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    US pension market quarterly

    US pension market quarterly

    A statistical and qualitative review of Q4 2021 and investment outlook

     

    Download the full report.

    2021 was a rollercoaster of pandemic-related news but, despite the impact of the Delta variant, economic activity was resurgent, returning to pre-pandemic levels. Looking forward, the pace of growth should moderate in 2022, and the passing of the third part of President Biden’s Build Back Better package is no longer a certainty.

    With demand growing more rapidly than supply chains could reopen, inflation has accelerated markedly, and remained stubbornly elevated into year end. The Federal Open Markets Committee (FOMC) reacted with a more hawkish tone. Tapering of the bond purchase program was accelerated to $30bn per month, and the ‘Dot Plot’, which shows FOMC members forecasts for interest rates, now suggests four interest rate hikes in 2022.

    Market reaction to these events has been modest. Some investors are perhaps concerned that any additional stimulus would have added to inflationary pressures, while the increase in US debt stemming from the pandemic has already been significant. US government debt has increased by close to $2 trillion over the last two years. The discovery of Omicron, the latest COVID-19 variant, is also a reminder that the pandemic is far from over, and with inflation likely to moderate in 2022, more dovish members of the FOMC may gain ascendancy once again. 

     

    Summary

    • 2021 in review: We review the ten key issues that defined a year in which many pension plans saw significant improvement in funded status

    • Pension news: In pension news, a new bipartisan bill seeks to enhance previous legislation with the aim of creating a more secure retirement system, expanding access, and decreasing administration and regulatory costs

    • Solutions: We examine the top five questions we believe corporate pension plan sponsors should be asking in 2022

    • Credit: History suggests that mid-cycle is the sweet spot for lower rated credits – we discuss three reasons that lower-rated credits may outperform high-grade credit in a moderating growth environment
    • Key risks: These include stickier than expected inflation, forcing a more disruptive response from the Fed, and pressure on corporates to increase leverage in the low environment, leading to credit downgrades and greater financial risk

    • Educational section: We highlight our latest Global Macro Research paper – Policy in a post pandemic world, where we ask Dr Raghuram Rajan, former Chief Economist and Director of Research at the International Monetary Fund and former Governor of the Reserve Bank of India, to share his thoughts on some of the issues facing the world as it slowly emerges from the pandemic

    Ten key issues that defined the year

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    Blessed are the young for they shall inherit the national debt.

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    Blessed are the young for they shall inherit the national debt.

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    Herbert Hoover, 1936
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