I’m so tired of politics. Aside from COVID, it seems to me that 2021 was dominated by political talk and I’m tired of it. Unfortunately, you can’t ignore it entirely. As someone who follows the market, I try to limit my political interest to topics that only impact the market.
President Joe Biden’s most recent action warrants a conversation, as we just received the highly debated bipartisan infrastructure deal. What does that mean for the economy? In the short term, some of the infrastructure funding will go immediately toward clearing port and transportation bottlenecks, so that might help improve supply chain issues. Fingers crossed.
Though it could be years before you or I drive across a new bridge or highway funded by the bill, some of the maintenance funds could get used in spring construction blitzes. Since the job market is already tight, the economy isn't likely to see an immediate surge in hiring due to infrastructure spending; however, multiple reports suggest roughly 800,000 new jobs could be added by 2030, though many of them will be temporary rather than long-term jobs, according to the Washington Post. Economists don't think inflation is likely to increase due to the slow pace of spending, though the deal is projected to add $256 billion to the federal budget deficit over the next 10 years. Bottom line, analysts project long-term benefits to the economy in lower business costs, increased labor force participation, and improved competitiveness, according to CNN.
Inflation might not be as temporary as the Federal Reserve would like it to be. Prices are up all over, and people are understandably upset at paying more at the grocery store, gas station and everywhere else. Many analysts hoped that data blips, supply chain clogs and other pandemic-related disruptions were creating a temporary spike in inflation that would resolve soon. However, inflation has remained stubbornly high. In the U.S., prices have increased 6.2% over the last 12 months — the biggest spike since November 1990. Since the Fed's goal is to keep long-term inflation around 2%, people are concerned that "temporary" inflation is lingering longer than we want (U.S. Bureau of Labor Statistics, 2021).
So, are prices going to continue to rise in 2022? That's likely, but how much, how fast, and for how long depend on a lot of global factors, including whether the Fed raises interest rates or takes other actions. Will your taxes go up in 2022? That’s the question of the month on Capitol Hill as lawmakers debate the Build Back Better deal that could come with tax law changes. We don’t know when the bill will be passed, but I'm watching closely and preparing for possible future effects we’ll see on the economy.
Whether you are traveling or staying local, I wish you a happy and healthy holiday season and a prosperous new year. My practice has grown so much over the last year thanks to this community and its support. This is my favorite time of year – partly because there’s no humidity – but mostly because we get a chance to reflect on things that are important and share cherished time with family. Hopefully you are getting the opportunity to do that, and I look forward to 2022 as we have exciting news to share.
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