Can the Us Exonomy Boom Again

New York (CNN Concern)The US economy is heading into 2022 with serious momentum.

The recovery gained steam in the last few months, capping off what could be the fastest year of GDP growth since 1984, when Ronald Reagan was in the White House.

The hope is this rapid expansion continues in 2022, assuasive the state to heal most of the economical wounds acquired past the health crisis. The jobs market place could render to total employment past the end of 2022. And cerise-hot inflation is expected to finally cool off, moving towards healthier levels.

And notwithstanding, the past two years have shown how unforeseen events can alter forecasts, sometimes dramatically.

For all its contempo force, the economy'south recovery faces multiple risks in 2022, starting with the force that continues to dominate daily life: Covid.

Covid doesn't go away

The hope is that Omicron is spreading so apace that it burns itself out, making its impact curt-lived. Just what if this latest wave sticks around long plenty that it puts a dent in consumer need -- especially in Covid-sensitive sectors like travel and restaurants?

"The pandemic remains the unmarried largest potential disruptor of the domestic and global economic system," said Joe Brusuelas, master economist at RSM.

The bigger risk is that an even more than menacing variant emerges, with more astringent symptoms and the danger that information technology evades vaccines and booster shots.

Wall Street appears to exist unfazed by both these risks, at least not lately. Record highs in the stock market propose investors are betting neither Omicron nor some other variant volition prove problematic.

"I hope they're right," said David Kotok, primary investment officeholder at Cumberland Advisors. "This is a mutating affliction. We've now had two years of experience. What makes anyone believe Omicron is the last i?"

Supply chains stay scrambled

Omicron arrived just as stressed-out supply chains -- one of the biggest drivers of inflation -- were starting time to show glimmers of hope.

The Delta variant earlier this year piled boosted pressure on supply chains past getting workers sick, making them scared to go to work and introducing new health restrictions.

Information technology's likewise soon to say whether the same will happen now at the factories, ports and trucking companies that keep the economy humming.

"It is possible that Omicron disrupts supply chains even more and will exist a elevate on growth and investment," said Vincent Reinhart, a former Federal Reserve official who is now chief economist at BNY Mellon.

The adept news is the Omicron moving ridge is striking at a fourth dimension when demand typically cools off, which should give supply bondage a bit of extra breathing room to deal with the new variant.

Aggrandizement stays hot

Consumer prices rose in November at the fastest pace in 39 years, driving up the cost of living for families. Goldman Sachs expects inflation will heat up a bit further in the coming months, earlier cooling off considerably afterwards in 2022.

One risk is that new Covid-related bottlenecks limit supply, lifting prices even higher. Another business organisation is that aggrandizement continues to spread and gets further ingrained in the psychology of consumers and business organisation owners, which in turn could cause a negative feedback loop that drives inflation higher.

High energy prices have been at the centre of the aggrandizement fasten, most notably prices at the pump. Another spike in oil prices, as some on Wall Street have been calling for, would darken the inflation picture.

A Fed policy error

Later on well-nigh two years of unprecedented support, the Federal Reserve is finally taking its foot off the gas pedal -- and preparing to tap the brakes very before long.

In a bid to fight inflation, the Fed is planning to cease its bond-buying stimulus program around March and has penciled in three interest rate hikes for next yr.

Given the strength of the recovery, the economy should be able to absorb those rate hikes without negative repercussions. Borrowing costs will remain historically low.

"My sense is the economy is in a pretty skillful place correct now. The Fed has a lot of bandwidth to piece of work with," said RSM'due south Brusuelas.

Investors tend to agree, with markets signaling confidence that the Fed will deftly exit emergency mode without harmful side effects.

Simply there is a chance the Fed overdoes it past raising rates faster than the economy, or financial markets, tin can tummy. And that could severely slow down or even cease the recovery.

No more aid from Uncle Sam

Subsequently providing nearly $6 trillion in Covid relief during the offset two years of the pandemic, federal support for the economy is projected to tedious sharply in 2022.

That was always going to be the example, only the tendency volition exist more pronounced given the apparent demise of the Build Dorsum Better Deed, including the enhanced kid tax credit.

"We are going to run an experiment on how much of this robust expansion is due to financial support and how much from private activity," said Reinhart. "Nosotros don't know."

The unexpected

Any list of risks to the economic system must include wild carte du jour events that few expect simply could still have a big impact.

The best example would exist a massive cyberattack that sets off turmoil, either in the real economy or in financial markets, or both.

The hacking of the Colonial Pipeline earlier this yr showed just how vulnerable critical infrastructure is to the cyber threat. A contempo report from the JPMorgan International Quango warned that cyber is the "most dangerous weapon in the world, politically, economically and militarily."

Fed Chairman Jerome Powell openly worried earlier this month almost the potential impact from a cyber intrusion that could take down down a big bank or a cardinal cog in the financial arrangement.

There are endless other wildcard risks beyond cyber, everything from a state of war and a natural disaster to a crash in the crypto market place.

"You've got to be humble. Nearly nobody had a pandemic on the radar screen in 2018 and maybe not 2019," Reinhart said. "Is information technology possible in 12 months that all we will talk about is something we are not talking nigh now? Yes."

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Source: https://www.cnn.com/2021/12/31/economy/economy-covid-inflation-2022/index.html

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