The Day at a Glance | March 3 2022

The Top

*Powell backs a 25bp increase in March; more aggressive actions will be necessary if inflation doesn’t give.

*Russia´s Foreign Relations Minister confirms that diplomatic conversations with Ukraine will resume today.

*Moody´s and Fitch downgrade Russia´s sovereign rating to “junk” grade.

*Inflation for producers in Europe accelerates to 30.6% annual (5.2% monthly).

*Unit labor costs in the United States increased 0.9% during the 4Q21 (vs. 0.3% 3Q21); productivity increased (6.6%) for a second consecutive quarter.

Economic environment

Powell testifies before Congress. In Jerome Powell´s testimony before the House of Representatives, the Chair of the Federal Reserve said that his priority in the following months is to control inflation when asked about concerns among legislators regarding the high living costs that Americans are facing. Powell said he is leaning towards proposing a 25 base point increase in March, although they are prepared to act more aggressively (with an increase above 25bp) if inflation keeps surprising to the upside. As for the economic effects of Russia´s invasion of Ukraine, he said it´s too early to determine its impacts on U.S. monetary policy and the country´s economy. However, analysts believe that the increase in energy and grain prices will maintain inflation high. Powell´s comments confirmed expectations of seeing a 25bp increase in the federal funds rate in the FED´s meeting, scheduled to take place on March 15-16. However, inflationary pressures could force the FED to speed up the process towards mid-2022. According to records and surveys made public by the FED in recent days (Beige Book), several companies have started to transfer higher costs of production onto consumers as demand has remained strong despite the increase in prices. Companies reported that they expect to carry out more price increases for consumers in the following months. Powell considers it´s possible to increase the interest rate to its neutral level (between 2% and 2.5%) in two years, without pushing the economy into a recession. However, he didn’t discard a scenario in which they must implement a restrictive monetary policy (by setting the rate above the neutral level) due to inflation: “We just don’t know”, said Powell. Powell will testify before the Senate´s Banking Committee today.