Intesa Sanpaolo: The FOMC meeting ended setting the stage for the rates’ liftoff in March, and sent an unequivocally hawkish message.
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Weekly Economic Monitor – 28 January 2022
Intesa Sanpaolo – Research Department
Risks to inflation are skewed upwards and the labour market is “very tight”. The Fed will be “nimble and humble” in responding to the evolution of data, with a potentially faster pace of increases than in the previous cycle. The reduction of the balance sheet should begin in a couple of meetings’ time. Risks to rates are skewed upwards in the central part of the year, with the possibility of more than four hikes in 2022, at back-to-back meetings in the spring and in the summer.
No changes to the monetary policy framework are to be expected at the next meeting of the European Central Bank (3 February). The programme announced in December will only be modified in the event of significant deviations from the staff scenario (slower decline in inflation or unexpectedly strong wage tensions).
The week’s market movers
In the euro area , the new week will be particularly intense in terms of data releases. National accounts data should report a sharp slowdown of Q4 GDP in Italy and in the Eurozone as a whole, Initial data on industrial activity in December could highlight a rebound of output in France and contained orders growth in Germany. January consumer price surveys, on the other hand, should reveal higher inflation in Italy as opposed to a decline in Germany, France, and the euro area. Lastly employment data for December should indicate a decline of the jobless rate in the Eurozone, and a stabilisation in Italy; in Germany the unemployment rate is expected stable in January.
In the United States , focus will be on the January Employment Report, expected to be weakened by the effects of Omicron on employment and on the labour force. The unemployment rate could drop to 3.8%, whereas the wage trend should accelerate further. January ISM indices should correct moderately, while continuing to signal an expansion of activity and upward pressures on prices. Spending on construction in December is forecast to increase at a solid pace.
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