Strong demand will take time to stabilize this year, as the gains in economic growth from reopening slow down, according to Vanguard’s economic outlook, from an article in Financial Advisor. The outlook also stated their belief that macroeconomic policy would be the dominant force in business activity in 2022, even more so than Covid-19.

While growth and tech stocks have had an amazing run for the last 10 years, investors will need to bring value and international stocks into their portfolios, Vanguard senior economist Andrew Patterson said, with the firm favoring equities in foreign developed markets. And while they expect growth in the U.S. and E.U. to decline to around 4%, that’s still far ahead of the pace from the last 20 years. Vanguard projects U.S. equites to return to a median of 3.3% annually over the next 10 years, but the projection for U.S. growth stocks is a tiny 0.1% per year.

However, things look brighter overseas. There, Vanguard sees unhedged, non-U.S. global equities returning 6.2% a year. When it comes to emerging markets, market valuations are linked with any policy changes in individual companies, Patterson said. As for inflation, Vanguard doesn’t see a return to 1970s-style inflation, but does expect prices to remain high this year.

One thing that no one predicted, Patterson noted, is the prolonged labor market shortage. “The Fed is starting to think that we aren’t returning to pre-pandemic [labor force] participation rates,” he said. Entering 2022, the Fed is now much more focused on the wage side of employment as it looks “to avoid a wage-price spiral like the 1970s,” the article quoted Patterson in conclusion.