Great read this past weekend, the January 2022 U.S. Economic Outlook (don’t judge me). I am prepping for our January Lunch With Leaders this Wednesday, January 12, our guest speaker being Neel Kashkari, President/CEO of the Minneapolis Fed. The event is now virtual, so it's easy to join! Register here. Chair Kashkari also recently published an essay on his recommendations for interest rate increases in 2022: he has changed his outlook for monetary policy and I’m very interested.
Kashkari continues to anticipate that the high inflation we currently are experiencing will be transitory. That said, he believes the Federal Open Market Committee (FOMC) must balance two opposing risks: 1) transitory high inflation which leads to an increase in long-term inflation expectations, which then leads to sustained high inflation; and 2) once the COVID-19 shock finally passes, the economy returns to the low-growth, low-inflation regime it operated in for the 20 years prior to the pandemic.
Given the remarkable uncertainty in the economic outlook and these two-sided risks to monetary policy, the challenge is to respond to short-term inflation impacts without doing so too aggressively and pushing the economy into recession.
If you want the details (which includes charts!), read Kashkari’s essay here. And, again, join us on Jan 12 to hear from him yourself. If any of you are looking to refinance, buy or build a home, or make a capital investment in your business, this will be especially interesting to you.
On the U.S. economic outlook, an overall theme of growing resilience of the U.S. economy to the pandemic. 3 highlights: consumer confidence dipped only slightly in December, despite a rapid increase in COVID-19 cases; companies are holding onto workers even as cases rise since they expect future demand to hold up; financial vulnerability increased in December, and increases in the costs of basic monthly necessities relative to wages is eating into Americans’ savings, making steady employment more important than ever.
One more note from the Fed: the next quarterly business survey from the Minneapolis Fed will be conducted from Monday, January 17 to Monday, January 24. I’ll share the link with you next Monday.
See you in the trenches.
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