Global hopes for a hike in interest rates are anticipated – Tech Viral Tips

President of Bursametrica

In the first week of the new year, there was significant upward pressure on bond yield rates around the world.

The return on 10-year US Treasuries rose from 1.35 percent to 1.76 percent, up 41 basis points in two weeks, a level many had predicted by the end of the year.

The German government bond rate, which stood at -0.40 per cent per annum two weeks ago, closed last Friday at -0.05 per cent per annum. Gain of 35 basis points in a few days.

On the one hand, the minutes of the Fed’s Federal Open Market Committee meeting revealed the possibility that the committee may have to begin raising its objective of the federal funds rate from March. On the other hand, labor market data on Friday indicated that in the United States, with everything and the fourth wave of Covid, wages are rising at a rate of 4.7 percent per year, and that the unemployment rate is already above 4.0. has reached the bottom. Percent.

In Europe, the inflation figure of 5.0 per cent for 2021 gives market participants speculation that the euro central bank may, like the Fed, forget its clichéd speech of transitory inflation. Pre-scheduled policy this year.

At the American Economic Association’s annual convention last week, it was notable that leading economists and academics from different ideologies and different political streams agreed that the Fed is delaying implementing its measures, and that high inflation will remain, Although less intensity than last year. In particular, I was impressed by the statement by economist John B. Taylor (author of Taylor’s Law), who noted that the Fed is “way behind” the curve. Based on the estimates made, he suggested that the federal funds rate should be between 3.0 and 6.0 percent, and not the level close to zero that the central bank is now targeting.” Accordingly, if expected inflation is between 150 and 250 points above the inflation target, and GDP is growing at a rate close to 3.0 percent, the federal funds rate should stand at a level closer to 5.0 percent per year.

We have two more events this week: the publication of inflation data, which will give the figure for consumer inflation last year at 7.0 percent, the highest in four decades. A day later, on Thursday, inflation is issued to the producer, where an annualized level of 10.0 percent is estimated.

On the political side, President Jerome Powell appears before the Senate Banking Committee on Tuesday for ratification for a second four-year term, in line with a proposal from President Joe Biden. Two days later, Fed Governor Lyle Brainard appears before the same panel at a confirmation hearing on his promotion as vice president. We can imagine speeches by both Republican and Democratic senators regarding permission for the Fed.

In Mexico we had the INEGI report on inflation, which also reflects the increasing pressure around inflation and interest rates. Consumer inflation closed at 7.36 per cent year-on-year. The non-core component, which refers to volatile elements such as gasoline prices, electric gas prices and perishable goods prices, was up 11.74 per cent year-on-year. The underlying component jumps to about 6.0 percent (5.94 percent), doubling the inflation target. Productive inflation was 10.26 per cent per annum.

With the increase in the minimum wage and other hikes in wages, the update of the IEPS to gasoline, with the hike in gas and electricity rates, we are likely to have a much higher figure for the first half of January, with annual inflation continuing to rise. Could stay. Therefore, it is expected that Banco de México will have to continue increasing its interest rate.

All of this makes it likely that the Fed will now have to increase its reference rate by four times starting in March to take it from a range of 0.0 – 0.25 percent to 1.0 – 1.25 percent a year later this year. At the same time, we can anticipate that the Bank of Mexico will end its upward cycle of rates with a reference rate of 6.5 – 7.0 percent per annum.

For now, I can tell you that according to our most suitable indicator, IBEM, IGAE for December could show an annual growth of around 1.5 percent. It is surprising that both the IMEF indicator and the components of the IMCP and the Bursametrica Economic Confidence Indicator (IMCE) increased, perhaps influenced by the recovery in the export sector.