After the scourge of COVID-19 ravaged the U.S. economy, 2021 saw a rapid recovery thanks to government stimulus and consumer enthusiasm. But that growth combined with supply chain constraints pushed inflation much higher than expected by experts. Interest rate hikes have been projected by representatives from the Federal Reserve, and they’re expected before the end of Q1 2022. This will no doubt have a cooling effect on the economy, or may even potentially trigger a recession going forward.
Along with the growth from 2021 came a 7% spike in year-over-year inflation. This was much higher than the Federal Reserve's target of 2%, so rate hikes are coming sooner rather than later. At this point in time, it’s best to be prepared and budget smart.
The unemployment rate at the end of 2021 was only 3.9%, which was down from 6.4% at the beginning of the year. Compared to the peak of the pandemic, which saw unemployment at 14.7%, this is a marked improvement.
To stimulate consumer enthusiasm, the Fed held rates close to zero - which helped fuel a historic surge in loans, mortgages and auto purchases.
Unemployment
Moving ahead, the Federal Reserve estimates an unemployment rate of 3.5% for 2022. The rate is projected to remain steady through 2023 and 2024 - barring a recession that triggers widespread job losses.
The Fed has been working tirelessly on keeping long-term rates low to make borrowing easier. The idea is to help spur consumer and business spending, as well as investments. Quantitative Easing is the reason for this, and the Fed has expanded QE purchases to an unlimited amount. In March 2020, the Fed also announced it would purchase $500 billion in U.S. Treasuries and $200 billion in mortgage-backed securities.
By June of 2020, the Fed’s balance sheet had grown to a record high of $7.2 trillion. One year later, that number had reached $8.1 trillion. By December 2021 it had reached nearly $9 trillion. This cannot be sustainable forever, no doubt.
Oil and Gas Prices
Right now, one of the biggest pinches that both consumers and investors are feeling right now is the price of oil and gas. The EIA's energy outlook through 2050 predicts rising oil prices that will no doubt inflict pain on average Americans and force some belt-tightening.
According to the EIA’s data, the average Brent oil price could increase to $173 per barrel in 2050. The War in Ukraine, however, along with recent sanctions on Russia, could cause that price spike to come even sooner. Across the country, gas prices are already averaging over $4.15 per gallon. What’s worse, these price increases will also affect the cost of food and goods, which all require fuel to ship. If you have investments in oil, however, you could find yourself with an unexpected windfall as both price and demand grows higher and higher.
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