The major risks lie not necessarily in U.S., but across the world. Rebucci broke down three key areas to watch as we navigate through 2022.
The Eurozone is just starting the tightening cycle and may have to stop right off the bat, due to political instability in Italy---its third largest economy threatening the monetary union once again.
European Central Bank President Christine Lagarde announced on July 21 a first-rate increase, the first time in 11 years, bringing the policy rate to zero, and a new bod purchase program to protect member states under speculative attaches on their sovereign debt. The ECB, which unlike the Fed could focus only on inflation, has set itself up to pursue two objectives that are difficult to reconcile: tightening monetary policy to tame inflation, and loosening it to prevent that tighter monetary policy damage to the monetary union. The risk of a second Eurozone crisis is material, and that would put headwinds on the U.S. economy even though it would not drag it down.
China: China may be on one of the biggest factors yet. When COVID-19 cases go up, as they will do again, the Chinese government will shut down parts of the country, including the financial center of Shanghai and export hubs like Shenzhen and Hong Kong Province of China.
“COVID will come out of the box again, and shutdowns in China are quite likely,” Rebucci says. “A shutdown in China means major disruptions to the supply chain, and more persistent U.S. inflation.”
War in Ukraine: One of the biggest factors in the global economy will be how countries adjust to the war in Ukraine going forward. The unpredictability is having a larger impact than first thought.
Russia’s invasion of Ukraine has led to numerous global supply chain issues including food staples like wheat and energy.