The U.S. and Global Economies: The Expansion Rolls on in 2022.

• Author: Barkey, Patrick M.
• Position: THE U.S. ECONOMIC OUTLOOK

The vigorous economic expansion that began in the second half of 2020 will moderate in 2022, with countries around the world left to deal with the imbalances the rapid down-up cycle of the economy has produced. 2022 will be a year of above-trend growth, but with policymakers bringing stimulus programs to an end and monetary policies--while remaining expansive--begin to swing back toward a neutral stance. Consumer demand will abate slightly and price pressures from surging spending on good will ease.

The close of 2021 revealed the bumpiness of the energy transition from hydrocarbons to renewables, as price spikes and low inventories of coal and natural gas caused economic hardship and even power failures around the globe.

Here are the top 10 predictions for the U.S. and global economies courtesy of our friends at IHS Markit:

1. The new waves of COVID-19 will not interrupt the recoveries around the globe, although new variants will stress health care systems and provoke policy responses. The virus will continue to transition from pandemic to endemic as vaccines and affordable cures become more available.

2. Supply chain disruptions will continue in 2022, but inflation pressures will ease as policymakers respond and one-time pressures on prices from energy ease. Oil and gas producers are expected to boost production in the coming months.

3. Central banks around the world will begin to tighten monetary policies, although not at the same speed. U.S. policy changes have already been announced, Europe will be a little slower, with the U.K. somewhere in between.

4. The cessation and withdrawal of the extraordinary government spending levels during the pandemic translates into a considerable tightening for fiscal policy in 2022. The recently enacted infrastructure bill provides no significant spending until 2023.

5. The pace of global growth will slow in 2022, with considerable divergence in different regions of the world as policy stimulus wanes and some areas approach full employment. Negative surprises from COVID-19 variants will continue to disrupt growth.

6. U.S. growth will slow in 2022 as the pent-up demand surge from 2021 is increasingly satisfied and the economy transitions from final sales to inventory building. Gradually subsiding supply chain bottlenecks will cause core inflation to fall toward 2%. Pressure on prices from wage increases will continue.

7. Mainland China will avoid a...