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Weekly Economic & Financial Commentary: Let the Tightening Cycle Commence

Summary

United States: Intensifying War Pours Some Gas on Price Growth

  • Russia’s invasion of Ukraine continues to loom large as the war has intensified. Most data released this week, however, do not capture the market volatility felt since the invasion has taken center stage. The U.S. trade deficit widened to a record $89.7B in January, while job openings remained elevated and consumer prices continued their string of white-hot gains in February.
  • Next week: Retail Sales (Thu), Industrial Production (Thu), Existing Home Sales (Fri)

International: European Central Bank Signals a Faster Tapering of Bond Purchases

  • The European Central Bank (ECB) sprung something of a surprise at this week’s monetary policy announcement, announcing an accelerated tapering of its bond purchases despite uncertainty surrounding the Ukraine conflict. While the ECB took a more hawkish stance on tapering, it did not make significant changes regarding the timing of interest rate increases, in our view. We still believe the ECB is on pace to lift its Deposit Rate 25 bps at its December 2022 meeting.
  • Next week: China Activity (Wed), Australia Employment (Thu), BoE Policy Announcement (Thu)

Interest Rate Watch: Let the Tightening Cycle Commence

  • Despite the uncertainty arising from the Russian invasion of Ukraine, we expect the FOMC to commence monetary tightening with a 25-bp rate hike at next week’s meeting. We expect to see a total of 225 bps of tightening between now and the end of 2023.

Credit Market Insights: Households Are Wealthy, But Drop in Revolving Credit is an Enigma

  • Data this week showed household net worth climbed above $150T for the first time in Q4 due to attractive opportunities in the stock market and real estate in the pandemic era. In a separate release, January’s drop in revolving credit led to a lower-than-expected increase in consumer credit, despite strong spending that month.

Topic of the Week: Childcare Issues Impact Working Women

  • In celebration of International Women’s Day, March 8th, we examined the industry most central to working women: childcare. Childcare is not only the most female-dominated industry but also the one keeping parents with young children, particularly women, out of the workforce.

Full report here.

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