Despite last year’s turbulence, the US economy ends 2022 in much the same shape as at the end of last year, with inflation hovering around 7%, a very tight labor market and buoyant levels of consumption and spending.
But where it has been over the past 12 months, and where it will be going in the coming year, is the result of an unprecedented set of factors, unleashed by the impact of a global pandemic and the collective efforts of policymakers, new problems with old tools and coping strategies.
Phil Dean, senior research fellow in public finance at the University of Utah’s Kem C. Gardner Policy Institute, said inflation issues will be primarily on the minds of economists and policymakers in 2022 as the impact of higher prices weighs on lower-income families on would hit hardest.
“Obviously, the big economic story of 2022 was record inflation and policy responses to inflation,” Dean said. “On the consumer side, it has presented challenges for everyone, but especially for those at the lower end of the income spectrum who spend most of their income on basic necessities, which is where we’ve seen some of the biggest rises in inflation.”
US inflation was 7.5% in January 2022 and rose steadily until it hit a 40-year high of 9.1% in July. Since then, the rate has fallen, with the latest US Labor Department report putting inflation at 7.1% in November. The US Federal Reserve has waged a year-long battle against soaring prices for goods and services, embarking on the most aggressive series of rate hikes in decades to cool the sweltering economy.
Unleaded gasoline is advertised at $4.79 per gallon as gas prices hit a new record high on Tuesday, May 10, 2022 outside of a Salt Lake City chevron.
Kristin Murphy, Deseret News
The rate hikes are aimed at raising the cost of debt for businesses and consumers, which in theory should reduce spending levels and overall economic activity, a shift in dynamics that normally lowers inflation rates.
But consumer spending remained resilient and the US job market continued to run hot, with vacancies far in excess of the number of workers available to fill them.
Dean noted that high inflation alone is usually enough to dampen rampant spending, but unprecedented levels of cash flowed into consumers’ pockets in the form of pandemic stimulus financing, which, along with other factors, continued to buoy spending in 2022, too record prices.
“Inflation and rising interest rates have created some challenges in the current economy,” Dean said. “But alongside that, consumer spending in Utah and across the US continues to be very strong. Fiscal stimulus checks poured into consumers during the pandemic, and many took advantage of low interest rates, which made it easier to refinance mortgages, freeing up even more cash. And if you look at consumers as a whole right now, they still have a lot of money to spend.”
Houses in southern Jordan are pictured on Monday October 10, 2022.
Scott G. Winterton, Deseret News
The year the Fed went aggressive
The nation’s primary tool for controlling inflation rests in the hands of the Federal Reserve Board of Governors and its exclusive control over interbank lending rates. In 2022, the Fed raised its benchmark interest rate seven straight times, including a 0.5% hike in December that brought its interest rate into the 4.25% to 4.5% range. The December hike was followed by four hikes of 0.75%, marking the most aggressive string of hikes by the monetary authority in decades.
But even the Fed’s top executive has acknowledged that the weapons at its disposal to fight inflation are weak at best.
Back in May, Fed Chair Jerome Powell said that this month’s 0.5% rate hike by the board, along with some subsequent 0.5% upward adjustments, had a “good chance” of cooling inflation-driven consumer price inflation.
“We must do everything we can to restore stable prices as quickly and effectively as possible,” Powell said at a press conference in May, per CNBC. “We think we have a good chance of doing that without a significant rise in unemployment or a really big slowdown.”
However, Powell also acknowledged that the Fed’s monetary toolkit is imprecise at best and the hoped-for outcome of containing inflation is far from guaranteed.
“We don’t have precision surgical tools. We basically have the interest rates, the balance sheet, and the forward guidance, and they’re … notoriously blunt tools,” Powell said at the news conference.
“No one thinks it’s going to be easy. Nobody thinks it’s easy. But there’s certainly a plausible way to get there,” he added.
Still, inflation continued to soar and the Fed was later forced to go to jumbo boosts of 0.75% for four straight meetings.
At a news conference after the Fed’s final board meeting of the year in December, Powell signaled that further rate hikes were likely in 2023, even as Labor Department data continued to show a gradual decline in US inflation.
“The worst pain would come if we didn’t raise interest rates high enough and if we allowed inflation to take root in the economy so that the eventual cost of getting them out of the economy would be very high in terms of employment , meaning very high unemployment for a long time,” Powell said. “I wish there was a completely painless way to restore price stability. There is not any. And that’s the best we can do.”
Jill Reid writing a check for her groceries at Reams Food Store in Sandy on Friday 23rd September 2022.
Jeffrey D. Allred, Deseret News
Here’s how Utah residents felt about the economy in 2022
A Deseret News/Hinckley Institute of Politics poll conducted in October found that a whopping 93% of Utah residents said they were concerned about inflation, while just 6% said they weren’t.
More specifically, 64% said they were “very concerned”, 29% said they were “somewhat concerned”, 5% said they were “not very concerned” and only 1% said they were “not at all concerned”. ”
Since a July 2021 survey by Deseret News that found 85% of Utah residents were very or somewhat concerned about inflation, the number of Utah residents citing inflation as their top concern has increased. Another survey in February 2022 found that 93% of survey participants were concerned about the rising cost of goods and services.
The October reading was only slightly below a September poll that found 96% of Utahns said they were very or somewhat concerned about inflation, and 4% were not very or not at all concerned.
Another September Deseret News/Hinckley Institute of Politics poll provided a more accurate measure of how inflation was affecting Utah households.
When asked “How much more do you pay for basic groceries per month?” 32% of survey respondents said they now spend $201-$400 more per month, 28% said they spend $101-$200 more, and 22% said prices had increased taking more than $400 a month off their budgets.
While 6% said they weren’t sure how much more they would spend, 12% estimated their additional costs for basic equipment to be between $0 and $100 per month.
Utahns faced more inflationary pressures than most of the country in 2022 as rates in Mountain West, which includes Beehive State, were at or near the highest in the country year-round.
The latest reflection of this imbalance came in the Labor Department’s November inflation report, released on December 13th. While headline inflation in the US was 7.1% compared to the same point in 2021, the Mountain West region recorded an annual inflation rate of 8.3%. in November, the highest regional rate in the country.
Produce on sale at Reams Food Store in Sandy on Friday 23rd September 2022.
Jeffrey D. Allred, Deseret News
Is a 2023 recession a sure thing?
Rumors and forecasts of an economic recession have been circulating for months, but the same dissonant factors that made the economy of 2022 so difficult to predict and control will continue in 2023.
“Historically, high inflation and the Fed raising interest rates to suppress inflation leads to a downturn or recession,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC last week. “It always happens – the classic overheating scenario leading to a recession. We’ve seen this story before. If inflation picks up and the Fed responds by raising interest rates, the economy will eventually collapse under the weight of higher interest rates.”
Zandi is among the minority of economists who believe the Federal Reserve can avoid a recession by raising interest rates just long enough not to slow growth. But he said expectations were high that the economy would swoon.
“Usually, recessions creep up on us. CEOs never talk about recessions,” Zandi said. “Now CEOs seem to be rushing into saying we’re going into a recession. … Everyone on TV says recession. Every economist says recession. I’ve never seen anything like it.”
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