2022 U.S. Interest Rate Outlook

While 2021 brought amazing scientific innovations and tools to help us fight the COVID-19 pandemic, allowing much of the economy to get back to work, for the most part we are still not back to normal. Many lives have been lost since our last chat, while many millions more have been saved. Household wealth has expanded in many cases thanks to rising equity and home values, as well as government support, but ‘variants of concern’ knocked us back from a new normalcy, not once but twice, with Delta and now Omicron derailing our way of life. Though green shoots will emerge, enough clarity and kindness continue to be hard to generate or come by.

However, a New year brings with it hope and a freshened perspective. A New year resets the counters, wipes the whiteboards, and collectively engages each of us to seeing a different end to each recorded day. But can our collective knowledge and humanity get us back to a world where we safely reunite in person to see each others’ smiling faces for work and play in this New year?

Maybe! In the coming pages, we review our past predictions for the economy and interest rates in 2021, then we outline our forecast of short and long-term interest rates for the year to come. The year 2021 occasionally went according to plan. Interest rates and risk assets reacted like everything was fine most of the time, but too many times our behavior and daily activities were interrupted by the virus.

Despite the up-shifting and flattening yield curve, inflation that has become a spectacle, and record corporate profit margins, we anticipate that 2022 will be the year of re-humanizing. A year where the general consensus for the virus and society come true, a year that may show better personal returns than financial returns, a year to bask in the rediscovery of genuine smiles, and maybe even flash one or two back in reply. 2022 may be what we thought 2021 could be – our best year!

Health and happiness,
The Derivative Logic Team