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December Economic Review: Supply, transportation, and labor constraints boost inflation, but economic data bring holiday cheer

December 14, 2021

Economic Review: Economic Review: Concerns remain, but growth has picked up from the third-quarter lull (Page 3)

Despite lingering concerns coming from continued supply chain disruptions and rising inflation, plus new concerns stemming from the Omicron variant, economic data were strong for November. Although payroll employment gains were disappointing, the details in the jobs report were much more encouraging. Consumers continue to spend, despite reduced sentiment, while business surveys show that both manufacturing and services continue to grow strongly — with services at a record high.

Financial Markets Review: Financial Markets: Omicron and the Fed shake financial markets (Page 4)

After rising to record highs, Omicron shook equity markets after Thanksgiving, causing the third worst daily decline this year and the second monthly pullback. The yield curve flattened substantially as Fed tightening fears pushed up short-term rates and growth fears pushed long-term rates down. But the broad decline in commodity prices may provide some relief to manufacturers and consumers. Still, Fed policymakers admitted that elevated inflation may persist well into 2022 — retiring the term “transitory.”

The Outlook: The Outlook: Rate liftoff in 2022 becoming more likely (Page 5)

In recent congressional testimony, Federal Reserve Chair Jerome Powell said that the risk of persistently higher inflation has increased and that policymakers will soon consider speeding up the pace of asset purchase reduction as a result. These comments were Powell’s most hawkish of the cycle to date and hint not only at an accelerated wind down of the Fed’s quantitative easing program, but also at an expedited launch of the next federal funds rate hike cycle.

Go deeper with the full December report linked below.

economic monthly review