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Illustration: Eniola Odetunde/Axios

Wall Street strategists see the shape of 2022 pegged to three main hooks: inflation, corporate spending and the pandemic's path.

Why it matters: The unusual conditions of the past two years will likely lead to more mixed signals next year.

  • “Cutting through confusion is really key [to] navigating markets in 2022,” Wei Li, global chief investment strategist at BlackRock Investment Institute, said on a call earlier this month.

A review of 2022 outlook commentary from JPMorgan, Bank of America, BlackRock and Morgan Stanley reveals consensus on three key themes.

1. Inflation is here to stay until supply pressures ease.

  • “CPI inflation ... should ease on average in 2022 as oil prices recede, supply chain difficulties diminish and government aid to low- and middle-income households dries up,” the J.P. Morgan Asset Management team writes.
  • Central banks will have to react to fighting higher inflation without "destroying [consumer] demand," says Jean Boivin, head of BlackRock Investment Institute.

2. Companies' capital expenditures are set for a further comeback.

  • As more consumer spending shifts to services, businesses will get a breather and restock inventories, says J.P. Morgan. 
  • Fueled by strong profits and low-interest rates, capital spending and inventory rebuilding should contribute to growth, J.P. Morgan adds.

3. Global cases of COVID-19 will continue to dictate uneven and unequal recovery patterns.

  • Emerging markets remain more vulnerable to economic shocks, Bank of America’s chief investment office team writes.

The big picture: A best-case scenario is one where "monetary policy tightens less than investors fear," while strong capital expenditure and improving supply chains and global health continue to push growth, according to Morgan Stanley, which has an above-consensus outlook of 4.7% global GDP growth for next year.

  • A worst-case scenario: New variants could become a force that slows growth down as supply chains remain locked up — driving inflation even higher, says Bank of America.

What to watch: One known unknown — the political climate.

  • Attention to geopolitical developments (measured by frequency of financial media and brokerage reports) is near a four-year low, according to BlackRock.
  • “If something were to flare up, it could really take markets by surprise," says Li.

Editor's note: This story was originally published on Dec. 20.

Go deeper

Retail sales slipped a surprising 1.9% in December

Shoppers in San Francisco on Dec. 22. Photo: David Paul Morris/Bloomberg via Getty Images

Retail sales fell 1.9% in December compared to the previous month, suggesting that shoppers bought holiday gifts earlier last year as they faced rising inflation and supply chain issues.

Driving the news: The data is much lower than the 0% change predicted by economists, according to FactSet.

What Biden's Fed nominations mean for policy

Sarah Bloom Raskin at a 2013 hearing. Photo: Andrew Harrer/Getty Images

Now that President Biden's long-awaited nominations for vacant seats on the Federal Reserve Board of Governors have dropped, the big question is how Sarah Bloom Raskin, Lisa Cook, and Philip Jefferson, if confirmed, might shift policy.

  • The answer: Don't expect any big changes to the central bank's policy direction overnight — but do expect it to prioritize a healthy labor market more in the years ahead.

Why it matters: The Fed's actions shape the economy in ways that outlast the presidents who appoint them — and the Biden-appointed Fed looks to be a more explicitly pro-worker central bank than we've seen in modern times.

The big picture: With inflation running hot, the Fed is in the midst of a pivot to more hawkish monetary policy — possibly including raising interest rates in March.

  • Raskin, Cook, and Jefferson are unlikely to stand in the way of that pivot, and not just because the slow-moving Senate confirmation process means it will likely be well underway before they are confirmed for their new jobs.
  • The Fed is a consensus-driven institution, and the consensus has swung decisively in a hawkish direction in the last three months. Even normally-dovish officials like San Francisco Fed President Mary Daly and Chicago Fed president Charles Evans on board with the policy shift.

But over time, the new additions to the Board of Governors — who have a permanent vote on monetary policy, unlike regional Fed presidents who rotate — have emphasized the importance of running a hot labor market in order to achieve gains for workers and greater racial equality.

  • That implies the three new governors would resist continuing to push interest rates higher once inflation moderates.

What they're saying: "Inflation is so high and political pressures on the Fed are so strong (including from Democrats), that we doubt they will push hard against the will of the committee," wrote Roberto Perli and Benson Durham of Cornerstone Macro, in a client note.

  • But, they add, "Because all of them have expressed views in favor of broader expansion of the labor market, … we can expect them to resist substantial tightening in the future."

Regulatory policy is a different matter. If confirmed as vice chair for supervision — and Republican Senators will try to stop that from happening — Raskin would have more explicit power over a wide range of regulatory policy, and look to rein in the deregulatory impulses of her predecessor, Trump appointee Randal Quarles.

The bottom line: As the Biden Fed takes shape, it will include more voices focused on workers than in modern memory. But the course of policy depends on whether inflation trends allow them to act on those instincts.

Updated 57 mins ago - Politics & Policy

British national named in Colleyville synagogue standoff

A law enforcement vehicle sits near the Congregation Beth Israel synagogue on Jan. 16. Photo: Brandon Bell/Getty Images

British national Malik Faisal Akram took four people hostage at a Texas synagogue outside Fort Worth on Saturday, the FBI said in a statement.

State of play: Authorities had initially declined to release the name of the 44-year-old suspect or identify the hostages, all adults, though police chief Michael Miller confirmed that one of those held was Rabbi Charlie Cytron-Walker, who leads the congregation.