After a huge year for growth, the U.S. economy is about to slam into a wall

The Brooklyn Community Organization PASWO gives away free food during the weekly food distribution in New York City on December 8, 2021.
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Due to an enormous inventory build and cash-strapped consumers, the U.S. economic growth was at its highest point last year. fastest pace since 1984.

Expect a different performance for 2022.

Actually, this year’s start is not showing any growth indicators at all. Wall Street economists have been reducing their expectations for GDP due to the late-year spread omicron and the weak tailwind from fiscal stimulus.

This is combined with the fact that the Federal Reserve has shifted from its most straightforward policy ever in its history. hawkish inflation-fightersThe picture suddenly has changed dramatically. Atlanta Fed GDPNow gaugeIs currently reporting a 0.1% GDP increase in the first quarter.

Joseph LaVorgna (chief economist for Americas at Natixis, and former chief economist of the National Economic Council under President Donald Trump) stated that the economy was “decelerating” and is currently downshifting. It’s not recession but it could be, if Fed attempts to become too aggressive.

At an impressive 6.9% in the fourth quarterThe year 2021 will be the last in which all U.S. goods and services were measured increased by 5.7% annually. This was after the 3.4% drop in production due to pandemics in 2020. steepest but shortest recessionIn U.S. History.

The path ahead, however, is uncertain.

It is a lot of it. end-of-year gainThe inventory rebuild contributed to 71%, or 4.9 percent of the total. Inventory rebuilds were almost responsible for the 2.3% rise in third-quarter GDP.

Gleichzeitig, Dienstag’s ISM Manufacturing surveyThe pace at which new orders are being placed is slowing, even though it still shows gains.

This is not a great recipe for sustainable growth.

Mark Zandi (chief economist, Moody’s Analytics) stated that inventories are back roughly to their proper levels. You also have the growing headwinds of fiscal and monetary policy. The year’s start will see very little growth.

Playing catchup by Economists

Wall Street economists are quick to reduce their growth projections.

Goldman Sachs cut its initial-quarter GDP outlook from 2.2% to 0.5%. The bank also lowered its full year view to 3.2%. That is far below the consensus of 3.8%.

Ronnie Walker, Goldman’s economist said that growth is expected to drop abruptly in 2022 because of the loss in fiscal support. In addition, in the short term, viruses spread will weigh on services spending and cause supply chain disruptions. Due to Omicron’s fiscal drag, Q1 growth will likely be especially soft.

Bank of America also reduced its quarterly number from 4% to 1% and lowered its full-year outlook to 3.6% from 4.4%. This suggests that there are risks in the forecast.

Ethan Harris from Bank of America, head of global economics, stated that there were four main reasons why the outlook was not optimistic.

We now anticipate a fiscal package that is half as large and with more front-loaded fiscal stimulus. The fiscal package will increase 2022’s growth rate by only 15-20 [basis points]Harris said that this is a significant increase over our 50bp earlier estimates. Harris wrote: “Risks associated with negative growth [first]Quarter are important, according to our opinion.”

Basis points are 1/100ths of a percentage.

Bank of America also has a twist in its forecast. It calls for seven rate increases of 25 basis points this year. The Street is pricing in 5 hikes and a chance of one sixth according to CME. This price tag is significantly higher than elsewhere on the Street.

Zandi stated that the Fed must be cautious in fighting inflation. highest rate in nearly 40 years.

“They are at risk of becoming too ambitious and getting ahead of their own heads.” He said that they have plied very hard. The market expects five additional increases. Sixteen are currently participating in the discussions and debates. Given the economic headwinds, it feels that this could lead to a rate increase or two.

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