With COVID-19, inflation and many other cross currents top of mind for the economy, the coming year will provide both challenges and opportunities. Here are some of the top trends individuals should watch for.

1. The ongoing COVID-19 pandemic

The Omicron variant has created a fresh speedbump for the global and U.S. economies. How much it will slow down economic activity remains to be known. COVID-19, which caused the economy’s cratering nearly two years ago and resulted in the loss of 22 million jobs in March and April 2020, is still the most important factor to the economy’s current and future performance. The recovery quickly gathered momentum, only to be slowed by the Delta variant last summer with new downside risks associated with Omicron since Thanksgiving.

Among more positive developments, more people have taken the COVID-19 vaccine and booster, and new treatments are becoming more available. The pandemic has lasted longer than almost anyone would’ve thought, affecting lives, livelihoods, the economy and personal finances. Despite the challenges, U.S. growth (as measured by GDP) is expected to be above par for both 2021 and 2022.

What to watch: Will COVID-19 continue to weigh heavily on our health and the global economic recovery, or could we see the much-hoped-for end of the pandemic and more normalization of the economy?

2. Rising inflation

The cause of the economy’s sharp and short retrenchment, and the subsequent reopening, is also part of the reason behind the big increase in prices seemingly for just about everything. Supply chain disruptions, the imbalance between supplies and demand for goods have forced consumers to dig deeper into their pocketbooks. And it has weighed heavily on consumer sentiment. In fact, a recent Bankrate survey found that inflation is the top constraint on Americans’ outlook for their personal finances in 2022.

Is there light at the end of the tunnel for prices? Gasoline prices are now on the way down, for example. Most economists and the Federal Reserve look for inflation to cool in the coming year.

What to watch: Will inflation, as measured by the Consumer Price Index and other metrics, begin to fade in the coming year, resulting in less strain on household finances?

3. Rising interest rates

Seeing inflation flaring at the highest levels in years, the Federal Reserve decided at its December meeting to speed up its taper of asset purchases. In simple terms, this is basically the central bank taking its foot off the economy’s accelerator.

Chairman Jerome Powell said tapering is necessary before raising interest rates from their current record low levels. As he told reporters in December: “Asset purchases are a separate tool from interest rates. Stopping asset purchases does not remove accommodation, it just stops adding further accommodation. Whereas, raising interest rates starts to remove accommodation from what is a highly accommodative stance.”

As for the timing and extent of rate hikes, members of the Federal Open Market Committee are signaling that there could be as many as three rate hikes in the coming year, with the possibility of more through 2024. That would translate to higher costs for borrowing (pay down credit card debt as soon as possible) and more generous returns on savings (resolve to save more in 2022).

Another result could be less risk-taking by investors, or less of the “search for yield” dynamic that has helped lift stocks, the major market averages and other asset prices including cryptocurrencies (before the recent pullback). Keep the seat belt buckled for the possibility of more volatility in stocks.

What to watch:  Will the U.S. central bank, as expected, raise interest rates as many as three times in 2022?

4. Midterm elections

While the memory of the 2020 presidential election may still be fresh on your mind, midterm elections loom on Nov. 8, 2022. Among the spoils: Every seat in the U.S. House of Representatives is up for grabs and so are about a third of those in the Senate.

At issue is whether Democrats retain control of the House of Representatives and what happens with their razor-thin Senate control. Here’s why it matters: If Democrats retain some measure of control of Congress, President Joe Biden will have greater ability to get his legislative priorities approved. If they do not, Biden will likely face an even more challenging political logjam.

Republicans blame fiscal stimulus for the rise in inflation, explaining their opposition to new legislation. Democrats are eager to address social programs with the “Build Back Better” legislation stalling at the end of 2021.

What to watch: Will Republicans take control of either the U.S. House or Senate in the November elections, affecting prospects for the remaining two years of Biden’s term?

5. The job market

After the nation’s official unemployment rate spiked to 14.8 percent in April 2020, it has recovered swiftly to 4.2 percent in November 2021. The economy has added an average of 555,000 jobs per month so far this year. In recent months, the number of job openings has hit record levels, at more than 11 million as of last count, along with rates and numbers of people quitting their jobs.

One way to resolve the mismatch between job openings and the number of workers willing or able to take those positions would be if more people returned to the workforce, leading to higher labor force participation. It stood at 61.8 percent in November, 1.5 percentage points lower than February 2020. For those inclined to look for a new job, the coming year should provide plenty of opportunities. For those happy to stay where they are, more substantial wage gains should be part of the mix.

Wage growth has improved as the economy reopened, but inflation has raged at even higher levels, weighing on consumer confidence.

What to watch: Will the job market continue to improve, possibly nudging the nation’s unemployment rate to or below the 3.5 percent pre-pandemic level?

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