The Day at a Glance | Aug 19 2022

The Top

*James Bullard (St. Louis FED) believes that another 75bp increase in September is necessary, contrary to what other members believe.

*Retail sales in Mexico increased less than estimated during July (-0.3% monthly; 4% annual).

*Inflation for producers in Germany logged its largest historical increase in July (5.3% monthly; 37.2% annual).

*Specialists in Europe revised theirs inflationary estimates upwards, according to a ZEW survey: 7.5% 2022, 4.5% 2023, 3% 2024.

*Inflation increased to a 2.4% annual rate in Japan during July, its highest level since 2008.

*The Yuan depreciated to its lowest level in two years vs the dollar; the interest rate spread with the US starts to weigh on exchange rate.

*Vladimir Putin and Xi Jinping plan to assist the G-20 Summit in Bali at the end of the year.

Economic environment

Different opinions in the FED. James Bullard, President of the St. Louis FED, assured the Wall Street Journal yesterday that, given the economy`s strength, he is leaning towards backing a 75bp interest rate increase in the Federal Reserve`s monetary policy meeting in September. Bullard finds no reason to extend increases to 2023, given the extremely high levels of inflation, and prefers to bring forward the adjustments to create enough downwards pressure on prices. His comments contrast against those from Powell and other members of the FED who consider that moderating interest rate increases in the following meetings may be necessary to avoid a negative effect on growth and assess the impact of recent rate increases on inflation. Esther George (Kansas City FED) is one of the members that defend carrying out more moderate interest rate increases, and yesterday, George said in a public event that the FED has already carried out important monetary policy adjustments, which is why they should be cautious as time moves forward. She added that the process of liquidity withdrawal, which is still being carried out through the reduction in the central bank`s balance of assets at a pace of 1 billion dollars a year, is also contributing to cool down the economy and restrict financial conditions. Lastly, Mary Daly (San Francisco FED) is open to a 50 or 75bp increase in September, depending on inflation and other key economic factors. However, she reiterated that FED`s monetary policy is clear: They will continue to carry out increases and may continue to do so in 2023. Even though the FED`s direction is clear to all members, the speed at which increases will be carried out is still a discussion that keeps markets logging considerable volatility.

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