The US economy is currently enduring some major headwinds. High inflation persists even as the Federal Reserve raises interest rates. Fallout from the escalating interest rates is affecting a number of industries and individuals, with ripple effects throughout the economy. Geopolitical uncertainty is also a factor, with not only Russia-Ukraine, but several other areas showing signs of rising tensions. However, while there will almost certainly be some bumps along the way, I don’t anticipate a major meltdown. In fact, our latest projections call for notable growth over the next five years. Let’s briefly explore a few key issues.
Inflation has proven difficult to manage. Many analysts underestimated the inflationary power of massive stimulus packages and what would happen when people started trying to spend that extra bonanza even as the supply chain was reeling from the pandemic. Added to that pressure were the disruptions in energy and agricultural markets stemming from the invasion of Ukraine, a fire in a major South Korean semiconductor facility, and other assorted calamities. Markets for various items continue to be constrained at times, pushing up prices.
Though we are saddled with some of these pressures for a while, others are lessening. Inventories of many items are rising, which should tame price increases. The housing market has cooled to some extent (see below), helping with costs to buy or rent. Wholesale prices are also moderating, which is often a harbinger of things to come. Looking over a five-year horizon, I think we’ll see inflation at very manageable levels, though it will likely take a while to get there.
