All eyes on the US Fed's next move

<p>Kia ora,</p><p>Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news equity markets are nervous about the tapering decisions about to come from the US Fed - but the bond markets don't seem quite as worried.</p><p>The pressure is squarely on the US Fed FOMC members "to act" as inflation signals grow louder. Today the <a href="https://www.bls.gov/news.release/ppi.nr0.htm" target="_blank"><strong>US producer price index</strong></a> (PPI) topped estimates, estimates that were already factoring in sharp rises. PPI rose +9.6%, its largest annual increase since this data series started ten years ago. Analysts had expected a +9.2% advance, itself a sharp rise from the October +8.6%. (And core PPI rose in November than October at a much faster rate than expected, so things are well embedded.)</p><p>Meanwhile, <a href="https://tradingeconomics.com/united-states/redbook-index" target="_blank"><strong>US retail sales are holding up</strong></a> in the end-of-year holiday selling season. But it is hard to know how much of the strong +16% year-on-year value gains are related to sharply inflated prices. Certainly it will be more this year. Inflation expectations now seem well embedded.</p><p>In the US Congress, and in contrast to the usual partisan bickering, later today they are expected to <a href="https://www.politico.com/news/2021/12/14/democrats-raise-debt-ceiling-524204" target="_blank"><strong>raise their formal debt ceiling</strong></a> government borrowing limit by +$2.5 tln to US$31 tln, or about 34% more than their annual GDP.</p><p>In China, there are growing <a href="https://asia.nikkei.com/Spotlight/Supply-Chain/China-COVID-crackdown-closes-several-factories-in-industrial-hub" target="_blank"><strong>reports</strong></a> of industry closures in a set of key industrial cities, closed to slow the spread of the pandemic. This will be just