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What the pandemic could mean for the economy in 2022

ARI SHAPIRO, HOST:

It's the economy, stupid is the phrase that Democratic political strategist James Carville coined, which helped Arkansas Governor Bill Clinton win the presidency in 1992. Well, today the economy is still a make-or-break issue for politicians and presidents. And in 2021, the country's economic health is largely being defined by the coronavirus pandemic. So as the year wraps up, we're going to look at what the pandemic could mean for the economy and for President Biden in the months ahead. NPR White House correspondent Asma Khalid and business correspondent David Gura are here to be our guides. Welcome to you, both.

DAVID GURA, BYLINE: Hey, Ari.

ASMA KHALID, BYLINE: Thanks for having us.

SHAPIRO: David, let's start with you. How much does this omicron variant change expectations for what the economy will look like in 2022?

GURA: Well, there is some significant uncertainty about what the spread of omicron will mean for the economic recovery, which is still very fragile, Ari. There are pockets of the country that are seeing significant effects - Broadway shows canceled along with big games, the NHL has taken a pause for a few days. But, you know, something we've heard from the Federal Reserve Chairman Jerome Powell from the get-go, from the very beginning of the pandemic, is the virus is in the driver's seat. It may sound basic, but it is a crucial point. COVID-19 has been and continues to be to a large extent what is determining the path and the pace of the recovery. A reporter asked Powell about omicron and what the fallout could be after the last Fed meeting, and this is what Powell said.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: That will depend, you know, on how much it suppresses demand as opposed to suppressing supply. It is not clear how big the effects would be on either inflation or growth or hiring.

GURA: So the main point Powell is making there, Ari, is a lot is still unclear. Even though we can't predict where this is going, if recent history is a guide, the economic impact of the latest variant should be less than previous waves. First one, of course, was catastrophic, shut down most of the economy. The delta variant was bad, but less disruptive. And expectations are omicron will have less of an impact to the overall economy.

SHAPIRO: Obviously, the pandemic has impaired the economy, but, Asma, when you look at the numbers, a lot of previous presidents might have been jealous of Biden. I mean, the U.S. has the fastest year-to-date decline in unemployment on record. The housing market is rising. Wages are rising. The Dow and the S&P both hit record highs this year. But Biden is not really taking a victory lap on the economy. Why not?

KHALID: Ari, in a word, inflation. You know, it has been a major shock to Americans this year. Folks see it every time they walk into a grocery store. They look at prices, and they're in shock. And the country just really hasn't seen this level of inflation in decades. Polls show inflation is a major reason that the president has a low overall approval rating, and this was not always the case. You know, back in the summer, I traveled to a key swing county in Pennsylvania to speak with voters. And people at the time, they were frustrated with rising prices, but they weren't yet blaming Democrats. I would say as the months have dragged on and Democrats kept telling people that the situation would get better - and it didn't - people did start to blame the president. And, you know, there are, I will say, some objectively good metrics in the economy, as you pointed out, and I often hear the president try to point that out. Here he is in a speech before Thanksgiving.

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PRESIDENT JOE BIDEN: We're experiencing the strongest economic recovery in the world. Even after accounting for inflation, our economy is bigger, and our families have more money in their pockets than they did before the pandemic. And America is the only major economy in the world that can say that.

KHALID: The thing is, Ari, that reality, that message is just not resonating. Inflation, frankly, seems like it is much more tangible, more so than any other metric in the economy.

GURA: I'll jump in here to say, you know, I think the Fed gets that. The Federal Reserve has this two-part mission. It's what's known as the Fed's dual mandate, and one part of that is doing all it can to get the economy to maximum employment. The other part is helping to achieve price stability. The Fed wants inflation or the prices of goods and services to be limited to rise around 2% each year, which is a healthy rate for the economy. You know, right now, they're rising at more than three times that rate. We're at levels we haven't seen in about four decades.

The main tool that the Fed uses to fight inflation, Ari, is raising interest rates, and it said that in 2022, it could raise them as many as three times. Of course, that's going to raise the cost of borrowing for companies and consumers, which introduces another layer of uncertainty. And I'll add, you know, the stock market has been riding this crest of low interest rates for years now, Ari. Another big question is how this will affect everyone's retirement portfolios when the Fed starts to raise rates.

SHAPIRO: And it's not just inflation. The job market has some challenges too, right?

GURA: Absolutely. I mean, the unemployment rate has come down, but there were still millions of jobs that haven't been filled, workers who haven't come back. We're in the middle of this massive transition - a reckoning really - for workers. We've seen the balance of power shift. Now they have an edge. They're demanding higher wages. They're getting higher wages. Workers are quitting their jobs. Some of them are confident they'll land better ones, but others are just still dealing with the effects of the pandemic - worries about getting sick, difficulties finding child care. We've seen return-to-office dates pushed back and pushed back again. You know, the economy has recovered about four-fifths of the jobs lost during the pandemic, but that leaves almost 2.5 million jobs that have not come back. And a huge unanswered question is will they come back? The message from the Fed chair has been, the economy just isn't going to look the same as it did before all this started, Ari.

SHAPIRO: Asma, President Biden and the Democrats are going to point to two big legislative accomplishments from the last year - the American Rescue Plan and the infrastructure bill. Politically and economically, what do you think those two packages are going to mean for the year ahead?

KHALID: Gosh, Ari, I think that's a tricky question to answer. You know, Republicans have been eager to blame President Biden's spending plans for leading to inflation. In fact, they have been arguing that the president, the White House should altogether abandon this so-called Build Back Better legislation because they argue it would lead to greater inflation. That's certainly something we've also heard from West Virginia Senator Joe Manchin in terms of his opposition to that piece of legislation. I'm sure as many of your longtime listeners know, this is the massive social welfare bill that Democrats had hoped to get through Congress before Christmas. But just this past week, Senator Manchin of West Virginia said that he could not support this piece of legislation.

And really, you know, what does this mean moving forward? I don't know. At this point politically, I will say, the White House seems optimistic that it could potentially cobble together some alternative version of this bill, maybe pieces of it, and put something together after the new year. From an economic perspective, I will say that when news came out that Senator Manchin was effectively killing this version of the president's agenda, Goldman Sachs lowered its growth expectations for 2022.

SHAPIRO: That's NPR White House correspondent Asma Khalid and business correspondent David Gura. Thank you both.

GURA: Thank you.

KHALID: Happy to do it.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.