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Markets and Economy

2022 Mid-Year Economic & Market Outlook

By Brian Andrew | Johnson Financial Group • June 24, 2022

2 minute read time

Executive Summary

With hindsight we should be unsurprised we’d have a different sort of recovery given the circumstances surrounding the pandemic. The sharp decline in economic activity when parts of the economy were shut down was followed by a tidal wave of demand as the economy reopened. Supply chains were unprepared for the surge in demand bolstered by unprecedented monetary and fiscal policy support. Add a war in a region that supplies food and energy to much of the world and you have a recipe for high inflation.

The consequences of high inflation led to high volatility in financial markets as investors reprice assets for the new environment. Bond prices have declined at one of the fastest rates in history, because interest rates are rising from such a low level. Interest rates are moving higher after reaching historic low levels during the pandemic. Stock prices are adjusting from a Goldilocks period a year ago with ample demand and low interest rates to a period of high uncertainty surrounding earnings given slowing economic growth and high inflation.

While volatility will be with us for the foreseeable future, we are confident the economy, companies and markets will adjust to the new environment as they have in the past.

The Economy

  • Economic growth is slowing after the post-pandemic reopening boom. While recession risks are rising, economists expect real gross domestic product (GDP) growth of 2.6% in 2022 after the 5.7% boom in 2021. Note this is similar to the long-term average before the pandemic began. 
  • Inflation appears to be in the process of peaking. We expect the rate of inflation to gradually decline over the next year, although the level may remain above the Fed’s 2% target for years.

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