Perspectives from Tony Malloy, Executive Vice President and Chief Investment Officer.
 

The U.S. economy enters 2022 in great shape

  • The U.S. economy grew 5.7% last year, the fastest pace since 1984
  • The labor market continues to recover, with unemployment declining to 3.9%
  • The Great Resignation has fueled a war for talent, with job openings and worker turnover hovering near the highest levels on record
  • The wealth effect and rising wages are tailwinds for consumption
    •  Household net worth is a record $144T
    • Wages climbed 4.2% last year, the fastest rate in 21 years
    • Growth in Q1 is expected to slow due to Omicron, but this should be short-lived

Highest inflation in 40 years a concern for Wall Street and Main Street alike

  • Twin supply/demand shocks fueled inflation above 7% in 2021
  • The pandemic contributed to shortages of materials and labor and snarled supply chains
  • Record fiscal and monetary stimulus spurred consumer demand for goods
  • Inflation pressures real wages, corporate earnings, spending and investment
  • Persistently high inflation is unlikely to abate in the near term

Federal Reserve announces hawkish pivot

  •  The Fed signaled it would take actions to choke off inflation
  • The Fed is expected to raise its Fed Funds policy rate at least 3 or 4 times in 2022
  • The Fed plans to reduce its balance sheet, which doubled during the pandemic
  •  Considerable uncertainty exists regarding the pace and magnitude of these shifts

Financial markets

  • Financial markets came under pressure in January, reflecting investor concerns about inflation, rising interest rates, corporate earnings, and the shift in monetary policy
  • Stocks came into the year very expensive and were overdue for a correction
  •  Interest rates climbed, and the yield curve flattened in anticipation of Fed actions
  •  For markets, the January sell-off marks the end of the pandemic, as stock valuations and the 10-year Treasury yield are back to where they were before the COVID-19 crisis

Outlook

  • Strong consumer spending should continue to propel growth in 2022
  • Inflation could largely subside on its own, as supply-chain problems get sorted out and consumer demand fades along with the effects of fiscal stimulus
  • Risks to the outlook are that Fed is late in acting and that it may have to slam the brakes to keep the economy from overheating

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Media contact
Kevin Maher
New York Life Insurance Company
(212) 576-6955
Kevin_B_Maher@newyorklife.com

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