The Day at a Glance | February 11 2022

The Top

*Markets take into account a 50bp increase in interest rates in March with a 50% probability.

*Lagarde warns that aggressive action in order to contain inflation on behalf of the ECB could hinder the economic recovery.

*Industrial activities accelerated their recovery in Mexico during December (1.2% monthly; 2.4% annual).

Economic environment

Aggressive actions on behalf of the FED. After surprising inflationary data was made known in the United States yesterday, markets started to take into account a 50bp increase in the federal funds rate in March with a higher degree of probability. Markets now believe this scenario has a 50% likelihood of materializing – many analysts have pointed out that said increase is their base scenario. These expectations have been reinforced by comments made by James Bullard, member of the Open Market Committee and President of the St. Louis FED. Bullard assured that he backs 3 interest rate increases towards July, one of them being of 50bp. If Bullard`s scenario does occur, the rate would set at 1% by the middle of the year; this would be one of the FED`s most aggressive cycles of interest rate hikes in recent years. Bullard acknowledged that inflationary pressures are concerning and that the FED must be more flexible and more responsive in light of new data. He considered that a 50bp increase in March would be a coherent response after high inflation was logged in 2021. However, not all of the FED`s members seem to be convinced that this is the most appropriate stance. Mary Daly (San Francisco FED) assured that a 50bp increase is not one of her preferred scenarios considering that the pandemic is still negatively affecting growth. She believes that the FED committing itself to act in case necessary is already enough. Thomas Barkin (Richmond FED) said he is open to considering a 50bp increase in March, although he needs to see data in order to be convinced that this is the right decision to make.