Will Bidenomics’ Bubbles Start To Deflate?

The new year’s first week closed with a usual jobs report signaling solid annual wage growth of 4.7% but a disappointing figure of new jobs.

Employment rose by just 199,000 in December, far less than expected. The economy created a record-breaking 6.4 million jobs in 2021, but that was after 9.4 million jobs disappeared in 2020. Total employment is still about 3.4 million jobs below the pre-pandemic levels.

There Is bigger news that could be the most potent economic force in 2022: The Federal Reserve plans to tighten THE us monetary policy, and this time, it really means it. Minutes from the Fed’s mid-December meeting have revealed that the bank plans to raise interest rates more aggressively than previously expected, and perhaps make other moves to settle a bubbly financial sector.

The trigger for the change is inflation, now running at a 6.8% annual rate. For much of 2021, Fed Chair Jerome Powell insisted that inflation would be transitory. But with inflation surging as the year progressed, Powell said in late November that it was “time to retire that word.”

At the Fed meeting a couple weeks later, we now know, the Fed changed more than its verbiage. The more hawkish turn will mean three hikes in short term interest rates in 2022, beginning as early as March.

The Fed may also start selling assets from its huge portfolio of securities, which could push up long-term rates as well as short-term ones.

Central bank monetary stimulus has had a huge effect on financial markets and the economy since the Fed jumped into action as the COVID pandemic exploded in March 2020. Stocks have soared 110% since bottoming out on March 23, 2020. The Fed forced mortgage rates to a record low of 2.65% in 2021, which in turn fueled a real-estate boom.

Home values have been rising by double-digits and were up 20% year-over-year in the third quarter, according to Census data. That’s great for homeowners, but it has also priced some buyers out of the market and caused other distortions, such as a surge in the cost of building materials for new homes.