2 Big Market Risks For 2022, According To Bank Of America

A new Bank of America (BAC) analysis cautions that markets should be mindful of rising inflation and the probable spread of new COVID19 strains in 2022.

The primary threat is future COVID19 outbreaks. However, the supply side is waking up to meet the increased demand. The document's authors, several Bank of America Global Research economists, mainly focus on the potential challenges to the world's economy in 2022 and beyond.

High inflation rates, the spread of new COVID19 forms such as the latest Omicron, global warming, and supply restrictions are among the economic threats.

The appearance of the Omicron type in November had a great impact on markets late last month, with the Dow Jones plummeting more than 1500 points the week after Thanksgiving.

Last week, World Health Organization chief scientist Soumya Swaminathan spoke at the Reuters NEXT Conference, emphasizing the variant's strong transmissibility and predicting that it might one day become the dominant COVID strain globally.

According to the analysis, the extraordinary monetary stimulus policy provided by the federal government to combat COVID-related economic problems should assure that the United States maintains its status as a global economic development driver, while China will reluctantly lag behind.

The economists also mention Сhina-US ties that were also a source of worry for the world economy. There is also a lot of ambiguity about how China and the West's relationships will develop. A fast severing of economic ties might result in a worldwide recession.

Even if the new COVID strains that arise in the coming year are kept under control as much as possible, inflation fears may still cast a shadow over US economic development.

According to the report's ranking of 10 different currencies from across the world, the United States received the highest inflation rating at 46. It was followed by the New Zealand dollar, which was at 38 cents, and the British pound, which was at 37 cents.

It is stated in the report that watching the latest extremely high inflation numbers has been a little nerve-wracking. The majority of the growth in the summer was caused by individual sector surges, but in recent months, the pressure has shifted to the center of the inflation distribution. Compared to a year ago, the global CPI inflation projection was raised for this year from 2.4% to 3.9%, and next year from 2.8% to 3.8%.

Inflation should come down, including in the United States. In October, the CPI was 6.2%, prolonging a period of unprecedented domestic inflation. Even though this level of inflation could ease lightly, Bank of America Global Research warns that inflation may remain a substantial challenge for the economy in the immediate term. Looking ahead, Chief US Economist Michelle Meyer and VP Alexander Lin of BofA argued that three rate rises in 2022 were extremely likely.

Inflation will decline from recent highs but stay substantially over the Fed's objective, forcing the central bank to respond. While 2021 was a year of excess demand and scarcity, authors of the analysis believe 2022 will be a year of rebalancing, albeit slowly. This should relieve some of the pressure on inflation, but not soon enough, pushing the Fed to raise rates three times starting in June and every quarter thereafter.