While our friend DaveFairTex takes some much needed time off, here’s a snippet of Seeking Alpha’s opinion on “What to Watch in 2022.” To read Alpha’s entire article click here. And if you want to truly prepare for 2022, don’t forget Peak Prosperity’s Annual Seminar “Thriving in the Great Reset“. Featured speakers include Bret Weinstein, Dr. Pierre Kory, George Gammon and more. Early Bird Specials and membership bundles are now available. Dave will return next week.
Risk: Inflation is by far the No. 1 economic concern going into 2022. Many are worried about a period of escalating prices, and don’t trust what they’re hearing from mainstream economists and central bank officials. At the start of 2021, the U.S. was forecast to end the year with 2% inflation, but it is close to 7% instead. Fed Chair Jay Powell has subsequently backtracked on his “transitory” thesis, with the term endangering a delayed reaction to the current price environment.
“I think the biggest risk is that expectations about inflation will continue to rise and the more they rise, the more difficult those expectations are to manage,” said Gad Levanon, head of the Conference Board’s Labor Markets Institute. “It was a hard-earned accomplishment for the Fed to able to anchor inflation expectations, and they are at risk of losing it.”
Opportunity: Inflation has been a symptom of easy money policies, but more importantly, due to supply bottlenecks and increased consumer spending. If those factors were to ease, much of those fears could dissipate. The Fed could also pull off a delicate balancing act, where both growth and inflation decelerate, but not so much that the economic expansion is put in jeopardy.
“I do think that we’ll see a gradual slowing in inflation throughout 2022,”predicted Gus Faucher, chief economist at PNC Financial Services Group. “After a big run-up in energy prices, they’re going to stabilize or come down next year. I do think that a lot of the higher price pressures from the reopening of the economy are going to fade, things like airfares, hotel rooms and new and used cars.”
Risk: There are some negative consequences that could arise if the central bank fails to react appropriately to the current rise in inflation. Asset prices have inflated due to the message from the Fed that any tightening of policy will be limited and gradual. However, if the bank is forced into more extreme monetary policy action, richly supported valuations could melt away.
“We are moving from a period in which central banks have tried to be predictable and suppress volatility to one in which they will increasingly be the source of surprises,” analysts at Bank of America wrote in a research note.
Opportunity: Volatility may still be the name of the game, but if history is any guide, the Fed’s “taper tantrum” of 2013 was followed by strong gains for equities, as traders bet the economy was healthy enough to stand on its own. Following Ben Bernanke’s comments in May 2013, stocks fell 5.8% in the next month, but for the rest of that year, the market was up 17.5%. Raising rates in 2022 could also be a “net positive” event by signaling that the central bank feels comfortable about the U.S. recovery.
“I go into next year feeling like the baseline outlook is a very good one. Therefore, actually raising interest rates would be a sign of a positive development in terms of where we are in the economic cycle,” said New York Fed President John Williams. “I’m pretty optimistic that we’re seeing really strong improvements in the labor market. You’re seeing the unemployment rate come down quickly.”
The rest of the article, addressing the pandemic, labor and supply chain shortages, and potential growth can be found here.