The Day at a Glance | May 10 2022

The Top

*The FED could increase rates to contain inflation without damaging the economy: John Williams, New York FED.

*The EU is considering issuing joint debt to finance Ukraine´s reconstruction.

*FED warns about the deterioration of liquidity conditions in financial markets in its Financial Stability Report.

*Production of auto parts in Mexico exceeds pre-pandemic levels.

*Energy Ministers in Saudi Arabia and the UAE warn of an important decrease in idle capacity in the energy sector.

*Economic indicators: China is expected to make its inflationary figures made known for consumers (1.5%e.) and producers (7.7%e.) tonight.

Economic environment

Challenge for the FED. In a symposium in Eltville, Germany, New York FED President Johan Williams assured that the increase in rates that the Federal Reserve plans to carry out will help contain inflation without causing an increase in unemployment. Williams acknowledged that this will not be easy, however it´s also not an impossible task. He presented a macroeconomic scenario in which inflation could decrease to 4% at the end of 2022 and to 2.5% in 2023  – and then finally reach the FED´s 2% target in 2024. Meanwhile, he expects the economy to maintain growth at 2% this year and unemployment to remain stable at 3.6%. Williams didn’t point out any specific interest rate levels, but he reiterated that monetary policy must normalize quickly this year; which suggests that neutral level (2.4%) will be reached by the end of 2022. This will help cool down demand and decrease inflationary pressures, said Williams, who also expects supply side issues will gradually improve (production chains disruptions, scarcity of inputs, bottlenecks), and will contribute to adjusting supply and demand imbalances caused by the pandemic. Williams´ comments were made amidst strong nervousness in financial markets due to the latent risks that the US monetary policy´s shift could lead to a recession. Important inflationary data will be made known in the United States tomorrow, which will give more clarity about the FED´s future monetary policy. General inflation is expected to slow down to 8.1% annual in April; but any signs of persistent inflation could trigger nervous feelings in markets – and risks of a more restrictive monetary stance on behalf of the FED that could trigger a recession.