Thankful, But Watchful

Post from First Trust Economics Blog

Brian S. Wesbury – Chief Economist
Robert Stein, CFA – Deputy Chief Economist 

Nov. 22nd 2021

As Americans gather among family and friends to

celebrate Thanksgiving, we all have much to be thankful


Twenty-one months after COVID-19 led to massive

lockdowns across the US, vaccines are now widely

available thanks to the private enterprise system. In

addition, new highly effective treatments are coming to

market, which could minimize the risks associated with

COVID-19 for both the highly-vulnerable as well as

those who’d prefer not to take the vaccine.

Meanwhile, entrepreneurs and businesses of all

sizes had to squeeze about a decade’s worth of

innovation into a year to overcome both COVID itself as

well as draconian measures taken to (supposedly) limit

the spread of the disease. So much so that the number of

workers on payrolls is still down 4.2 million versus

February 2020 (the last month pre-COVID). But this

reflects worker decisions, more than worker demand.

Total employment plus total job openings are just 1.3

million below pre-COVID levels.

Meanwhile 232 years after the Constitution was

ratified we continue to enjoy the blessings of the

American Founders’ wisdom. The separation of powers

means no president is a dictator, neither the ones you

vote for or against, even in the face of a health threat that

many still perceive as severe. Witness the recent

suspension of extremely burdensome OSHA rules that

would have required private companies to impose

vaccine mandates on their workers or, in the alternative,

authoritarian-style mask and testing requirements, even

as every adult who wants a vaccine can get one and

young people face very little risk.

Then there’s the federal system of overlapping

jurisdiction between the federal government and the

states that allows for some variety in public policy, in

part responsible for the movement of people between the

states toward places where people are more free, both in

general, as well as with respect to COVID.

But all of the things we should be thankful for don’t

add up to a reason to be complacent. Inflation is

obviously a bigger problem than it’s been in decades and

no one should be confident that they know exactly the

course of treatment the Federal Reserve will ultimately

apply. Near the end of next year, we will all have a

clearer picture of how persistent and high inflation really

is, and whether tapering does anything to bring it down.

Our belief is that inflation is not temporary. The

only question is whether the Fed chooses to bring policy

back to normal quickly or slowly. We expect the Fed to

kick the inflation can down the road for some period of

time. Whether that is just until 2023, or until a new

administration in 2025, is still debatable. Either way, the

US will end up with a period of slower growth at some

point in the years ahead.

So for now, be thankful. We remain bullish on

equities and the economy. A bear market or recession in

2022 is very unlikely. But don’t be complacent. Be

watchful and be ready to shift, as always, if

circumstances change.