The fierce downturn of 2020 and rapid recovery of 2021 are in the past. This year will feature more moderate growth, amid policy normalization. Projecting how much of each we will get in the balance of 2022 is no easy task.

Monetary policy has entered a tightening cycle. A review of the Fed’s history shows that soft landings are possible, but require a favorable economic context. The U.S. economy has a great deal of momentum supported by elevated savings, a need for businesses to rebuild inventories, a broad return to work, and renewed investment.

Risks to the recovery are evident in all directions, be they a renewed COVID surge, uncontrolled inflation, high energy prices or other spillovers from the Russia-Ukraine war. But we expect activity to persevere.

We take the Fed at their word that they will fight inflation with every tool available. We expect them to succeed, but it will take several quarters for the price level to settle.

Key Economic Indicators

Chart: Key Economic Indicators

Influences on the Forecast