The Fed Without Alternatives

Fed without alternatives

Markets eagerly awaited January’s inflation data, and remained in limbo for three days. Of course, the expectation about the figures was high, and an excessive risk could not be taken. And the presentation did not disappoint: the 7.5% year-on-year inflation up to January in the general index, and 6% in the measurement that excludes food and energy, were catalysts for important movements, which are maintained over the closing of the week.

The reaction of the markets was logical: the dollar grew, with a moderate drop, perhaps more than expected, in the euro, the pound sterling and the Swiss franc, while the yen sped up its march to the annual minimum, at 106.33. But finally, in the New York trading session, optimism seemed to reign over the possibility that the Fed will raise interest rates slowly.

In the middle of the session, a member of the Fed’s hard wing, James Bullard, appeared, with the right to vote in the Committee, expressing his willingness to raise interest rates by one percentage point in July, regardless of the increases that may occur until then. then.

There the markets did shake, and stocks began to fall, while the dollar strengthened. However, it does not seem that this will last for a long time. The euro is not giving up from 1.1400, and the break of 1.1430 is likely to be the springboard it needs to reach 1.1500, the level it touched on Thursday.

The single currency is somewhat constrained by inflation in Germany which surprisingly dipped to 4.9% in January, taking pressure off the European Central Bank, which like most peers is busy fighting inflation. Mrs. Lagarde, relieved.

Fed Powell

Where there should be no signs of relief is at the FedMr. Powell’s radical change of speech is not enough, and although the measures have been announced for a long time, the truth is that only the stimulus plans are reduced. The interest rate remains at zero, but we understand that 7.5% inflation is enough to go from talk to action, and raise the interest rate by at least 0.25% in March. The Bullard thing sounds a bit excessive, but much more so is an inflation that directly impacts the wages of workers, and the world in general. A dollar devalued by inflation is something extremely serious, more so in the current circumstances.

The situation between Russia and Ukraine is also delicate. Every day, the war conflict is more inevitable than the day before, and if there is finally a war, the effect on the markets will be strong. The yen has remained somewhat aloof from other forex market battles these days , but could strengthen decisively in a direct confrontation. The ounce of gold, also very static and hovering indefinitely around the $1,830.00 zone, could easily jump to $1,860.00.

What’s coming is a top-of-the-line news agenda, but without much of an impact on the markets. The unresolved issue between Russia and Ukraine will be in the headlines again, as the effect of the inflation data will fade. In this context, the New York Stock Exchange will once again dominate the scene.