The economy is booming. 5 reasons why 2022 might change

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It is hoped that this rapid expansion will continue in 2022 so that the country can heal most of the economic trauma caused by the health crisis. By the end of 2022, the job market may return to full employment. The hot inflation is expected to eventually cool down and move towards a healthier level.

However, the past two years have shown how unforeseen events can change forecasts, sometimes even dramatic.

Despite the recent strong performance, the economic recovery faces multiple risks in 2022. The first is the force that continues to dominate daily life: the new crown pneumonia.

Covid will not go away

It is hoped that Omicron will spread so fast that it will burn out on its own, making its impact short-lived. But what if this new wave lasts long enough to weaken consumer demand-especially in industries that are sensitive to Covid such as travel and restaurants?
GasBuddy predicts that by Memorial Day, gasoline may reach $4

RSM Chief Economist Joe Brusuelas (Joe Brusuelas) said: “The pandemic is still the biggest potential disruptor of the domestic and global economy.”

The greater risk is the emergence of more threatening variants, with more severe symptoms, and the risk of evading vaccines and boosting injections.

Wall Street seems indifferent to either of these risks, at least not recently. The stock market hit a record high, indicating that investors will bet on Omicron or other variants without problems.

“I hope they are right,” said David Kotok, chief investment officer of Cumberland Advisors. “This is a mutant disease. We have two years of experience now. What makes people believe that Omicron is the last one?”

The supply chain remains chaotic

The arrival of Omicron coincides with the over-stressed supply chain-one of the biggest drivers of inflation-beginning to show a glimmer of hope.

The Delta variant earlier this year made workers sick, made them afraid of going to work, and introduced new health restrictions, which put additional pressure on the supply chain.

It is too early to say whether the same will happen to factories, ports and trucking companies that maintain economic prosperity.
After Omicron’s concerns, Moody’s Mark Zandi plans to lower his US economic forecast

Vincent Reinhart, a former Federal Reserve official and current chief economist at the Bank of New York Mellon, said: “Europe and the United States may further disrupt the supply chain and drag down economic growth and investment.”

The good news is that the Omicron wave appears when demand usually cools down, which should give the supply chain some extra breathing room to deal with new variants.

Inflation continues to rise

Consumer prices rose at the fastest rate in 39 years in November, pushing up the cost of living for families. Goldman Sachs expects inflation to heat up further in the coming months and then cool down later in 2022.

One risk is that new Covid-related bottlenecks restrict supply, thereby further pushing up prices. Another concern is that inflation continues to spread and become more entrenched in the psychology of consumers and business owners, which in turn may lead to a negative feedback loop, thereby pushing up inflation.

High energy prices have always been at the core of soaring inflation, most notably the rise in oil prices. As some on Wall Street have been calling for, another surge in oil prices will dim the outlook for inflation.

Fed policy mistakes

After nearly two years of unprecedented support, the Fed finally let go of the accelerator—and is ready to apply the brakes soon.

To combat inflation, the Fed plans to end its bond purchase stimulus program around March and plans to raise interest rates three times next year.
America is running in a bad job

Given the strength of the recovery, the economy should be able to absorb these interest rate hikes without negative effects. Borrowing costs will remain at historically low levels.

“My feeling is that the economy is currently in a pretty good position. The Federal Reserve has a lot of bandwidth to use,” RSM’s Bruzuelas said.

Investors tend to agree that the market has shown confidence that the Fed will deftly exit the emergency mode without harmful side effects.

However, the Fed may raise interest rates excessively at a speed beyond what the economy or financial markets can withstand. This may severely slow down or even end the recovery.

Uncle Sam no longer helps

After nearly $6 trillion in Covid relief was provided in the first two years of the pandemic, federal support for the economy is expected to slow significantly in 2022.
This is always the case, but this trend will become even more pronounced in the light of the apparent demise of the “Better Rebuild Act”, including enhanced child tax credits.

Reinhardt said: “We will conduct an experiment to see how much of this strong expansion is due to financial support and how much comes from private activities.” “We don’t know.”

Unexpected

Any list of economic risks must include wild card events that few people have anticipated but may still have a significant impact.

The best example is a large-scale cyber attack, which triggers turbulence in the real economy or financial markets, or both.

Federal pandemic aid dries up as companies respond to Omicron’s impact
The hacking of colonial pipelines earlier this year showed how vulnerable critical infrastructure is to cyber threats. A recent report by the JPMorgan Chase International Committee warned that the Internet is “the most dangerous weapon in the world, whether it is political, economic or military.”

Fed Chairman Jerome Powell publicly worried earlier this month about the potential impact of cyber intrusions, which could paralyze a major bank or a key gear in the financial system.

There are countless other wildcard risks In addition to the Internet, there is everything from wars and natural disasters to the collapse of the crypto market.

“You have to be humble. Almost no one has a pandemic on the radar screens in 2018 and 2019,” Reinhardt said. “Is it possible that in 12 months, we will only be talking about things that we are not talking about now? Yes.”



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