Washington – Despite inflationary control measures, National Retail Federation (NRF) chief economist Jack Kleinhenz said the economy is still in an expansion phase.
In the February issue of NRF’s Monthly Economic Review, Kleinhenz said the economy “is running hotter than it has in a long time” even through federal intervention like stimulus checks and expanded unemployment benefits are now in the rearview mirror. The economy “is sturdy enough to stand on its own and can sustain itself toward a growth environment without the pandemic stimulus and monetary policy policies of the past two years,” the report said.
Gross domestic product was up 5.7% in 2021 from 2020, the fastest growth for any calendar year since 1984. Household spending continued to grow in the fourth quarter even though not as quickly as earlier in the year. Kleinhenz expects GDP to grow between 3% and 4% in 2022, which would be faster than the 2.3% annual pace during the 2009-2020 expansion that was ended by the pandemic.
“It is not clear how Fed policy will develop, and there will be indigestion as we adjust to new policies,” Kleinhenz said. Nonetheless, both households and businesses are “in good financial shape,” COVID-19 is having less of an impact on economic activity “and there is plenty of room to raise rates without threatening the economy,” he said.
With rapid economic growth running in tandem with highest inflation in nearly 40 years, the Consumer Price Index climbed 7% year-over-year as of December, according to the Bureau of Labor Statistics. In response, the Federal Reserve has signaled it will begin to nudge interest rates to bring inflation under control.
Those rate hikes would make mortgages, car loans and other credit more expensive, Kleinhenz acknowledged, but “households are poised to spend” anyway, partly because of savings accumulated during the pandemic.