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The last 12 months did not go as anybody planned.
The year began with the unimaginable takeover of the U.S. Capitol by mobs of Trump supporters hoping to block Joe Biden’s path to the presidency. They failed, and Biden began his term promising a return to normalcy after the Covid pandemic. The Covid Delta variant spoiled that picnic, and now Omicron has brought more rain. Along the way, Tom Brady won another Super Bowl, with a new team, at the age of 43. Billionaires went to space and the Taliban stunned the world by retaking control of Afghanistan.
The outlook for 2022 includes lots of uncertainty about whether the Covid virus will mutate into a new monster or eventually peter out. The Federal Reserve has finally acknowledged that worrisome levels of inflation aren’t so temporary after all, and will require more forceful Fed action in 2022. The upcoming midterm elections will dominate American politics, and former President Trump, the de facto leader of the Republican party, still swirls as a biting wind able to whip sparks of dissatisfaction into destructive wildfires.
By this time next year, we’ll probably still have a recovering economy, with new vaccine variants to foil new Covid mutations. President Biden’s big legislative push will probably be over, forcing a shift to regulatory action and more incremental change. As for surprises, here are 5 things that could look quite different in 12 months than they do now.
Shortages become surpluses. Inflation, currently 6.2%, still derives mainly from anomalies related to the Covid pandemic that won’t last forever. What if trends reverse and shortages become surpluses? It’s possible. Retailers are placing orders early and stocking as much as they can get. Factories are running at maximum capacity, or more. If consumer demand shifts back toward services, declining demand for goods could trigger downward price pressure. “In certain sectors, this can occur,” Michelle Meyer, chief US economist for Bank of America, told reporters during a briefing on Dec. 2. “For big-ticket items like homes and cars, I could see this play out and create that type of price correction.”
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The 2021 debate was whether elevated inflation would be “transient” or “permanent.” But nobody ever defined either word, and Biden’s prediction in July that inflation would be temporary seemed mistaken a few months later, when it had gone up further instead of declining. Six or nine months into 2022, however, inflation could dissipate and fall back toward the Fed’s target of 2%. That would certainly help Biden and his fellow Democrats, who seem sure to lose control of one or both houses of Congress if consumers are still battling escalating gas, food and rent costs in November of 2022.
Abortion explodes. If the Supreme Court weakens or overturns the Roe v. Wade abortion protections next year, as seems increasingly likely, there’s bound to be fierce blowback. Most Americans think there should be some restrictions on abortion, but they also want the Court to leave Roe in place. Overturning it would put the Court sharply at odds with public opinion, making an emotional issue for many voters even more visceral.
Republicans have better than even odds of ending the Democrats’ majority in Congress next year. If the Court overturns Roe, it would be with 5 or 6 votes by Republican justices. That would be an unambiguous gift to Democrats, allowing them to claim the middle ground, where most voters reside on the issue, and characterize Republicans as anti-feminist zealots. Overturning Roe would also trigger abortion bans in at least a dozen states, with others enacting near bans. Blue-red polarization would become more intense than ever, which could cause problems for companies based in pro-abortion states and other second- and third-order consequences that could reverberate for years.
A real bear market finally arrives. Why would stocks fall by 20% or more? Not Covid. The pandemic has coincided with an extraordinary backstop provided by the Federal Reserve, which ended the 2020 bear market after just one month. Stocks have roared since then. But even if inflation eases in 2022, the Fed will still have to start a tightening cycle that includes higher rates, something markets haven’t digested very well in more than a decade. That could also come as the pandemic recovery cools down and growth slows, which most economists forecast for 2022 and beyond. The ultimate driver will be corporate profits, which don’t have to nosedive to deflate stock prices. They just have to disappoint. Many investors think there’s already a stock bubble that’s overdue for a sharp correction.
China overreaches. China clearly aims to challenge the United States as an economic and military superpower, with plans, for instance, to establish its first military base in the Atlantic Ocean—aka America’s backyard. China is far ahead of the U.S. in some key technologies of the future, such as electric-vehicle batteries, photovoltaic cells for solar panels, shipbuilding and pharmaceutical ingredients. It has developed alliances with lesser-known nations possessing vital minerals and begun to build new trade routes that could span much of the world.
China also has many weaknesses that flare up from time and may now be worsening. Daniel Rosen of the Rhodium Group argued in Foreign Affairs earlier this year that China is headed for “a time of painful austerity” driven by declining productivity, a massive debt buildup and rigid government that increasingly shackles private-sector innovation. This is happening as the Biden administration, sticking with some of President Trump’s anti-China measures, is also urging allies to confront China en masse regarding its aggressive militarism toward neighbors and its abuse of free-trade privileges. The crisis surrounding the Chinese real-estate giant Evergrande may be a sign of much deeper internal rot. The apparent dentition of tennis star Peng Shuai, following her claim of sexual abuse by a top communist party official, reveals brittle, revanchist leadership. China will be showing off for the world when it hosts the 2022 Winter Olympics in February, but the pageantry may be more hollow than usual.
Trump folds. Donald Trump is teasing the world with the prospect of another run for president in 2024, but that’s only because it’s good for business. Trump and some of his cronies are still raising money on the premise that he’ll once again be president, because who would donate if Trump were just a retired blowhard? But Trump will be 78 in 2024, and unlike Joe Biden—who’s 79 now—Trump might have much bigger problems than his age. Two New York investigations into fraud at his business continue, and Trump has been losing some of the legal efforts to shield details of his involvement in the Jan. 6 riots from House investigators.
Trump never wanted to be president. He wanted to burnish his brand as a businessman by showing the moxie to jump into the ring for national office. He accomplished that, and more. But his four years as president were the apex and Trump is more toxic now, thanks to Jan. 6. Trump’s media company may get off the ground next year, providing more of a platform. But it could also flop, because a club of Trumpers run by Trump is less powerful than Trump sparring and winning on enemy turf, as he did in 2016. Trump doesn’t want anybody to know it, but he has to be more careful than ever because he’s made enemies far and wide, and created massive vulnerabilities. Trump could afford to lose in 2016. He can’t afford to lose again. He’ll keep making noise, but it will signify less and less.
Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.