Expectations for the U.S. economy this year

Russell Price, Chief Economist – Ameriprise Financial

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As we enter 2022, we believe underlying economic conditions remain supportive of further economic recovery. Although economic activity remains highly dependent on evolving COVID-19 conditions, we believe the most likely path is still one in which economic growth continues at a solid pace.

We currently forecast the U.S. economy to grow by approximately 4.5% in 2022 versus our estimate of a +5.5% rate for 2021. A number of factors support growth this year, including sound consumer finances, additional business investment, a strong job market and expanded government spending on infrastructure. Currently, we believe such conditions could support growth through 2023 at a forecasted 3.2% rate.


Inflation starts 2022 near 40-year highs

Inflation, however, is likely to reduce consumer purchasing power in 2022 more than it has in almost 40 years. We currently anticipate the Consumer Price Index (CPI) to start the year at a rate just over 7%, before slowly subsiding as the year advances.

Goods have been the primary driver of inflation over the last few quarters. Consumers have faced much higher prices for things such as food and energy, but prices for items such as automobiles, sports equipment, furniture and other household items have also grown at a rapid pace due to a combination of stronger demand and supply disruptions.


Not just a supply problem

In the three years prior to the pandemic, consumers allocated about 31% of their spending toward goods, according to the Commerce Department. This allocation jumped to approximately 35% as the pandemic set in. Even though overall spending increased, people were restricted from spending on certain services such as vacations or a night out at a movie or restaurant.

In the quarters ahead, we believe consumer spending should slowly normalize back to prior allocations. This should alleviate some of the upward pressure on the price of many goods. Notably, the production of automobiles has started to improve as semiconductors have tentatively become more available.

Combined, these dynamics should improve the balance of supply and demand in the U.S. economy, even though inflation is likely to ease this year yet remain elevated well into 2023 at least, in our view. We forecast the Consumer Price Index to end 2022 at a rate of about +3.5% versus the 2019 pre-pandemic average of 1.8%.


Higher interest rates as well?

Federal Reserve officials have also indicated their intention to fight inflation more aggressively via higher interest rates in the months ahead. In December, Fed officials suggested three quarter-point interest rate hikes in its overnight lending rate may be likely this year.

Though not directly tied to most consumer borrowing costs, the rate hikes are likely to result in moderately higher interest rates on mortgages and other consumer costs such as the interest rates paid on credit cards.



Virus conditions, inflation pressures and geopolitics remain prominent risks as we enter 2022. However, underlying economic conditions are in sound shape in our view, thus supportive of economic growth as conditions allow. Higher interest rates should help slowly ease inflation pressures, but the Fed could also over-tighten monetary conditions and slow growth more than intended.

Though our outlook is favorable, this is a transition period for the U.S. economy. Similar periods have historically fostered greater financial market volatility. Consistently meeting with your Ameriprise financial advisor and maintaining a balanced, diversified portfolio should help guide you through this economic period.