The term “Annus horribilis” means “terrible year,” the Queen of England used this term to characterize 1992. That year was a turbulent she swore she would not remember kindly.
Given present trends, the same title may apply to 2022. Inflationary pressures blister U.S. consumers at a rate not seen in decades. It sabotaged the electoral fortunes of a president who has only been in office for a year. It’s also combining to make a difficult job much more difficult for the Federal Reserve chairman he’s endorsing for re-election.
Inflation Awaits 2022
On Wednesday, figures revealed that December’s headline consumer inflation was blistering 7% year-over-year, with core prices up 5.5 % – the most since 1991 and the quickest jump in a year since 1982. While Wall Street reacted calmly to the news, sending indices on an unusual climb as investors did what they do best, at least two things were evident. On Wednesday, U.S. Bank chief economist Tendayi Kapfidze said, “Once you have inflation, right, like when inflation goes away, goods don’t have to get cheaper.” “All they have to do now is stop growing,” he remarked.
Even as robust demand inflates prices, bond king Jeff Gundlach stated this week that he sees “recessionary pressure” rising. A tight labor market and increasing pay are far more likely than not to maintain, fueling insatiable demand.
Paul Ashworth, the senior U.S. economist at Capital Economics, described December’s pricing figures as “every bit as dismal as we predicted” on Wednesday. The Fed should begin raising interest rates in March, with four 25-basis-point rises this year and four more in 2023. That decision aligns him with JPMorgan Chase CEO Jamie Dimon, who predicted this week that the central bank would be obliged to boost rates more aggressively due to rising growth and prices.
The response of the Powell-led central bank to rising prices will determine its future phase. And, unlike his previous predecessors, President Joe Biden opted to reappoint Powell despite pressure to change direction on Monday. Hence, his political fortunes will now be inexorably linked to Fed policy.