Highest inflation in 40 years. Thanks Biden!

Everett WA

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Inflation soared over the past year at its highest rate in four decades, hammering America’s consumers, wiping out pay raises and reinforcing the Federal Reserve’s decision to begin raising borrowing rates across the economy. The Labor Department said Thursday that consumer prices jumped 7.5% last month compared with 12 months earlier, the steepest year-over-year increase since February 1982. Shortages of supplies and workers, heavy doses of federal aid, ultra-low interest rates and robust consumer spending combined to send inflation accelerating in the past year. In 2022, we may well witness a stock market crash, and one of the following 4 factors could be the catalyst that causes it. 1. The spread of new COVID-19 variants Arguably the most glaring concern for Wall Street continues to be the coronavirus and its numerous variants. The unpredictability of the spread and virulence of new COVID-19 strains means a return to normal is still potentially a ways off. With every country seemingly having its own approach to tackling the pandemic, supply chain issues and workflow disruptions could remain commonplace throughout the year. 2. Historically high inflation In a growing economy, moderate levels of inflation (say 2%) are perfectly normal. A growing business should have modest pricing power. However, the 6.8% increase in the Consumer Price Index for All Urban Consumers (CPI-U) in November represented a 39-year high in the United States. When the price for goods and services rises rapidly, businesses and consumers usually aren't able to buy as much with their disposable income. Thus, high inflation has a tendency to slow growth, and encourages the nation's central bank (the Federal Reserve) to tighten its monetary policy, which I'll touch on next. 3. A hawkish Fed. Beginning in 2022, the Fed is going to wind down its QE program, and will likely raise rates by 25 basis points on a couple of occasions. As access to ultra-cheap capital becomes scarcer, the expectation is that overall economic growth will slow. This is concerning because growth stocks have powered the S&P 500 higher since 2009. 4. Congressional stalemates. For example, Congress passed and President Joe Biden signed a stopgap funding bill during the first week of December to keep the federal government and its multitude of agencies running. However, this bill only provides enough funding to get through Feb. 18. America's two major political parties, Democrats and Republicans, have shown that they're ideologically miles apart, making it quite possible that another government shutdown looms this year. The steady surge in prices has left many Americans less able to afford food, gas, rent, child care and other necessities. More broadly, inflation has emerged as the biggest risk factor for the economy and as a serious threat to President Joe Biden and congressional Democrats as midterm elections loom later this year.