by Harry Wilmerding
Inflation, âsoftnessâ in the White House, and pandemic uncertainty make up some of the biggest risks to the U.S. economy in 2022, according to a Washington consulting firm.
âEvery quarter, I take a macro look at trends driving politics and policy looking both backward and forwards and identify where key political risks may lurk and where political opportunities may present themselves,â Bruce Mehlman, former assistant secretary of Commerce in the George W. Bush administration, told the Daily Caller News Foundation. âThe most recent analysis targets 2022 and identifies the emerging risks business and government leaders should anticipate and prepare for.â
A founding partner of the Washington, D.C.-based consulting firm Mehlman Castagnetti Rosen & Thomas, Mehlman advises prominent companies to understand and prepare for emerging trends and risks critical to the ever-evolving policy environment.
Mehlmanâs report, âLiving In Limbo: Anticipating the Top 2022 Risks In Politics and Policy,â outlined over 20 risks in politics and policy, and the Daily Caller News Foundation identified eight of the most significant concerns.
COVID: The Fourth Wave
Looking forward to the risks COVID-19 poses heading into 2022, Mehlman believes the virus wonât suddenly disappear but also wonât wipe out humanity, he explained to the DCNF.
âI am not an epidemiologist, but it feels to me that this is the best example where all expectations are either 1 or 11. You hear it either a common cold or that we will all get sick and die,â Mehlman told the DCNF.
Instead, Mehlman sees an endemic situation, comparing it to a bad flu strain that will have a new flavor each year, he explained to the DCNF.
âAt some point, we need to get to accepting that it will never go away and that it is not going to kill everybody,â Mehlman told the DCNF.
âThe risks are overhyped, and the preventions are under-embraced,â he told the DCNF, adding that those preventions include mass vaccinations and wearing masks when bad outbreaks occur.
In South Africa, weâre thankfully seeing a striking decoupling between new Covid cases and ICU admissions and deaths. Whether #Omicron is inherently less virulent, whether this hopeful finding is result of baseline immunity in infected, or a combination of both, is still unclear. pic.twitter.com/xtmCSdpCNc
— Scott Gottlieb, MD (@ScottGottliebMD) December 19, 2021
COVID-19 cases continue to soar throughout the country and globe after the emergence of the Omicron variant.
Over 90 countries have reported Omicron cases, forcing some to implement new lockdown rules. Cases in the U.S. increased to over 156,000 on Friday, with the new variant now reported in 43 U.S. states, according to the Centers for Disease Control and Prevention.
The CDC said Monday the Omicron variant has become the dominant strain in the U.S., making up 73% of reported cases. While cases continue to surge, deaths have not increased at the same rate as some believe the new variant is less dangerous than previous strains.
Extreme Weather Disasters
In 2021 we saw an influx in extreme weather disasters, increasing costs, challenging supply chains, and driving policy, Mehlman explained to the DCNF.
âSo far, these policies have disfavored fossil fuels, reducing investments and inventories causing severe energy inflation,â Mehlman told the DCNF.
Increased severe weather disasters pose a serious risk to insurers, Mehlman added.
âInsurers use historical data to price risk. We are increasingly seeing 500-year record floods and other disasters that are out of proportion to what was witnessed in the past,â Mehlman told the DCNF.
âThese insurers are now being asked to cover things that you didnât think would be insuring things that would be this bad because historically, they havenât been,â Mehlman told the DCNF.
âThey are now covering people who didnât use to be in harmâs way, but as a result of changing weather disasters, they are now at risk,â Mehlman added, pointing to the recent winter freeze in Texas.
A massive ice storm hit Texas in February, leaving millions without power as the stateâs power grid became ineffective after it was coated with ice. The estimated cost was over $18 million in damages, making it one of the most expensive storms for insurers on record.
Manufacturers: Supply Chains
There are short term, medium-term and long term problems facing supply chains entering 2022, Mehlman told the DCNF.
The short-term risk is the global employee, semi-conductor and energy shortages exacerbated by politics.
Medium-term challenges for supply chains are the rising theme of economic nationalism, Mehlman told the DCNF. Headwinds that made global supply chains so efficient from 1989 through 2019 are fading, posing the greatest long-term risks.
âU.S. and Chinese economies used to be tied together; now they are splitting apart. Technology used to encourage greater cross-border data flows, but now regulators are attempting to shut them down,â Mehlman told the DCNF.
Consumer: Inflation
Continued inflation will continue to challenge the Biden administrationâs agenda, Mehlman told the DCNF.
Soaring prices will determine how the Federal Reserve pursues its monetary policy heading into 2022, how much money the government will try and spend on safety nets and infrastructure, and if the administration will continue its antitrust competition reviews, Mehlman added.
âThe companies the administration plans to go after are also probably some of the most productive companies in the economy,â he told the DCNF.
Inflation has soared to its highest level in 39 years, with the Consumer Price Index jumping 0.9% in November, bringing the key inflation indicatorâs year-over-year increase to 6.8%. The producer price index, which measures inflation at the wholesale level, surged 9.6% year-over-year as of November, growing at the fastest rate ever measured.
Growing inflation, along with falling unemployment, triggered the Federal Reserve to accelerate its asset purchasing stimulus while also forecasting three interest rate hikes in 2022, according to CNBC.
Markets: Irrational Exuberance
The biggest threat stock markets face in 2022 is potential financial bubbles that would persist as the Fed tightens its monetary policy,  according to Mehlmanâs report.
âThe market is clearly out of all its historic wack,â Mehlman told the DCNF. âThe fact that in the last year we saw as much money invested in equities as the last prior 19 years is not normal.â
âThe fact that so many stocks are down but the biggest five to 10 are off the charts up is also very unusual,â he added.
Mehlman identified elements of a robust stock market with justified profits, but also noticed characteristics of a bubble, he told the DCNF.
Stock markets tumbled Monday as the spread of the Omicron variant triggered lockdowns in European countries. The Dow Jones Industrial Average dipped 433.28 points at the end of the trading day Monday, while the S&P 500 fell 1.1% and the Nasdaq declined 1.2%, according to CNBC.
Biden: Perceived âSoftnessâ
President Joe Bidenâs perceived âsoftnessâ will serve his political risk entering 2022, according to the report.
Mehlman pointed to Bidenâs softness on the border, economy, crime, and foreign policy. As his approval rating continues to plummet, and more Americans see growing failures and weakness in the respective categories, Biden and the Democrats will have a harder time passing legislation, Mehlman explained to the DCNF.
âA president with high approval is more feared and followed legislatively. It will be harder for him to get people to do what he wants and will also be dangerous news for down-the-ballot democrats,â Mehlman told the DCNF.
https://twitter.com/RyanGirdusky/status/1472948896108363778?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1472948896108363778%7Ctwgr%5E%7Ctwcon%5Es1_c10&ref_url=https%3A%2F%2Fdailycallernewsfoundation.org%2F2021%2F12%2F25%2Fhere-are-the-2022-risks-that-official-washington-is-talking-about%2F
Roughly 46% of respondents approved of Bidenâs handling of the COVID-19 pandemic, while 48% disapproved, according to a recent CNBCÂ survey. Bidenâs economic approval also plummeted, with 37% approving and 56% disapproving.
Bidenâs disapproval rating surged once again on Monday reaching 55%, according to an NPR/PBS News Hour/Marist Poll.
Multinationals: U.S.-China Decoupling
Looking at the future of U.S.-China relations, Mehlman saw a steady decoupling between the two world powers, but people shouldnât âassume everything will catch on fire,â he told the DCNF.
âBoth leaders will balance assertiveness and accommodation,â Mehlman wrote in the report. âBusinesses should plan for neither detente nor war but stead decoupling with tightening restrictions.â
âBoth nations need to show that they are tough, but they both want to avoid a war and a recession. Both want to challenge big tech, but they also want to remain as an innovation powerhouse,â Mehlman told the DCNF.
Brands: Employee Activism
Business leaders have seen increasing employee activism after the Trump administration and George Floydâs murder to urge businesses to become engaged in non-traditional issues, Mehlman told the DCNF. Company leaders now have to address employees urging their employers to combat growing liberal issues or run the risk of getting âcanceled.â
âWe found that as business leaders begin to think about political risks, some of the risks are the politics within the office place as opposed to national politics,â Mehlman told the DCNF.
âBusiness leaders are trying to decide when it is appropriate to weigh in on issues like voting rights, abortion, and climate change, and when to stay clear,â Mehlman added.
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Harry Wilmerding is a reporter at Daily Caller News Foundation.
Photo “President Joe Biden Walks Along the Colonnade With the Combatant Commander Nominees U.S. Air Force Gen. Jacqueline Van Ovost and U.S. Army Lt. Gen. Laura Richardson” by The White House.
