The Day at a Glance | November 3 2022

The Top

*FED will slow interest rate increases, but it will still hike rates more than initially expected in light of persistent inflation.

*A recession will not be enough to moderate inflation: Christine Lagarde, President of the ECB.

*Initial jobless claims in the US remain at historically low levels (217 thousand last week). 

*The Bank of England increased interest rates to 3%, its highest level in 14 years.

*The US services ISM is expected to be made known (55.5e.).

*Mexico will be the most affected Latin American country because of the expected recession in the US in 2023: Fitch.

Economic environment

Aggressive FED. The United States Federal Reserve unanimously decided to increase the interest rate in 75 base points yesterday, to set it at 4%-3.75%, in line with market expectations. In its press release, the FED´s Open Market Committee assured that more interest rate increases are necessary in future meetings in order to take the rate to a level that is “restrictive enough” and allow inflation to reach the central bank´s 2% target. The FED´s members said they will take the increases they have carried out up to now into consideration – along with the monetary policy´s delayed effect on the economy and inflation, and financial and economic events to decide how aggressive the following interest rate increases will be. In a press conference, Chair of the FED Jerome Powell assured that slowing rate increases in the FED´s next meeting, or in the first meeting in 2023, would be appropriate. However, it may be too early to start thinking about pausing the increasing rates cycle. Powell assured that it´s likely interest rates much reach levels above his latest forecast, which made known in September (4.6%). In other words, interest rate increases will slow down, but will continue increasing and will reach higher levels than what was pointed out by the FED in its last meeting. This is most probably due to a higher than expected underlying inflation figure along with a tight labor market. Markets are starting to take into account that the rate will reach 5.5%-5.25% halfway through 2023; with a 75bp increase in December, and 25bp increases in the meetings after that (February, March and May of 2023).