The Day at a Glance | March 22 2022

The Top

*Powell assures that the FED is willing to be more aggressive to contain inflation; a 50 bps increase for the next meeting is possible.

*Biden warns about a potential cyberattack from Russia.

*The Leading Economic Activity Indicator (IOAE in Spanish) indicates a 2.8% growth of the Mexican economy during February.

*EU considers the use of a 500 million euros emergency fund to balance the growing costs of agricultural products.

Economic environment

Powell commits to more aggressive actions if necessary. In a public event of the National Association for Business Economics yesterday, the President of the FED Jerome Powell assured that the FED is ready to increase the interest rate by 50 bps if necessary, confirming a more aggressive stance in comparison with the previous week’s statement. An increase of such magnitude would be expected not only for the next meeting (May 3rd – 4th) but also for subsequent meetings. The message reinforces the FED’s commitment to reach price stability and hints at some concern within the organism about the current inflationary environment. Powell assured that everything will depend on the economic information available in each meeting, but nothing will prevent them from accelerating the process of monetary normalization. He even assured that, if they must go further and adopt a tight monetary policy (rates above the estimated neutral rate of 2%-2.5%), they will do so. Powell is worried that the Ukraine conflict is elevating prices for energy, food, and other commodities when inflation is already high. The risk, he said, is a higher long-term inflation expectation, forcing more aggressive actions from the FED. Powell is still confident that strong rate hikes will not trigger a recession. The sovereign debt market was the most reactive to this comment, where bonds saw significant falls in their prices. 2-year bond yields have risen as much as 25 bps in the past two days, hitting 2.17%; while the 10-year Treasury bond reached 2%.