Despite their best intentions, the Federal Reserve sometimes appears to be trying to steer a big boat, through violent rapids, armed only with a small paddle. The reality is that forces well beyond their control will mostly determine the fate of the economy. However, the energy with which they paddle could have a major impact on investments.

Last Wednesday, the Federal Reserve took a sharply hawkish tack, raising interest rates for the first time since 2018 and projecting a further six rate hikes in 2022. In covering this story, commentators worried first about whether this would be enough to tame inflation and second about whether it might be too much, pushing the economy into recession.

For investors, however, this is missing the point. The truth is that, at least in the 21st century, monetary policy appears ineffective at achieving economic goals but has profound impacts on capital markets. Easy money in the last expansion didn’t succeed in significantly boosting either inflation or growth and tightening over the next few years may do little to suppress them. It should be emphasized that both growth and inflation should slow for other reasons. However, if the expansion continues and inflation doesn’t abate quickly enough, the Fed may feel compelled to adopt a much tighter policy precisely because of the very muted impact of higher interest rates on the real economy.

This could be very important for capital markets. Years of low interest rates have boosted asset prices in general, favored growth stocks over value and funneled money into the most speculative parts of financial markets. A long period of higher interest rates, should it emerge, could reverse all of these trends. All of this depends on how resolute the Fed is in trying to bring inflation back down to its 2% goal and whether economic forces will permit this to happen. In other words, investors should ask not what the Fed could do to the economy but rather what the economy could do to the Fed.

In addressing this question, a good place to start is to consider how the economy might evolve even as the Fed raises rates. The story is, of course, complicated, encompassing the lagged impact of fiscal stimulus, continuing supply chain disruptions and the stark implications of very limited labor supply growth in an already very tight labor market.

On economic growth, it still seems likely that strong demand will cause the economy to grow above its potential in 2022.

Consumer spending should remain strong, reflecting solid income growth, strong balance sheets and pent-up demand. Low mortgage rates and only moderate credit growth over the past two years have cut debt service costs relative to income while wage and salary income has increased by roughly 11% over the past year. Auto sales, which averaged 17.2 million units in the five years before the pandemic, have averaged just 14.7 million over the past two due to chronic supply shortages, leaving a cumulative shortfall of 5 million units. There is similar pent-up demand across many consumer goods industries while fading pandemic effects should continue to support a strong rebound in travel, entertainment, leisure and food services.

Capital spending should also be strong in 2022 as companies take advantage of booming recent profits and still cheap financing to install labor-saving equipment. Homebuilding should also be relatively solid, even in the face of rising interest rates, as inventories of homes for sale are at record lows.

Despite very low stockpiles across the economy, rebuilding inventories could actually be a drag on growth, perversely, since real inventory accumulation is unlikely to match its huge fourth-quarter 2021 pace of $171 billion annualized.

Government spending may grow at a more modest pace as state and local governments struggle to compete with the private sector for a limited pool of workers and federal spending growth downshifts following the pandemic years.

In addition, international trade will likely be a drag on U.S. growth. Overseas growth is likely to restrained by the impacts of Russia’s invasion of Ukraine on Europe and continued Covid waves in East Asia while a recently higher dollar will also tend to widen the trade deficit.

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