World stocks climbed higher on Monday as investors digested new optimism from the U.S. Treasury’s top economist that inflationary pressures should ease in 2022 due to weaker demand for goods, easing supply bottlenecks and a receding coronavirus pandemic.
Wall Street closed higher on Monday, coupled with an earlier rise in European shares, that helped stabilize investor sentiment after a series of volatile sessions.
Harris said the course of the pandemic remains a primary downside risk to the U.S. economic outlook, along with supply chain disruptions, high energy prices and housing costs.
Future coronavirus variants “may have worse symptoms or fatality rates or may be fully resistant to current vaccines and present a significant risk to the economic outlook. On the other hand, given the level of vaccinations and prior infection, the U.S. population may be nearing herd immunity.”
He also said that the pandemic continues to endanger the recovery of supply chains due to continued lockdowns in China and southeast Asia, which could keep goods prices elevated.
Potential future growth also depends on the recovery of the U.S. labor supply, which has been diminished by the pandemic, Harris said.
“If these losses in labor supply are permanently lost due to the pandemic, then potential economic growth has been shifted lower,” he said.
But Harris noted that strong household balance sheets were a positive support for stronger GDP growth, as is investment in housing, energy production and commercial properties. State and local governments are also seeing a stronger-than-expected recovery in revenues, bolstered by last year’s $350 billion in coronavirus aid funds, Harris said.
“At the start of 2022, key investment sectors are poised for strong growth, despite ongoing supply chain difficulties and the specter of new COVID variants,” Harris added.