The Day at a Glance | April 6 2022

The Top

*The Federal Reserve will decrease its asset balance quickly, starting as soon as May: Lael Brainard, member of the FED.

*Fixed investment in Mexico increased 2.2% in January (8.4% annual vs 4%e.), exceeding estimates by a wide margin; private consumption increased 0.3% (7.3% annual).

*The FED`s meeting minutes are expected to show details about the bank`s asset balance reduction process.

*Congestion in China`s main ports delays recovery among production chains.

*European Union Chamber of Commerce in China warns that quarantines in the country are affecting production.

*Russia assured that it will pay interest on Eurobonds in rubles if its international reserves continue being blocked by sanctions.

Economic environment

FED meeting minutes. This afternoon (1:00 pm Mexico City time), the FED`s most recent meeting minutes will be made public (March 15-16). It`s highly likely that the discussions will reveal details about the bank`s balance of assets reduction process, made up of Treasury bonds and mortgage backed bonds. The bank`s balance amounts to 8.9 trillion dollars in debt assets, and the FED is expected to present a plan to reduce this figure soon – through not reinvesting funds as instruments expire. Markets showed concern about the process yesterday, when the FED`s Governor, Lael Brainard, assured that the reduction in the balance of assets could start in May, and would be carried out much faster than in 2017 when the withdrawal of liquidity was carried out very gradually at a pace of 50 billion dollars per month. Brainard considered that inflation is too high and the FED must act immediately, which is why she reaffirmed an aggressive monetary normalization process. Her comments caused upwards adjustments among market interest rates as the liquidity withdrawal process was expected to be slow. The meeting minutes made public this afternoon could reveal discussions had within the FED concerning how fast its members want to carry out the asset balance reduction; even though some analysts estimate that this could be announced in May, at a pace of 100 billion monthly dollars (60 billion in Treasury bonds and 40 billion in mortgage backed bonds), which would help reduce the balance at a pace close to a trillion dollars per year. The FED has said that its main tool to control inflation will be interest rates, but several of its members have recently suggested that the bank`s balance could be reduced quickly in order to lead to a less accommodative monetary policy. The meeting minutes are also expected to confirm that the increase in May`s interest rate will be more aggressive – 50 base points; increases will be continuous in the following months in order to face the inflationary environment.