Tough Decisions await the Federal Reserve in 2022

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COLORADO SPRINGS – As the arrival of the new Omicron variant of the COVID-19 virus shocks markets, it is also complicating decisions for the Federal Reserve of the United States.

PhD Economist and Director of the Economic Forum at the University of Colorado-Colorado Springs, Tatiana Bailey, says the FED must now balance the uncertainty the new virus poses to unemployment, with an economy that has been running hot with inflation for months.

“The Federal Reserve is between a rock and a hard place,” Bailey said. “Inflation does eventually kill itself. Because eventually, if prices get high enough, people clamp down and they don’t buy as much.”

And she worries over how that will affect the profits of businesses large and small.

Over the past few weeks, Bailey has detailed her concerns for the economy with FOX21, saying she believes each will factor in to stock market values heading into the new year.

They include:

“All of those things, those are sort of cumulative things that eventually have to spill over,” Bailey said. “I think the main reason I see a correction coming is because things are so overvalued, so the baseline right now is too high.”

She believes the stock market is overvalued because of a low-yielding bond market that has pushed investors ,who may be more risk-adverse, to stocks that have performed remarkably well over the last 16 months.

The rally over that time has marked the sharpest increase in values in major indexes in more than 20 years. Bailey attriubtes the rally to the aforementioned over-values of some companies, however, she believes many of the market’s technology-based stocks have real weight to them, as they provided essentials over the course of the pandemic.

“So it’s not all fluff right? But the issue is that you’ve got this basket and some people thinking it’s going to continue to rally, rally, rally while you’ve also got some duds in there,” Bailey said.

It’s been widely reported that interest rates are set for an increase by the FED sometime in 2022, but Bailey wonders how the new surge of COVID-19 cases across the country will affect decision-making. The addition of the Omicron variant makes that picture even murkier as the FED grapples with how to keep the economy on track.

“Europe is teetering with lockdowns again, or mandatory work from home. I don’t think that’s going to happen here, but that doesn’t mean its not going to have an impact,” she said.

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