First Midwest BankFirst Midwest Bank logoArrow DownIcon of an arrow pointing downwardsArrow LeftIcon of an arrow pointing to the leftArrow RightIcon of an arrow pointing to the rightArrow UpIcon of an arrow pointing upwardsBank IconIcon of a bank buildingCheck IconIcon of a bank checkCheckmark IconIcon of a checkmarkCredit-Card IconIcon of a credit-cardFunds IconIcon of hands holding a bag of moneyAlert IconIcon of an exclaimation markIdea IconIcon of a bright light bulbKey IconIcon of a keyLock IconIcon of a padlockMail IconIcon of an envelopeMobile Banking IconIcon of a mobile phone with a dollar sign in a speech bubbleMoney in Home IconIcon of a dollar sign inside of a housePhone IconIcon of a phone handsetPlanning IconIcon of a compassReload IconIcon of two arrows pointing head to tail in a circleSearch IconIcon of a magnifying glassFacebook IconIcon of the Facebook logoLinkedIn IconIcon of the LinkedIn LogoXX Symbol, typically used to close a menu
FDIC-Insured - Backed by the full faith and credit of the U.S. Government
Businesswoman Standing on the mountain with 2022 New Year numbers.
Get Insights

Get monthly ideas delivered right to your inbox.

Subscribe for Insights

For Your Business December 20, 2021

The 2022 economy will be hotter and pricier than the Fed expected just three months ago

If Federal Reserve officials' latest forecasts are correct, the US economic recovery is going to run hot for a little while longer.

Policymakers at the central bank published new projections for the national economy December 15, updating how they see the recovery progressing over the next three years. The last set of forecasts was published in September, meaning the recent release is the first to incorporate the end of the Delta wave, the emergence of the Omicron variant, and inflation surging to its fastest year-over-year pace in more than 30 years.

The updates all point to a faster — and more expensive — rebound over the next 12 months. The median forecast for the unemployment rate in 2022 fell to 3.5% from 3.8%, according to the December 15 report. The new estimate matches the record-low rates seen before the pandemic hit. The 2023 and 2024 rates were left unrevised at 3.5%.

Growth is also expected to exceed the Fed's September estimates. Gross domestic product is now projected to grow 4% in 2022, up from the previous median forecast of 3.8%. That comes at the expense of a slightly weaker expansion the following year. The economy is estimated to grow 2.2% in 2023, down from the last forecast of 2.5%.

The hotter recovery won't be cheap. Though inflation is largely expected to peak in the fourth quarter of this year, the cooldown is now estimated to be slower. The Personal Consumption Expenditures price index — the Fed's preferred measure of US inflation — is seen climbing 2.6% in 2022, according to the median projections. That's up from the September forecast of 2.2%. The inflation measure is then expected to rise 2.3% in 2023, up from the prior estimate of 2.2% growth.

New policy actions unveiled by the central bank in mid-December match the Fed's outlook for a hotter and pricier recovery. The Fed announced it would double the pace at which it rolls back its emergency asset purchases, setting the program up to completely end in March. The move opens the door for the Fed to more aggressively raise interest rates in 2022 as it looks to cool price growth.

The latest projections hint at just how aggressive that fight against inflation will get. The Fed's median forecast shows officials lifting rates three times in 2022 and another three times in 2023. Though the readings don't reveal specific plans for the Fed's future policy, they hint at the central bank taking action sooner to stamp out pandemic-era inflation.

"Economic developments and changes in the outlook warrant this evolution," Powell said following the release of the new projections, later adding "the economy is so much stronger now."

 

This article was written by Ben Winck from Business Insider and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.

Subscribe for Insights

Subscribe