The Day at a Glance | October 18 2022

*The Eurozone could be on its way towards a recession, but higher interest rates are necessary: Gabriel Makhlouf, member of the ECB.

*The Biden administration is considering releasing 10 to 15 million barrels of oil from its strategic reserves.

*Deputies are preparing to approve the 2023 Revenue Law without changes.

*Water in the Mississippi river logged its lowest levels – 60% of corn and soybean in the US is transported through said river.

*Fitch estimates US growth will set at 0.5% in 2023.

*Economic indicators: Industrial production figures will be made known in the US (0.1%e. m/m, Sep.).

Economic environment

Fight against inflation. The Irish Central Bank`s Governor, Gabriel Makhlouf, assured in a public event held in Cyprus that it`s necessary to continue increasing the interest rate due to high inflation despite the fact that the Eurozone faces high risks of a recession. According to Makhlouf, history shows that consequences could be worse if not enough is done to contain inflation. His comments reinforce the ECB`s aggressive message in its fight against inflation. Inflation is not expected to reach its peak until the last quarter of 2022; the most recent figure set at 10% annual (September). Starting in 2023, prices are expected to stabilize and start to decrease. However, the assumptions used to make that forecast are still uncertain. In the United States, for example, the consensus expects general inflation to decrease quickly in 2023 and reach the FED`s 2% target level in 2024. However, this forecast was made assuming that interest rate increases that have already been carried up to now are enough to cool aggregate demand and trigger weakness in the labor market – something that still can’t be proven yet. Some economists don`t expect inflation in housing prices to reach their peak until 2023, which could maintain underlying inflation high for a longer period of time. Others consider it would be a miracle for inflation to set at 6% by the end of 2022, which the most optimistic forecasts estimate will happen. For Larry Summers, former US Secretary of the Treasury, a decrease in inflation – and especially in inflationary pressures that have started to build up in wages – will require a recession; without one, it`s highly unlikely that inflation will return to its wanted levels by the FED.

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