And yet, the past two years have shown how unforeseen events can alter forecasts, sometimes dramatically.
For all its recent strength, the economy’s recovery faces multiple risks in 2022, starting with the force that continues to dominate daily life: Covid.
Covid doesn’t go away
“The pandemic remains the single largest potential disruptor of the domestic and global economy,” said Joe Brusuelas, chief economist at RSM.
The bigger risk is that an even more menacing variant emerges, with more severe symptoms and the danger that it evades vaccines and booster shots.
“I hope they’re right,” said David Kotok, chief investment officer at Cumberland Advisors. “This is a mutating disease. We’ve now had two years of experience. What makes anyone believe Omicron is the last one?”
Supply chains stay scrambled
The Delta variant earlier this year piled additional pressure on supply chains by getting workers sick, making them scared to go to work and introducing new health restrictions.
“It is possible that Omicron disrupts supply chains even more and will be a drag on growth and investment,” said Vincent Reinhart, a former Federal Reserve official who is now chief economist at BNY Mellon.
The good news is the Omicron wave is hitting at a time when demand typically cools off, which should give supply chains a bit of extra breathing room to deal with the new variant.
Inflation stays hot
One risk is that new Covid-related bottlenecks limit supply, lifting prices even higher. Another concern is that inflation continues to spread and gets further ingrained in the psychology of consumers and business owners, which in turn could cause a negative feedback loop that drives inflation higher.
A Fed policy mistake
After nearly two years of unprecedented support, the Federal Reserve is finally taking its foot off the gas pedal — and preparing to tap the brakes very soon.
Given the strength of the recovery, the economy should be able to absorb those rate hikes without negative repercussions. Borrowing costs will remain historically low.
“My sense is the economy is in a pretty good place right now. The Fed has a lot of bandwidth to work with,” said RSM’s Brusuelas.
Investors tend to agree, with markets signaling confidence that the Fed will deftly exit emergency mode without harmful side effects.
But there is a chance the Fed overdoes it by raising rates faster than the economy, or financial markets, can stomach. And that could severely slow down or even end the recovery.
No more help from Uncle Sam
“We are going to run an experiment on how much of this robust expansion is due to fiscal support and how much from private activity,” said Reinhart. “We don’t know.”
Any list of risks to the economy must include wild card events that few expect but could still have a big impact.
The best example would be a massive cyberattack that sets off turmoil, either in the real economy or in financial markets, or both.
Fed Chairman Jerome Powell openly worried earlier this month about the potential impact from a cyber intrusion that could take down down a big bank or a key cog in the financial system.
There are countless other wildcard risks beyond cyber, everything from a war and a natural disaster to a crash in the crypto market.
“You’ve got to be humble. Almost nobody had a pandemic on the radar screen in 2018 and maybe not 2019,” Reinhart said. “Is it possible in 12 months that all we will talk about is something we are not talking about now? Yes.”