The day at a glance | November 19, 2021

The Top

*Charles Evans (FED Chicago) considers that an interest rate hike in 2022 is possible, but maintains 2023 as the base scenario.

*Biden’s Spending Plan would increase the fiscal deficit by $367 billion over 10 years: Congressional Budget Office.

*Austria announces new lockdown due to the virus; Germany contemplates similar measures since records of infections.

*Biden is expected to announce his candidate to lead the FED in the next hours.

*Japan prepares new fiscal stimulus of $690 billion to stir up the economy, under the leadership of new Prime Minister Fumio Kishida.

Economic environment

FED members confirm the possibility of an anticipated movement in rates. In public speeches made throughout the week, some members of the Federal Reserve admitted that they could anticipate the increases in rates to 2022 because of inflation risks. Raphael Bostic, President of the FED Atlanta, assured that rates hikes could start in mid-2022, based on the labor market. Bostic expects employment numbers to continue improving and that, up to summer 2022, pre-pandemic levels were reached. This would signal that the interest rate normalization would be appropriate, Bostic said. Chris Evans, President of the FED Chicago, recognized that there is a possibility that they will have to act sooner because of the inflationary pressures; although he reaffirmed that he keeps expecting a moderation in prices that allows a beginning in rates normalization until 2023. However, he acknowledged that the situation has not been so clear and that could be a need to act sooner. Evans is characterized as one of the members who most has defended a slow-acting of the FED. James Bullard, FED St. Louis, suggested speeding up the tapering and reducing the Reserve’s balance sheet because of inflationary risks. The discussions of normalization come at a time when the Biden administration must decide whether to ratify Jerome Powell as President of the FED after the end of his term in February 2022. He is competing with Leal Brainard, a current FOMC member, favored by progressives in the Democratic party. Powell and Brainard’s stances regarding the future of monetary policy are similar since both believe that inflation is transitory and that the economy needs low rates for a longer period; so, the decision, at first instance, would not modify substantially the position of the FED.