Fed’s chairman cements an aggressive monetary tightening

Jay Powell, the US central bank head, declared at a panel hosted by the IMF yesterday that a 50 basis points interest rate hike was on the table of the next Fed meeting early May, confirming the shift in tone among Fed’s governors over the past few weeks towards a more aggressive monetary policy to tackle the strongest inflation rate since the early 80’s. As a reminder, a balance sheet reduction program could start in June, with bond sales up to $95bn per month, which already pushed the US 10-year treasury rate close to the 3% mark recently.

While EU state members are currently discussing about another round of sanctions against Russia including an oil embargo, Janet Yellen, the US treasury secretary, urged Europe to be careful about the global impact this move could have. She said an immediate ban by the EU would “clearly raise global oil prices” and “would have a damaging impact on Europe and other parts of the world”. Yellen added that, “counter-intuitively”, a total embargo may not have such a negative impact on Moscow’s finances, with Russia benefiting from higher prices.

On the agenda today, Composite PMI figures for April in Europe and the US should confirm the ongoing economic slowdown triggered by high inflation rates. UK retail sales for March 2022 released this morning notably surprised on the downside at -1.4% m-o-m against a market consensus at -0.3% while British consumer sentiment tumbled in April to its second-lowest reading since records began nearly 50 years ago (see chart), highlighting the impact of surging inflation on demand.