5 questions that determine the parameters of the largest economy in the world in 2022

The US economy defied expectations in almost any way, continuing to recover from the deepest recession since the Great Depression. Federal stimulus and unprecedented breakthroughs in COVID-19 vaccines have helped boost the labor market, wages, stock prices and consumer spending in the United States, far beyond what economists predicted, but they have also fueled the highest inflation rate of the past four decades.

And while economists predict another year of strong growth in 2022, the United States will continue to face challenges and obstacles brought about by the pandemic. Here are the big five questions that will define the US economy next year, according to The Hill.

1. How will Omicron affect the economy?

The sudden surge in Omicron cases in December led to a flurry of canceled events, postponed travel plans and temporary business closures, along with tougher health measures. While those vaccinated and boostered are unlikely to face serious illness, the Omicron boom has created deep anxiety and uncertainty about the economic recovery.

The economic impact of the Omicron variant will likely depend on whether it actually causes less severe disease than previous variants, including delta, which questsummer slowed employment growth and increased pressure on supply chains.

“It will probably be less severe than it was in the summer of questyear when the Delta struck, “Ian Shepherdson, chief economist at Pantheon Macro Economics, wrote in Tuesday’s analysis.

“But we can’t rule out the idea that hospitals in some states will be overcrowded, because Omicron is spreading so rapidly that even a low hospitalization rate will generate large numbers of hospitalizations in a short time, “he added.

He continued: “Under these circumstances, the prevailing view in the markets that successive waves of Covid have less impact on the economy can easily be reversed.”

2. How far will inflation go up?

The surprisingly rapid recovery from the fallout from COVID-19 drove the US unemployment rate to 4.2% last month, offsetting the loss of GDP in 2020 and pushing both stock prices and consumer spending above levels. pre-pandemic.

But the pace of this recovery and the persistent obstacles associated with the pandemic have put a strain on manufacturers, suppliers, shipping companies and other key industries that have been derailed.

With suppliers raising prices to cope with rising demand, inflation, as measured by consumer price index (CPI) growth, hit an annualized rate of 6.8% in November, the highest. for over 40 years. Economists predict that the annual rate of inflation will continue to rise for at least several months, but the emergence of Omicron has overshadowed those expectations.

“If we go in in a very negative cycle, we will see the pressures move in both ways: supply pressures push price inflation more in high, so demand weakens, which leads to lower inflation, “said David Beckworth, a researcher at George Mason University’s Mercatos Center.

3. How will the economy cope with rising interest rates?

The Federal Reserve abandoned its patient approach, deciding to suspend the stimulus after months of soaring inflation. While Omicron may still change the Fed’s plans, the Fed is preparing to raise interest rates three times questyear and finish its Treasury and mortgage purchases in March.

Federal Reserve Chairman Jerome Powell explained that while the labor market was even weaker than it was before the pandemic, the sudden pace of recovery and the persistent hiring problems many companies face require the Bank to cancel more incentives. faster than expected.

Although Beckworth expressed confidence in the Fed’s handling of inflation, he said it may be difficult to balance concerns about high inflation with uncertainty. in course caused by the pandemic.

4. Will workforce participation improve?

Despite the decline in unemployment in the United States, job vacancies record and the lowest level of layoffs since the 1960s, more than 5 million Americans have not yet returned to the workforce. Employment remained strong, but the lack of steady improvement in workforce participation limited companies’ ability to meet growing demand.

5. Can the Democrats find a deal to “rebuild better”?

Senator Joe Manchin overturned President Biden’s agenda when he announced his opposition to “Build Back Better” – $ 1.75 trillion social spending and climate – and his decision also prompted many economists to turn down. their forecasts for U.S. growth in 2022.

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