2022: More growth, much more inflation, much higher interest rates

American Thinker ^ | 28 Dec, 2021 | Michael Busler

[MtnClimber]

A primer on where all this inflation is coming from and how to stop it.

When the final numbers for 2021 are in, we are likely to see that annual growth was 5.5% and the unemployment rate fell to near 4%. While that is very good, there was a problem with inflation. For the year inflation will be 7.5% as measured by the Consumer Price Index. That inflation rate is the worst that we have seen since 1981. What will 2022 bring?

Growth in 2021 was higher than at any time since 1984. Most of the growth was fueled by huge increases in government spending and extremely expansionary Monetary Policy. Households were given thousands of dollars in free money from the federal government. Much of that free money was saved, especially during lockdowns.

As the economy re-opened and lockdowns ended, consumers went on a spending spree, helping to create excess demand in the economy. Businesses began to operate at full capacity, but they were constrained by a steep decline in available workers.

The combination of huge excess demand and somewhat constrained supply led to rising prices. That coupled with policy driven increases in energy prices, wage inflation caused by the labor shortage and vast increases in the money supply matched with near zero interest rates, created so much excess demand that inflation hit a 40 year high.

The economy did reach a full employment level partially due to the 3.5 million workers who left the labor market during the pandemic and have not returned.

What will happen to the economy in 2022?

Economic growth should continue to be strong, but will be constrained by the continued labor shortage and the severity of Covid. Business, though, will get creative and substitute capital for labor where possible.

[MtnClimber]

Anyone else remember the Jimmy Carter days?

[wny]

“Growth in 2021 was higher than at any time since 1984. Most of the growth was fueled by huge increases in government spending and extremely expansionary Monetary Policy. Households were given thousands of dollars in free money from the federal government.”

this is not “growth”. creating “money” from thin air and giving it away to people to spend is not growth. this guy’s clueless.

[jdsteel]

The article assumes that the Fed will be forced to raise interest rates higher and faster than they now say, risking a recession in 2022.

Sorry, they have become so DNC compliant they won’t do that before the midterm elections. So we may have much higher inflation and a more painful recession afterwards…but they won’t want that before the 2024 elections either.

Rinse and repeat until Republicans are in charge so they can blame them for the crash….again.

[Think free or die]

"Anyone else remember the Jimmy Carter days?"

Anyone who lived them can scarcely forget them. I was coming out of college to face double-digit unemployment, double-digit inflation, and expensive gas that you could only purchase on alternate days. The pain will be widespread, and young adults are in for a rude awakening. They haven't experienced anything like this, and many are already struggling with the high cost of housing and debt. Some will benefit by inflation when they re-pay school loans, but it will bite them in the backside in other ways. If we only hit 8% inflation, I'll be surprised.