The Day at a Glance | October 19 2022

*We cannot stop the increasing rates cycle while underlying inflation keeps increasing: Neel Kashkari, Minneapolis FED.

*Inflation in the Eurozone is revised downwards slightly (9.9% vs 10% prev.).

*Mexico set oil hedging prices at $68.7 dollars per barrel for 2023.

*Inflation in the United Kingdom reached 10%, backs a 75bp interest rate increase on behalf of the Central Bank of England this month. 

*Exports will suffer a greater impact than remittances in Mexico during an economic slowdown in the US: Ilan Golfajn, IMF.

*Mortgage rates (30 years) in the US continued increasing and reached 6.94% for the first time since 2002.

Economic environment

Hawkish. Members of the Federal Reserve continued sending clear messages to markets of their commitment to price stabilization. The most recent message came from the President of the Minneapolis FED, Neel Kashkari, who assured that they cannot stop the increasing rates cycle at 4.5%-4.75% if underlying inflation keeps increasing. Kashkari is concerned about the increase in services prices and the constant upwards surprises they keep logging. He considered that the FED will have to continue increasing rates – even more than currently expected (5% by the start of 2023) – if there is no clear moderation in prices in the following months. Kashkari reaffirmed that the FED´s objective should be to reduce aggregate demand to decrease inflation, although the larger part of inflationary pressures aren’t necessarily stemming from demand. General inflation is expected to set below 8% in October, but underlying inflation could stay close to its 40-year high levels (6.6%), at least until December. Because of this, markets are now taking into account two 75bp increases (November and December), which would take the interest rate to 4.5%-4.75%. Starting then, interest rate increases will depend on how fast underlying inflation slows down.