The US Gross Domestic Product is expected to grow just under 1% in 2022, down from the first-quarter forecast of 3.7% by the International Monetary Fund.
The economy contracted by 3.4% in 2020 and grew by 5.7% in 2021. Both figures are unusual. As the pandemic recedes, the economy is expected to grow by 1.1% in 2023 and 2.1% in 2024. 2022 has shown strong employment growth and prolonged inflation, prompting the Federal Reserve to ratchet up interest rates. This is a remarkably fast turnaround in policy.
High inflation and slowing consumer spending are traditional harbingers of a recession. The Fed is taking more and more aggressive steps to rein in inflation before it erases people’s savings and tanks the economy. Raising interest rates increases the costs of borrowing, which causes businesses to expand more slowly, which curtails growth. When the economy finally contracts, interest rates will be lowered, which will make borrowing easier, and will encourage businesses to expand. This stimulates growth and makes recessions shorter and less severe. The Fed has a difficult job ahead of it, but monetary policy has come a long way since the stagflation of the 1970s. We believe that the economy will continue to grow through at least next spring. After that, however, is up for debate.