Economic Brief: All Eyes On Inflation For Remainder Of 2022

Key areas to watch and investment planning implications by Larry Swedroe


Main Takeaway: While there’s always uncertainty in the outlook
for the economy and financial markets, a confluence of events

has pushed the level of uncertainty to high levels, namely the

Federal Reserve’s battle against inflation, Russia’s invasion of

Ukraine and ongoing supply chain struggles. The markets have

already priced in these risks, explaining why stocks and bonds

have performed poorly this year.

Top Risks: We believe the two biggest risks to the economy
are the war in Ukraine dragging on and inflation running hotter

than markets expect. In addition, the effects of reduced fiscal

stimulus, significantly tighter monetary policy and the stronger

U.S. dollar are likely to result in slower economic growth, with

in our opinion, the chance of recession in the next 12 months

increasing to 30%-50%.

Sources Of Stability: Although GDP growth is expected to
slow, the unemployment rate should stay low through 2023 at

around 3.6%. Monetary policy is still loose, with negative real

rates of interest; there is still some fiscal stimulus; and both

corporate and consumer balance sheets remain strong.