JPMorgan Asset Management strategist Michael Cembalest released his "Top ten possible surprises for 2024," of which, he predicted that President Biden would drop out of the presidential race, citing health reasons, sometime between Super Tuesday and the election in November. The election is one of many unpredictable headwinds that could affect the economy and investor portfolios for 2024.

The New York Times Columnist and CUNY Professor Paul Krugman joins Yahoo Finance to discuss the impact on the economy from everything surrounding the 2024 election and beyond.

"I've been digging a lot into consumer sentiment numbers. What you see there is Democrats are feeling increasingly good about the economy, they're responding as what you would expect to a really good year in 2023," the Nobel Prize laureate weighs in on these predictions. For Republicans "it just doesn't matter. All that matters is there's a Democrat in the White House, so they say the economy is terrible. That's not going to change. Changing the name at the head of the ticket isn't going to change that."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino.

Video Transcript

BRAD SMITH: Well, a strategist at JP Morgan predicts that President Joe Biden could pull out of the presidential election, although the economy and markets are showing signs of not only strengthening but growth. Could unpredictability during the upcoming presidential election append that and how could that impact your portfolio? To help us break this down, we've got Paul Krugman who is "The New York Times" columnist and professor.

Paul, I know what you're thinking, probably. What information does the analyst have more than, perhaps, the public or even those closest to the president here? But let's kind of game out this hypothetical. What would be the real impact if we did see President Joe Biden pull out from the general election?

PAUL KRUGMAN: Well, I mean, again, you know, what does he know? I mean, if I'm made a pronouncement like that you should not take me seriously because I have no special information on that. I don't understand why a Wall Street strategist should have any inside take here.

And it would cause chaos within the Democratic Party because there is no obvious person to run instead. I mean, and so in terms of even, if they could unite on somebody, I actually don't think it makes a difference. I don't know much about-- you know, anything really about the political stuff, but I've been digging a lot into consumer sentiment numbers.

And what you see there is Democrats are feeling increasingly good about the economy. They're responding, as you would expect, to a really good year in 2023. Republicans absolutely, it just doesn't matter. All that matters is there's a Democrat in the White House. So they say the economy is terrible.

And that's not going to change. Changing the name at the head of the ticket isn't going to change that. So I don't see any reason to think that-- this is not going to happen but it wouldn't really shake up anything in terms of the underlying dynamics of the election.

SEANA SMITH: Paul, give us your sense. You mentioned the fact that there are some perceptions out there at least among a group of voters that the economy is still very lousy despite the recent data that we've gotten showing that it has remained remarkably resilient. As we head into 2024, for investors out there, I guess, how do you see what we're currently seeing in terms of the stability of the economy playing out here going forward? And whether or not you think it's time for the Fed to cut rates.

PAUL KRUGMAN: Oh, it's definitely time for the Fed to cut rates. I like to compare. The economic numbers look a lot like they did in late 2019, right? The unemployment rate is about the same. The underlying inflation is just slightly higher but very close to the Fed's 2% target now. The Fed's forecast of inflation for the next year is just slightly higher than it was.

But the Fed funds rate was 1.75 in late 2019. And it's 5.5 now. It's very hard to justify, given that inflation has collapsed. The war on inflation suddenly is over. We won. And it's very hard to understand why rates should stay where they are now given that the inflation that was supposed to be the big justification for rate hikes seems to be just gone away.

And could there be a recession in 2024? Who knows? I mean, there's some very, very slight hints of weakness in the data, but economists have a perfect track record predicting recessions, which is, we've never been right. So I don't think that's something we can go on. But the inflation is definitely, basically, a solved problem.

BRAD SMITH: Yeah. Economists have been calling for a recession for the better part of what? A year and a half at this point right, Paul? So at the end of the day--

PAUL KRUGMAN: --decades of experience. Economists have never successfully called a recession. And when there's unanimity that one is coming, it doesn't happen.

BRAD SMITH: What is the largest shift in tone that you're anticipating from the Fed with that regard?

PAUL KRUGMAN: Oh, I think it's a big deal when the feds basically says we're cutting rates because inflation appears to be largely under control. And they'll probably be much more cautious in the way they say it. But even so, I think it makes a big difference to a lot of people out there. It's one thing to have all of us sitting here with our data and even to have news reports that say that measures of underlying inflation are now close to the Fed's target.

It's a very different thing to have the Fed actually acting on that. That's a kind of a validation. We know it's true, but it will be a very big deal the first time that the Fed says, well, given the progress on inflation. We're cutting rates.

SEANA SMITH: Paul, what would you say is the biggest risk facing the economy in the year ahead given the fact that, yes, there is a lot of reason to be optimistic but even just from what you've been saying the last couple of minutes, certainly a lot of uncertainty ahead. So what's the number 1 thing that you think investors, shareholders need to keep in mind?

PAUL KRUGMAN: OK. I don't see anything in our own economy that is really pointing toward. There's nothing like the housing bubble in 2007 or the tech bubble in 2020. So there's nothing out there that's obviously set to collapse domestically. Maybe something that we're missing, but maybe banks, more bank runs or something like that. Geopolitics.

I mean, there are-- now what's happened so far, the shipping attacks in the Red Sea are by themselves not a huge thing but it's not good. And look, if China invades Taiwan, then all bets are off, right? So I'd say the main risks are actually geopolitical at this point.

SEANA SMITH: All right. Paul, it's always great to get your insight. Thanks so much for taking the time to join us here this morning. Paul Krugman, "New York Times" columnist and professor. Thanks so much, Paul.

PAUL KRUGMAN: Thank you.