While the discovery of the Omicron variant of COVID-19 jolted markets late in 2021, the outlook for 2022 remains bright. Even without complete information regarding Omicron, early evidence suggests a) a booster mRNA vaccine dose is highly effective at preventing infection, b) the virus, while more transmissible, tends to result in less severe infections, and c) Pfizer is ramping production of an antiviral that reduces hospitalization by 89%, including for cases of the Omicron variant. Despite a surge of infections to record levels, we are cautiously optimistic that the prevalence of vaccines and the promise of therapeutic interventions will break the link between infection and severe illness, making this wave less damaging than prior waves both in terms of health outcomes and the economy and markets. The Federal Reserve’s balance sheet should stop growing during the first quarter after the decision to double the pace of tapering. Coincidentally, we also expect inflation to peak in the first quarter. The key determinant of interest rate policy after tapering ends will come down to whether the Fed focuses on the level of inflation or the trajectory […]