Joe Biden, year 1: Here's how the world's largest economy is now doing

  • Investing.com
  • Economy News
Joe Biden, year 1: Here's how the world's largest economy is now doing
Credit: © Reuters.

By Laura Sanchez

Investing.com - This Thursday, 20 January 2022, marks one year since Joe Biden took office as President of the United States. Over the course of this year, the US economy has faced numerous challenges, such as a persistent rise in inflation and a shortage of labour to fill the supply side of a recovering labour market.

Economy

According to Thomas Hempell, Christoph Siepmann, Martin Wolbur and Paolo Zanghieri of Generali (MI: GASI ) Investments, the country's economy is expected to grow by less than 4% this year. "The strength of labour incomes will contribute to the steady expansion of consumption and investments will become a key driver of domestic demand. With the end of income support measures, fiscal policy will be a drag on growth, only partially mitigated by the momentum of the package that Democrats are working to pass in the Senate," the experts explain.

For Generali Investments analysts, "risks to the growth outlook stem mainly in the short term from the impact of the Omicron variant due to the low vaccination rate (only 60% of the eligible population is fully vaccinated). Headline CPI inflation is likely to remain above 5% y-o-y until the second quarter and the underlying rate will end the year above 3% y-o-y".

Risks are tilted to the upside, according to these experts: "There are signs that supply bottlenecks are easing, but service prices are gradually rising. Housing inflation is a concern, as housing prices continue to rise at an unprecedented pace (19% year-on-year last September).

On the other hand, Matt Miller, political economist at Capital Group, points out that 2022 is a congressional election year in the US, and could be one of the most important in the country's history. "Historical data shows that there could be a backlash against the incumbent party, resulting in Republicans regaining control of Congress and, potentially, the Senate," Miller says.

According to this expert, "this possibility is not lost on the Democrats. In the coming months, they are likely to continue to push through ambitious new spending programmes, as well as tax hikes on corporations and high net worth individuals. However, these progressive goals are likely to be tempered by political realities, as the party has a slim majority in both Congress and the Senate.

Markets

Political uncertainty often has a major short-term impact on markets, according to Matt Miller. "Analysis of over 90 years of US equity market returns reveals that the first few months of legislative election years tend to see lower average returns and higher volatility. As election results begin to become more predictable, this trend tends to reverse and markets tend to return to their usual uptrend. But we are talking about averages, so investors should not try to predict the best time to enter the market," says Capital Group's political economist.

According to analysts at Portocolom AV, "investors are uneasy. In response to runaway inflation in the US, the Fed is becoming more hawkish by the day, although headline inflation is probably peaking in terms of year-on-year rate of change. Inflation in the US is running at 7% and as many as four interest rate hikes a year are already beginning to be priced in.

"Moreover, the Fed is likely to complement rate hikes with measures to reduce its balance sheet. They undoubtedly fear the effects of the second round: the pass-through of inflation to wages", these experts add.

Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

Error: File type not supported

Drop an image here or

100