The head of the Federal Reserve USA, Jerome Powellanticipated this week that his portfolio will insist on raising rates and that it will probably increase them more than expected given the persistence of inflation.
“The latest economic data is stronger than expected, suggesting that the final level of interest rates could be higher than expected“Powell told a Senate committee.
He further anticipated that “there is a long way to reduce inflation” and that “the path will be uneven”. He also pointed out that “history warns against prematurely relaxing monetary policy” and ratified that the current course will be maintained until “the job is completed.”
He added that his portfolio is prepared “to increase rates of rate hikes if the totality of incoming data indicates that faster monetary tightening is warranted” and assured that monetary policy decisions will continue to be made “meeting by meeting based on incoming data and the implications for the outlook for growth and inflation.”
The main rate of the US Federal Reservewhich has risen for a year to try to contain inflation, could continue increasing beyond 5.1%the maximum expected until now, warned this Tuesday Powell.
This week two figures were released in the US that indicate that the labor market is still very stressed. On the one hand, the payroll processor ADP published that in February the economy of The US generated many more net private jobs than anticipated by analysts, while the Department of Labor pointed out that in January the number of jobs offered, although it fell in relation to December, remained well above 10 million, in addition to exceeding what was expected by the consensus of analysts.
In addition, this Thursday will be published in the US. number of initial claims for weekly unemployment benefits, a figure that is a good approximation to the evolution of weekly unemployment. “It is expected that, one more week, the figure will remain below 200,000 requests, which also implies a stressed labor market and, therefore, inflationary. If tomorrow’s employment data corroborate this scenario and inflation shows no signs of easing in February, it is very likely that the FOMC will end up opting to raise its rates by half a percentage point in March, something that we understand the market fears but that, to a large extent, it has already been discounted”, they warn in Link Securities.
“The question for many investors now is whether both the Fed and the ECB will be able to avoid the entry into recession of the main developed economies in the medium term or if, on the contrary, they seek a recessive scenario as a formula to overcome high inflation. In the coming months this ‘more than reasonable doubt’ will determine ‘for better and for worse’ the behavior of the different financial markets: currencies, bonds and shares”, conclude these experts.
These data can contribute in the sense of a strengthening of the rates.
How it impacts in Argentina
The increase in the United States rate can add pressure on emerging currencies and increase the value of the dollarparticularly Cash with Liquidation.
This also makes imported products more expensive increase the value of the dollarin addition to exacerbating the possibility of a slowdown in world economic activity due to increasing the cost of financing.
Also moves capital interest away from risky assets and emerging markets and in their activity by making financing more expensive for the companies of Argentina’s main trading partners, as well as the increase in the cost of financing in the foreign market.
Another impact to consider is the fall in the international price of raw materials which can be offset by demand, especially from China.