If you look at any poll heading into 2024, the number one issue remains the economy. That's true of most elections, but during a multi-decade high with inflation and interest rates, the economy is even more of an issue. Both the White House and Washington D.C. press corps are fighting an uphill battle trying to convince Americans the economy is good.

Throughout this entire ordeal, the most crucial gauge for where we are on inflation hasn't been with polls measuring American sentiment or press coverage. It's what the Federal Reserve is planning to do next. The Fed started late on inflation and ramped up interest rates at a historic pace to catch up.

We're in a period now where interest rates remain high, and the official inflation data is moderating. For the longest time, we were told this was the "higher for longer" part of the Fed's plan to tackle inflation. But the Federal Reserve is signaling something more. Markets are pushing back up because the Fed is signaling rate cuts.

In financial news, this is known as the "Powell pivot." It's where the Federal Reserve shifts away from increasing interest rates or holding them at historic levels. There are two reasons you'd cut rates. The first reason is that the inflation problem is fixed, and higher rates aren't needed. The second is that the Fed fears something else.

The popular narrative in the press is that inflation is fixed, and Biden and Powell succeeded. But inflation remains above the Fed's 2% target. Richmond Fed President Tom Barkin said in an interview, "If you convince yourself that you've got inflation headed to where you want it to be, I don't have an objection to toggling rates down. But I'm still looking for conviction that inflation will settle at the Fed's 2% target and not above."

In truth, whether or not the Fed has fixed inflation or not, it's more accurate to say the Fed fears what is coming. Politically, the 2024 election strains any central bank as politicians look for a favorable environment ahead of an election. The Fed won't want to look like they're favoring or disfavoring either party, but those allegations will be there.

And then there's the building debt bomb waiting to go off at the end of 2024. The increased interest rates put considerable pressure on anyone with variable-rate mortgages across the commercial and residential sectors. There's $117 billion in debt that needs refinancing, and everyone would prefer that to happen with lower rates, not higher ones.

PricewaterhouseCoopers put out a report that they anticipate more large business failures in 2024 as a result of debt issues. PwC said, "Official figures from the Insolvency Service earlier this month showed the total of company failures over the first 11 months of 2023 was more than reported during the entirety of 2022."

There are distinct fears this will grow in 2024 without a serious policy pivot from the Fed. The private sector isn't alone on this point. The United States government isn't very interested in servicing its own debt at these levels, either.

And then there's international politics. The economic warfare between the United States and its Western allies versus Russia, and increasingly, China, is creating strain on those countries. In an address, Chinese Supreme Leader Xi Jinping warned his citizens that "winds and rains" were coming as China tries to dig itself out of a deep economic recession.

Higher U.S. interest rates have done as much to kill the Chinese economy as their draconian COVID-19 measures. We're seeing China soften its stance towards the United States and seek special meetings in San Francisco because China is desperate for an influx of U.S. capital to boost its economy.

The Chinese Communist Party is brutal in its treatment of people. But it also has a simple social contract in place. If the people don't starve and can live comfortably, the Chinese Communist Party will survive. If hunger and poverty return, political instability will follow right behind it. We've seen some hints of unrest in China, which caused the Chinese Community Party to back off its harsh COVID policies. Will that continue if the economy stays in a ditch?

In short, many people are banking on lower interest rates from the Federal Reserve in 2024—politicians up for re-election, investors, debtors and creditors, and foreign allies and enemies. The fight to lower inflation has impacted every sector of the economy and the world.

If the Federal Reserve cuts interest rates to provide the relief everyone wants, it's hoping that inflation won't go back up. The Fed also hopes that a recession doesn't occur between now and the time it takes to lower rates. There are many unknowns in this, as there has been the entire journey over fighting inflation.

But one thing is certain: if inflation isn't fixed, and the Fed starts lowering interest rates, it will be much harder to crank things back up on people depending on things going down. I don't envy Powell's job at all. But while markets cheer the fact we're leaving the woods, the Fed isn't convinced we are. And that's something to keep in the back of your head as everyone cheers the end of high inflation.