New Perspective on the State of the US Economy

As the year 2021 came to a close, the US economy was firing on all cylinders, experiencing robust growth that was accompanied by a surge in inflation. Despite efforts to cool down the economy through interest rate hikes, inflation remains stubbornly high. The Gross Domestic Product (GDP) serves as a key indicator of economic health by measuring the country's output of goods and services.

The US Economy Entering 2022

The close of 2021 saw the US GDP expanding by 6.9% in the fourth quarter, driving inflation up to 7% year-over-year, well above the Federal Reserve's 2% target. By the end of the year, the unemployment rate had dropped to 3.9%, a significant improvement from the 14.7% peak seen in April 2020 amid pandemic-related shutdowns. The Fed's monetary policy, including historic securities purchases, had kept interest rates low, fueling economic growth.

Interest Rate Hikes and Economic Growth

In response to mounting inflation, the Federal Reserve raised interest rates by May 4, increasing the target range to 0.75% - 1%. Forecasts released by the Federal Open Market Committee in December 2021 projected GDP growth at 4% for 2022, although this figure was later revised downward to 2.8%. Unemployment, on the other hand, was predicted to remain steady at 3.5%, with job growth expected to increase by 11.9 million by 2030.

Challenges Ahead: Inflation and Climate Change

Core inflation is forecasted to reach 4.1% in 2022 before gradually decreasing to 2.3% in 2024, well above the Fed's target rate of 2%. Climate change poses another looming threat to the economy, with potential implications for GDP growth rates. The ongoing concern is that continued emissions at high rates could significantly impact economic growth, underlining the need for action against climate change.

Outlook on Oil Prices and Global Supply Chains

The Energy Information Administration's projections indicate rising oil prices in the coming years, with oil potentially reaching $170 per barrel by 2050. Global supply chain disruptions, fueled in part by the COVID-19 pandemic, are contributing to inflationary pressures that persist despite efforts to mitigate their effects through monetary policy.