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The Fed raises its interest rates; Russian inflation accelerates to highest rate since 2015 — Macro Snapshot

RIYADH: Inflation is becoming a concern for all economies. The United States took a step forward by raising interest rates on Wednesday, while Russia sees inflation rising.

Fed Raises Interest Rates, Signals Aggressive Inflation Fight

The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday and outlined an aggressive plan to push borrowing costs to restrictive levels by next year as concerns over the high inflation and the war in Ukraine have overtaken the risks of the coronavirus pandemic.

The U.S. central bank, in a surprise move, has scheduled the equivalent of quarter-percentage-point rate hikes at each of its six remaining policy meetings this year, pushing its overnight interest rate base day in a range between 1.75% and 2.00% by the end of 2022. It is expected to increase further to reach 2.80% by the end of next year, above the level of 2.40% that officials believe is currently slowing the economy.

Fed Chairman Jerome Powell, speaking after the end of the last two-day policy meeting, said the economy was strong and officials would raise rates more aggressively in future meetings if needed to control inflation.

“The way we think about it is that every meeting is a live meeting,” Powell said at a press conference. “We will look at the changing conditions, and if we conclude that it would be appropriate to act more quickly to remove the dwellings, we will do so.”

However, an economic downturn may already be underway. Fed policymakers lowered their estimate of gross domestic product growth for 2022 to 2.8%, from 4% projected in December, as they began to factor in new risks facing the global economy.

Russian inflation

The impact of the Russian-Ukrainian conflict is being felt around the world, amid fears of soaring oil prices and supply chain disruption.

Annual inflation in Russia accelerated to 12.5% ​​on March 11, its highest level since the end of 2015 and against 10.42% a week earlier, the Ministry of Economy announced on Wednesday.

Inflation accelerated sharply as the currency fell to an all-time low amid signs of rising demand for a wide range of goods, from basic foodstuffs to cars, awaiting a further increase in their prices.

Weekly inflation slowed slightly to 2.09% in the week to March 11 from 2.22% the previous week, the biggest one-week price increase since the 1998 crisis, the data shows. from the Rosstat statistics service.

The central bank, which aims for annual inflation of 4%, raised its key rate to 20% at the end of February.

“Tight monetary conditions make it easier to slow down inflation but, in our view, they will not prevent it from climbing above 20% this year,” analysts at Raiffeisen Bank said.

French confidence weakened

French economic growth is holding up for now despite the energy price shock linked to the Ukraine crisis, but business and consumer confidence is falling rapidly, INSEE said on Wednesday.
The eurozone’s second-largest economy is on track to grow 0.3% this quarter, down from 0.7% in the fourth quarter, but unchanged from a previous estimate last month, he said.
Although limited so far, the economic impact of the Ukrainian crisis could weigh more in the future, in particular due to energy prices.
If energy prices remain at the high levels seen in early March for the rest of the year, the French economy would lose around one point of growth, the agency estimated.
It said early results from its monthly business confidence survey showed a sharp deterioration, particularly in the manufacturing, wholesale and retail sectors.
Faced with high energy prices, leaders expect a sharp increase in price pressures, with the exception of the services sector.

German consumption

Soaring energy prices due to Russia’s war in Ukraine will dampen private consumption in Germany this year, the economy ministry said on Wednesday, although it is too early to quantify the impact on growth.
The ministry said in its monthly report that the impact of the Russian invasion on economic output depended on the duration and intensity of the conflict which began on February 24.

The economy contracted in the last quarter of last year and an index of investor sentiment released on Tuesday fell sharply, indicating a likely recession.

The ministry said accelerating inflation remained a major concern for the economy and consumers and businesses were likely to face higher energy bills as Germany remained dependent on gas and oil. Russians.

“Since the start of the military invasion, there have been extreme increases in the price of energy and raw materials,” he said. “Trade flows and supply chains are also heavily impacted.”

Gas and electricity bills for German households taking out new contracts hit a record high this month and will ripple through the rest of the population, according to data released on Wednesday.

Chancellor Olaf Scholz’s government, which is led by his Social Democrats with the Greens and Lindner’s business-friendly Free Democrats as a junior partner, had already taken steps to cushion the economic impact of the war and the surge resulting energy prices.

A surcharge on electricity bills to fund renewable energy expansion will be scrapped from July instead of next year and companies with operations in Russia can apply for subsidies.

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