The explosive economic growth that we saw in 2021 won't likely continue into 2022 because of 'fiscal drag,' where there's less money from the federal government going out to regular folks.
The U.S. economy boomed last year. The Commerce Department said yesterday that Q4 2021 GDP grew at a 6.9% annualized rate, the highest since 1984. The consensus expectation for 2022 is 3.9%.Some, like Brookings economist Wendy Edelberg, expect slower growth. She predicts GDP growth of about 2.5% in 2022, in line withThe overall economy will be fine — and is improving — but "really abrupt cutoffs in benefits is never great policy," Edelberg says.
And if you top off the cutback in fiscal spending with aggressive rate increases from the Fed, we could cut short a promising recovery, says Josh Bivens, director of research at the progressive Economic Policy Institute.On the other hand, wages are up and the job market is healthy. Folks still have savings from last year and when they file taxes they can claim more child tax credit money.The fiscal drag doesn't have to be such a drag — but a lot is riding on the pandemic subsiding.
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