There is the possibility that the Fed accelerates its change of position, something that the minutes of the last meeting of the Open Markets Committee, published yesterday, hinted. Even among central bankers there is a fear of not being able to control inflation throughout the year.
The beginning of the year seems hectic in the financial markets. In just three days, interest rates in the United States and other regions have risen dramatically. Apparently the direction in which the revenues are directed is the only conviction that is widely accepted among investors.
In investment portfolios, there are more doubts than firm positions. In capital markets, there are symptoms that corroborate the premise that I have mentioned in several previous articles: In general, there is the recognition of a more complicated environment to achieve the extraordinary returns of 2021 again. The accommodative monetary policy, although marginal, will have its impact on market valuations.
Of course there are optimistic views even under such circumstances; These focus on the solidity shown so far by growth and the recovery of employment, the positive balance sheets of individuals and companies, as well as the expectation of strong levels of spending both by the government, as well as by corporations and individuals. .
Likewise, there is a view that the rate increases that the FED would implement would have an orderly sequence and would seek to alter the situation in the financial markets little. Many investors, especially in the United States, think that you can try to fight inflation without accelerating the rate increase.
On the contrary, the risks multiply. In the first instance, there is the possibility of a worsening of the restrictions caused by the pandemic. The spread of contagions of the Omicron variant continues to rampant in the world. About 10 million infections in just 7 days.
Despite the fact that the lethality of this variant appears to be low, the risk of greater restrictions on the part of governments and of the absence of employees in their jobs remains present.
Another risk factor is that the uncertainty generated by the evolution of the Omicron variant causes the maintenance of “bottlenecks” in the supply chains of the industrial sector.
The more common idea is that high inflation could decline from current levels due to the favorable comparison base starting in the second quarter; But it is also a common idea that in this process the perception that inflation is under control is not going to prevail.
Expectations for core inflation (which excludes volatile movements in food and energy prices) aim to remain well off target.
Then there is the possibility that the Fed accelerates its change of position, something that the minutes of the last meeting of the Open Markets Committee, published yesterday, hinted at. Even among central bankers there is a fear that they will not be able to control inflation throughout the year.
Fed funds rate futures already anticipate a first hike to the benchmark rate for the month of April.
Another scare factor making headlines again is concerns about the state of the housing market in China. Finally, the geopolitical issue raises concerns: the conflict between Russia and Ukraine, elections in Brazil and the mid-term in the United States, etc.
The absence of convictions is understandable then. Just the idea that rates will go up seems consistent. The criterion of staying on the stock market to guard against inflation due to low yields loses strength, and a stock market that has moved under the influence of a few highly overvalued companies could present at least a volatility not seen last year. January looks to be a complicated month.
* Rodolfo Campuzano Meza is CEO of Invex Operadora de Sociedades de Inversión.
Twitter: @invexbanco
Reference-www.eleconomista.com.mx