Weekly economic and financial commentary: Let the tightening cycle begin

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Summary

United States: Intensification of the war fuels price growth

  • Russia’s invasion of Ukraine continues to loom large as the war escalates. However, most of the data released this week does not capture the market volatility felt since the invasion took center stage. The U.S. trade deficit widened to a record $89.7 billion in January as job vacancies remained elevated and consumer prices continued their streak of incendiary gains in February.
  • Next Week: Retail Sales (Gaming), Industrial Production (Gaming), Existing Home Sales (Friday)

International: European Central Bank signals faster reduction in bond purchases

  • The European Central Bank (ECB) came as a surprise in its monetary policy announcement this week, announcing an accelerated reduction in its bond purchases despite the uncertainty surrounding the conflict in Ukraine. While the ECB has taken a more hawkish stance on tapering, it has not made any significant changes regarding the timing of interest rate hikes, in our view. We still believe the ECB is on course to raise its deposit rate by 25 basis points at its December 2022 meeting.
  • Next week: Activity in China (Wed), Employment in Australia (Gam), BoE policy announcement (Gam)

Interest Rate Watch: Let the tightening cycle begin

  • Despite the uncertainty created by the Russian invasion of Ukraine, we expect the FOMC to initiate monetary tightening with a 25 basis point rate hike at next week’s meeting. We expect a total tightening of 225 basis points by the end of 2023.

Credit Market Snapshot: Households Are Wealthy, But Declining Revolving Credit Is a Conundrum

  • Data this week showed household net worth topped $150,000,000 for the first time in the fourth quarter due to attractive opportunities in the stock market and housing in the pandemic era. In a separate statement, the decline in revolving credit in January led to a weaker-than-expected increase in consumer credit, despite strong spending that month.

Topic of the week: Childcare issues impact working women

  • On International Women’s Day, March 8, we took a look at the most important industry for working women: childcare. Childcare is not only the industry most dominated by women, but also the one that keeps parents with young children, especially women, out of the workforce.

Full report here.

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