Home » Huari: The new epidemic in 2022 and the weakening of interest rates, investor optimism Fed | Economics | Financial Observation |

Huari: The new epidemic in 2022 and the weakening of interest rates, investor optimism Fed | Economics | Financial Observation |

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[Look at China on January 3, 2022]The American “Wall Street Journal” published an analysis report on January 2 stating that the unpredictable new crown virus pandemic and the dual threat of the Federal Reserve (Fed) may raise interest rates. Weakening investor optimism towards 2022 is a far cry from the enthusiasm driven by the launch of vaccines and government stimulus a year ago.

According to reports, investors have many reasons to be happy during the 2021 holiday season. Driven by a stronger-than-expected economic rebound, the S&P 500 climbed 27% in 2021, the third largest annual growth in the past 20 years. U.S. crude oil prices have increased by 55%, reaching approximately $75 a barrel. The interest rate of corporate bonds is hovering at low levels, reflecting the extremely low risk of the company’s debt reversal. In addition, the unemployment rate has also fallen below economists’ expectations.

However, as the Federal Reserve is on the verge of raising interest rates, a new strain of Omi Keron is sweeping across the country, and the government’s financial assistance to families is gradually decreasing. Few investors expect 2022 to be as good as 2021.

One of the main concerns of investors is that these different issues currently facing may interact. A new wave of epidemics caused by existing and new mutant virus strains may reduce consumer spending and slow economic growth. However, continued economic growth may sustain already severe inflation, aggravate the supply chain and labor shortages, and give the Fed even more reason to raise short-term interest rates, even though economic growth has slowed.

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According to the report, Jim McDonald, chief investment strategy adviser of Chicago-based asset management company Northern Trust, said that the biggest threat to the stock market is that inflation has forced the Fed to overreact.

Despite the increasing risks, many investors believe that the market will go through the new year with all its strength and bring solid returns.

MacDonald said that in 2022, the company’s revenue may continue to grow at double digits. Therefore, his team still chooses more risky assets, such as developed market stocks and lower-rated corporate bonds, rather than safer assets, such as cash and higher-rated bonds.

What comforts investors is that stocks generally perform well in the years when the Fed has just begun to raise interest rates. Investors also said that as people learn how to deal with the virus, the impact of each outbreak on the economy is getting smaller and smaller. Many investors are also optimistic that as commodity supply catches up with demand, inflation will decrease this year. Others argue that the increase in new crown virus infections is more likely to slow inflation, which means that if the economy can withstand the difficulties, the Fed may postpone raising interest rates.

However, the prospect of higher interest rates continues to worry investors, and most people expect increased market volatility, although the stock market will continue to grow broadly.

Editor in charge: Xin He Source: Voice of America

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