Price increases, stock market gains, job loss and the Fed’s stop-snoring are all possible in 2022. That’s not all: Omicron instances are soaring, and total government breakdown is approaching.
Businesses, individuals, and investors must plan in this climate. Identifying the risks and possibilities for growth is the only way to do so.
Here are some crucial considerations to consider.
Supply chains and COVID:
First, the 800-pound gorilla: COVID. The virus’s fate is the major economic problem.
Currently, we fear Omicron. This quickly spreading but less lethal strain might be the one that ends the pandemic or sparks the next catastrophic viral epidemic.
If Omicron prevails and becomes less lethal, the economy should be able to develop steadily. The worldwide supply chain issues may be resolved without further disruptions. The “next normal” may arrive this year.
Even a less lethal infection might cause complications. The development of “herd immunity” might allow people to return to work, education, and social activities in areas where vaccination is common and COVID is minimal. COVID is here to stay, but it won’t be crippling.
The hazards are still high in nations where vaccination rates are low or when vaccines are ineffective. Sub-Saharan Africa, South Asia, and Latin America are Some have become major global suppliers.
Also, China’s vaccination efficacy is dwindling. Periodic breakouts followed by shutdowns in critical nations might stifle global supply chain untangling and slow global growth.
Supply chain issues will alleviate but not eliminate this year.
While COVID has contributed to rising manufacturing costs and the resurgence of corporate pricing power, it is not the primary cause. Federal stimulus packages totaling almost $5 trillion not only pulled us out of the terrible recession, but also fueled an astonishingly rapid and huge recovery.
In any case, whether you worked or not, whether your company existed or shut down, whether the federal government deemed it necessary, the feds delivered a check. Most economic units gained directly from stimulus packages, while others benefited indirectly from the economy’s swift recovery.
But no good act goes unpunished, and the choice to keep some services running is now a political prisoner. Important initiatives, especially those that aided poorer families and children, are being held hostage by the opposition’s refusal to support anything.
Is another stimulus bill needed? If you desire fast growth.
Currently, no substantial new stimulus measure is likely. If so, it will be minor. That has lowered economists’ growth expectations for 2022. Free lunches don’t exist, yet withholding them creates hunger.
Is slower growth bad? No. The present high inflation was not caused solely by global supply networks. The large inflow of cash allowed businesses and people to quickly resume spending. Limited supply allowed firms to hike prices without repercussion. And they do.
The spike in demand exacerbated a labor scarcity, driving up salaries. It has inspired workers to rediscover the benefits of job mobility, and they are departing in record numbers. So long as demand is robust, labor should stay competitive.
Ah, to own a home or stock. Their valuations have risen in recent years.
On the one hand, this boosted confidence and expenditure. But, as the dot.com and housing booms showed, what goes up must come down. While the asset price bubbles may not have burst, their long-term viability is questioned.
Hope for the best, but prepare for the worse.
The Fed and interest rates
Then there’s the Fed. For nearly a decade, the Fed has held rates around historic lows. Many now consider these “emergency” rates typical.
With high growth and inflation, the Fed must slow the merry-go-round by hiking interest rates.
On the plus side, higher rates may curb some market excesses. However, increased rates, coupled with reduced government support, might slow the economy more than predicted. What’s more, the Fed must clean up the mess it caused by keeping rates low.
Rates are expected to rise, but not enough to kill the golden stock or housing market goose.
So, there you go. The good, terrible, and confused forces that will shape development in 2018. Success.
