Weekly Economic & Financial Commentary: Minutes Put All Eyes on the Fed, but Economic Activity Remains Strong

Summary

United States: Minutes Put All Eyes on the Fed, but Economic Activity Remains Strong

• In an otherwise calm week of data, Wednesday’s release of the FOMC minutes stirred things up as they showed committee members agreeing that elevated inflation and the tight labor market warrant balance sheet reduction to start soon. The minutes also stressed that current economic indicators point to strong activity, which was affirmed by the robust domestic demand that drove the ISM services index higher in March and kept the February trade balance at a record deficit.
• Next week: CPI (Tuesday), Retail Sales (Thursday), Industrial Production (Friday)

International: Commodity Price Spike Keeps Latam Inflation Elevated

• In our view, one of the regions that is most at risk to elevated commodity prices is Latin America. This week, we received evidence that inflation is indeed moving higher as a result of the push higher in commodity prices. Furthermore, the Canadian economy continues to demonstrate a robust recovery from the COVID pandemic.
• Next week: India CPI (Tuesday), Bank of Canada (Wednesday), European Central Bank (Thursday)

Interest Rate Watch: Balance Sheet Runoff Takes Shape

• The minutes of the March FOMC meeting released this week signaled the committee is likely to begin balance sheet reduction in May. Monthly caps for Treasury and MBS runoff are likely to reach $60B and $35B, respectively, and be phased in over just three months. The expedited timeline helped the yield curve steepen.

Credit Market Insights: Consumer Credit Expands in February

• The Federal Reserve Board reported that consumer credit increased at an annualized rate of 11.3% in February, with revolving credit leading the way, increasing 20.7%.

Topic of the Week: Last Week’s Positive Russia and Ukraine Headlines Appear to Be a False Start

• Toward the end of last week, headlines suggested the Russia-Ukraine conflict may have reached a turning point. While reports suggest the Russian military is indeed withdrawing from Kyiv, Russian troops seem to be reinforcing their positions in other areas of Ukraine in an effort to establish stronger control.

Full report here.