The year ahead in 2022
Scanning ahead a year is a fools game. But there are known unknowns with knowing.
Fundamental uncertainty makes scanning the year ahead a fraught exercise, apt to be soon forgotten;
Still, there are events known today that will shape the year ahead. Before returning to our usual money-macro themes next week, we start the year by noting some of the key known-unknowns in 2022;
In particular, these themes include: Russia’s NATO ultimatum; the new Bundesbank President; the revision of fiscal rules in the EU; Draghi’s fate; the global election cycle; and, of course, the evolution of monetary policy.
In motivating the idea of fundamental uncertainty in 1937, Maynard Keynes explained the difference between future events that can be assigned a probability—risk—and that which cannot:
By “uncertain” knowledge, let me explain, I do not mean merely to distinguish what is known for certain from what is only probable. The game of roulette is not subject, in this sense, to uncertainty; nor is the prospect of a Victory bond being drawn. Or, again, the expectation of life is only slightly uncertain. Even the weather is only moderately uncertain. The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new invention, or the position of private wealth-owners in the social system in 1970. About these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know.
Engaging in year-ahead stargazing given such fundamental uncertainty is, therefore, folly. The pandemic was not on the market radar only 2 years ago; the acceleration of inflation last year in the US was largely unseen. As such, many of the key themes that will shape market pricing over the year-ahead are as yet unknown.