Weekly Economic & Financial Commentary: Significant Monetary Policy Tightening Ahead

Fundamental analysis of Forex market


United States: Significant Monetary Policy Tightening Ahead

  • In a full week of economic data, Wednesday’s FOMC meeting took center stage. FOMC officials lifted the target range for the federal funds rate by 25 bps. Meanwhile, data on retail sales, industrial production and housing underscored a similar backdrop across the economy—price pressure remains hot and supply is still hard to come by.
  • Next week: New Home Sales (Tues), Durable Goods (Wed)

International: G10 and EM Central Banks Continue Hiking

  • International central banks were quite active this week. In the G10, the Bank of England (BoE) opted to lift interest rates another 25 bps and take its main policy rate to 0.75%. While the decision to raise rates was largely expected, the details surrounding the decision were a bit of a surprise and were interpreted as relatively dovish. In the emerging markets, the Brazilian Central Bank opted to lift the Selic Rate 100 bps and take the main policy rate to 11.75%.
  • Next week: South Africa CPI (Wed), Eurozone PMIs (Thurs), Central Bank of Mexico (Thurs)

Interest Rate Watch: FOMC Sends a Hawkish Signal

  • As was widely expected, the Federal Open Market Committee (FOMC) decided to raise rates by 25 bps at its meeting on March 16. But the marked upward shift in the so-called “dot plot” indicates that most committee members now believe that a more aggressive pace of monetary tightening will be appropriate this year than they did just a few months ago.

Topic of the Week: Russia’s Invasion of Ukraine Highlights Lagging Domestic Oil Production

  • One of the economic consequences of Russia’s invasion of Ukraine has been higher oil prices. Domestic crude oil production in 2021 was roughly 1.0% below the 11.3 million barrels per day averaged in 2020 and 9.0% below the 12.3 million barrels per day average registered in 2019 before the worldwide dropoff in global energy demand.

Full report here.