Our 2022 macroeconomic scenario for the US

In a nutshell, while extraordinary fiscal and monetary support is being gradually withdrawn in the US, we think there are enough accumulated private savings to keep fuelling consumption and corporate investment. Our central scenario is for the US to experience a soft landing after a solid rebound in 2021, with growth still above its long-term ‘potential’ rate of 1.9% next year. Our 2022 GDP growth forecast is 3.4%, down from 5.4% expected in 2021 (it was -3.4% in 2020).

Among the upside risks is an accelerated running down of savings, potentially in tandem with a sharp boom in credit, and spending linked to the wealth effect created by the rising house and equity prices.

The main downside risks include potentially more aggressive variants of the coronavirus. Unexpectedly large monetary tightening by the Fed is another risk. Also, current bottlenecks could hide some ‘over-ordering’ that risks being unwound suddenly when logjams ease. Geopolitics (and especially the still-tense US-China relationship) could also upend business confidence.

Inflation is likely to stay high in the near term due to ongoing supply-chain bottlenecks, high commodity prices and robust consumer spending on goods, but we expect it to decline gradually. We still do not expect a ‘wage-driven’ inflation spiral à la 1970s, but this remains an upside risk. Year-on-year median wage growth of 5.5% would set off alarm bells: in October, the rate was 4.1%.

Our average 2022 CPI inflation forecast is 3.9%, down from 4.6% expected in 2021. Our core PCE inflation (stripping out food and energy prices) forecast is 3.9%, up from 3.3% expected in 2021.

Our US stylised business-cycle analysis concludes that we are entering phase three of a four-phase mini-cycle that started in Q2 2020. While we do not expect an imminent sharp slowdown in US growth, financial conditions will be key next year.