-normal levels without any major upsurge in joblessness or other broad damage to the economy. In 2024, the Fed's job is to try to stick the (soft) landing. It could err in either direction.

• If it waits too long to cut interest rates, it will find itself behind the curve and risk engineering an unnecessary recession — perhaps even sending inflation below its 2% target.
• But to the extent there are hidden inflationary pressures that still need to be doused, premature rate cuts could allow prices to bubble up yet again.

We're also looking to ascertain whether one of the most under-discussed economic developments of 2023 — a surge in worker productivity — was real and sustainable.

• Output per hour of work was 2.4% higher in the third quarter than the same quarter a year earlier. That followed negative readings throughout 2022.
• Productivity statistics are highly volatile, so it might just be a blip. But if it reflects real, durable improvements in businesses' abilities to wring more output from their workforce — perhaps driven by AI and other investments in work processes — it would make other economic challenges more solvable.
• A spurt of high productivity like that seen in the late 1990s would tend to lower inflation pressure, increase wage growth and make America's fiscal situation less worrying.

A related question involves whether long-term rates are on track to revert to their relatively low levels of the 2010s, or if we are entering a new period in which rates are permanently higher than the norm from 2008 to 2021.

• The "new normal" case rests on forecasts of very large federal budget deficits for the years ahead, which exerts upward pressure on rates.
• Demographic changes, shifting winds on globalization and that potential AI-driven productivity surge could also be pushing up borrowing costs.

Between the lines: We've already seen flare-ups in which higher rates cause something to break — most notably the collapse of three large banks last spring. The question is whether rates return to the elevated levels seen this fall and, if so, what else might break.

The election and the economy

It's an election year, and that will shape much of the economic discussion and policy in the months and years to come.

State of play: We'll be watching for signs of what voters' choice in November — which looks likely to be a race between President Biden and former President Trump — will mean for U.S. fiscal policy.

• While this race probably won't feature a wonky discussion of taxes and entitlements, key 2017 Trump tax reform provisions expire at the end of 2025. That will give the winner of the 2024 election real leverage to guide tax policy.
• Biden's budgets, for example, have included moderate deficit reduction funded by tax increases on the wealthy and a higher corporate income tax, while shielding those making under $400,000 from tax hikes.
• The former president hasn't laid out policy plans, but he appears likely to double down on cutting the corporate income tax rate and consider new tariffs on imports.

Finally, the election year landscape is set to put the Fed in the political crosshairs.

• In the sunny scenario — where inflation continues coming down, a recession is averted and the Fed is cutting rates — chair Jerome Powell and his colleagues will likely face accusations from Republicans of goosing the economy to help Biden.
• If the Fed fails to manage a soft landing and a recession occurs, Democrats will blame the Fed for excessive monetary tightening that undermines Biden and potentially returns Trump to the White House.
• Powell and his colleagues will aim to follow the data and avoid the political maw, but it is probably coming for them regardless — which in and of itself could affect the Fed's independence in the years ahead.

The bottom line: It is a high-stakes year in which economic and political currents will swirl around, each affecting the other in hard-to-predict ways. We'll be here covering it.