Will US inflation calm down in 2022?

Will US inflation calm down in 2022?

2022-01-17 • Updated

Breaking news: coronavirus won't be the number one enemy of the global economy in 2022. Instead, this year's most significant risks will come from inflation and policymakers' decisions in the recovery era from the consequences of the pandemic. Unfortunately, things are about to get worse before they get steadily better. This is roughly the belief economists have of the trajectory of US inflation in 2022.

In 2021, policymakers at the Federal Reserve and other central banks confidently shrugged off concerns about inflation, labor shortages, and supply chain bottlenecks as short-term consequences of the pandemic. Just give it some time, and these problems will be solved. That was the reasoning of central banks.

If this proves not true within the next 12 months, policymakers got it wrong, and the consequences will be worse than the COVID-19 recession.

How does the Federal Reserve see inflation?

The Fed stuck to the narrative that a large part of the inflation "surprise" during 2021 was due to the temporary rise in energy prices that affected the rest of the sectors, with transportation and shipping costs rising strongly, as supply problems increased, which led to strengthening the inaction of central banks.

However, by September, US inflation was at 6.8% annually, the highest level in 30 years and nearly three times the Fed's forecast at the beginning of 2021. As a result, in December, the inflation narrative finally shifted from "it's temporary" to "it's taking a long time to calm down, and may need a push to move on."

Markets are now betting that the Federal Reserve will raise interest rates at least three times in 2022 to withdraw stimulus and cheap money from the markets in an attempt to control inflation as quickly as possible after it reached its highest level in 40 years in December (7.1%).

The US economy will grow despite high inflation

Bloomberg expects the US economy to grow by 4.4% during the first half of 2022 and then slow to 2.7% in the second half of the year.

One of the main reasons the US economy will grow is that most American consumers still have money to spend — that $2.6 trillion stimulus in household bank accounts the US government gave them. These funds will help support demand and revive the economy.

When will inflation decline in the United States?

(1) The supply chains are expected to become somewhat more organized later in the year. (2) It is unlikely that there will be a repeat of the exceptional lockdown period that we saw at the beginning of the coronavirus. Some commodities, including oil, have already surpassed their record pandemic heights.

(3) The Fed has begun to tighten its monetary policy, and these factors are supposed to tip the scales towards lower inflation rates. Add all that together, and you'll see why most economists expect inflation to slow to less than 3% by the end of 2022. 

Similar

CAD: Markets Await GDP Release
CAD: Markets Await GDP Release

During the Asian session on Wednesday, the USD/CAD pair rebounded after two days of losses, reaching around 1.3590. This uptick is fueled by a stronger US dollar and lower crude oil prices, which put pressure on the Canadian dollar. The decline in Western Texas Intermediate (WTI) oil prices to approximately $80.70 is attributed to...

XAUUSD: Markets Slow Down Ahead of NFP
XAUUSD: Markets Slow Down Ahead of NFP

Gold prices rose on Monday as the US Dollar weakened amidst speculation about potential Federal Reserve rate cuts starting in June. This weakened Dollar was partly due to improved risk sentiment pushing US Treasury yields lower. Despite facing challenges from declining yields, gold prices recovered to nearly $2,170 per troy ounce, driven by the Dollar's weakness. Federal Reserve Chair...

CAD: Signs of Growth May Persist
CAD: Signs of Growth May Persist

Canadian retail sales showed a slight rebound in February, rising by 0.1% after a 0.3% drop in January. However, this failed to fully offset the steeper decline earlier in the year, suggesting a weakening momentum in consumer spending. The increase in February was driven by gains in sectors such as sporting goods, hobby retailers, and building materials. Despite the...

Latest news

USD: Powell Speaks on Cutting Interest Rates
USD: Powell Speaks on Cutting Interest Rates

Jerome H. Powell, the Federal Reserve chair, stated that the central bank can afford to be patient in deciding when to cut interest rates, citing easing inflation and stable economic growth. Powell emphasized the Fed's independence from political influences, particularly relevant as the election season nears. The Fed had raised interest rates to 5.3 ...

WTT: Currency Pairs To Trade In April
WTT: Currency Pairs To Trade In April

Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.

Deposit with your local payment systems

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera