Bank of America’s chief market strategist remains optimistic about the Pacific Northwest and U.S. economies headed into 2022, largely because of the resiliency of the private sector.
“What makes me optimistic still … it’s the private sector, it’s corporate America, it’s you folks that drive growth, innovation, create the jobs, create the incomes and we just power ahead generation after generation, and I don’t see that changing,” Joe Quinlan said today during his virtual presentation at the Bellevue Chamber’s annual Economic Forecast Summit.
There will be some bumps and volatility in 2022, but the three components of the economy — households, corporations, and the public sector — are all firing on all cylinders, Quinlan said from his Pennsylvania home.
He projects real GDP growth in 2022 of about 4 percent, down from about 5.5 percent in 2021, which is still big when laid over a world-leading U.S. economy of $22 trillion, he said.
Quinlan noted significant fiscal monetary stimulus still entering the U.S. system, including the just signed $1-trillion infrastructure bill as feeding momentum heading into the new year. Public sector debt and the federal budget deficit are big, but expanding the overall economy should help outgrow that debt, he said.
Inflation is real, he said, calling it a looming “bogeyman.” The Fed “whiffed” in calling inflationary pressures transitory, which isn’t necessarily the case. Some inflationary pressures will start to peak and fall in the next year, but he doesn’t expect rising wages to back off, for example, believing wages have structurally moved higher.
But a year from now, Quinlan expects a lot of inflationary pressures will have peaked and productivity gains for companies will allow them to continue to drive earnings.
The Fed will start to raise rates by the second half of next year, but that’s not the end of the world, he said.
“We are looking for the Fed to start a Fed tightening cycle, but incrementally, not dramatically, that’s our base case,” he said. But the hotter inflation gets year over year in coming months, there will be more pressure on the Fed to act sooner than later, he said.
“There’s a lot of corporate debt out there. It’s manageable; we can work through it if we don’t see an unpredictable sharp spike in the cost of capital,” he said. “We don’t see that, but I’m going to outline that as a risk that we’ve got to watch very carefully.”
Supply-chain bottlenecks are an issue, but he thinks those bottlenecks will slowly unwind, although it could take until well after Christmas or the Chinese New Year to stabilize, he said.
“I do think a year from now, we won’t be talking so much about bottlenecks,” he said.
Tensions with China are an issue, but Quinlan doesn’t believe in the U.S.-China decoupling thesis.
“We’re still very much interdependent … there’s a lot of positive underpins to U.S.-China relations,” he said, underscoring the importance of keeping tensions from getting any tighter.
Concluding, he said the U.S. would have “decent, solid growth next year,” with the story similar in China, Southeast Asia, and Europe.
“Commodity producers are having their day in the sun, whether it’s agriculture … oil, energy in general, so really we’re set up for a synchronized global expansion into ’22,” Quinlan said. “Your part of the world is about trading; you’re very globalized,” which provides a good backdrop for regional companies heading into the new year.
The pandemic is going to fade — “science is winning,” he said — and Quinlan predicted it won’t be called a pandemic a year from now. That’s good because of more travel, more work from office, more service growth, he said. The U.S. needs to be smarter about how it deals with China, protect its cybersecurity, and be smarter about immigration, he said.
“Immigration to me is just something we need so badly,” Quinlan said. “… We’ve got to do better. The good news, the international students are starting to come back to our universities. That’s hugely important when it comes to the immigrants and the powerful nature they bring to our economy.”
Quinlan also recommended a couple books to read: Investing to Save the Planet, by Alice Ross, and Unraveled: The Life and Death of a Garment, by Maxine Bedat.