The Day at a Glance | February 25 2022

The Top

• FED officials reiterate that the cycle of increasing rates will start in March despite the conflict in Ukraine.

• Russia is willing to send a diplomatic delegation to Minsk to negotiate; it continues to carry out military advances towards the capital of Ukraine.

• Mexico`s exports receded (-) 5.26% in January (+3.8% annual) and imports decreased (-) 3.42% (+18.5% annual); the trade deficit widens to more than 6 billion dollars.

• Mexico`s economy didn’t record growth in the 4Q21 (0% quarterly; 1.1% annual); avoids technical recession scenario.

• PCE inflation in the United States accelerated to a 6.1% annual rate during January.

• E.U sanctions 5 more Russian banks, halts semiconductor exports, freezes oligarchs` assets, and reduces Russia`s ability to liquidate transactions in Western markets.

• The Kremlin assures that it will respond to Western sanctions; Xi Jinping suggests Russia should negotiate with Kiev.

• Inflation in France accelerates to a 4.1% annual rate during February; it exceeded estimates and sent inflationary warnings in Europe.

Economic environment

Members of the FED maintain expectations of increasing rates. Despite the worsening of tensions and the start of military confrontations in Ukraine, members of the Federal Reserve reiterated that they will start to increase rates in March in light of inflation. As inflation is set above its target level and the labor market is operating at full employment, Christopher Waller assured that it`s necessary to announce that the U.S. monetary policy will be normalized at a fast pace. He even considered that a 50 base point increase would be desirable if inflation once again exceeds estimates in February. Waller backs a scenario in which rates will increase a total of 100bp halfway through the year, and start the withdrawal of liquidity in July. Loretta Mester was more cautious said that the developments in Ukraine will be considered to determine how fast monetary stimuli will be withdrawn. Raphael Bostic, for his part, said that oil price and natural gas price increases caused by the conflict will have undesirable effects on inflation, which is why he considered that the FED must maintain its plans to increase rates soon. Lastly, Thomas Barkin said that time will determine if the conflicts in Ukraine could modify the monetary normalization process, although he maintained that rates should start being increased soon in order to fight inflation. This morning, inflationary figures measured by the U.S. Private Consumption Expenditure Deflator (PCE) were made known and slightly exceeded estimates during January (6.1% annual vs 6%e.).