US Fed goes hawkish

<p>Kia ora,</p><p>Welcome to Tuesday’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 Jerome Powell goes on the offensive to tackle inflation.</p><p>In a very <a href="https://www.federalreserve.gov/newsevents/speech/powell20220321a.htm" target="_blank"><strong>direct speech</strong></a>, the boss of the US Fed clearly signaled that inflation is enemy #1. "Inflation is much too high. We have the necessary tools, and we will use them to restore price stability," he said. There is no equivocation here, not even for the war. In fact, war is aggravating inflation. Bond markets jumped. The USD rose. Equity markets waivered.</p><p>Markets now feel certain a +50 bps rise is coming from the Fed in six weeks on May 5 (NZT) and repricing for this is underway.</p><p>Meanwhile, the Chicago Fed's <a target="_blank"><strong>national activity index</strong></a> is settling in at a high level, showing the same good expansion it has for four of the past five months.</p><p>China has kept its <a href="http://www.pbc.gov.cn/rmyh/108976/index.html#LPR" target="_blank"><strong>prime loan rates</strong></a> unchanged in their March review. This was what markets were expecting.</p><p><a href="https://www.moea.gov.tw/Mns/dos_e/bulletin/Bulletin_En.aspx?kind=14&html=1&menu_id=6744&bull_id=9730" target="_blank"><strong>Taiwanese export orders</strong></a> continued to impress in February, up +21% from the same month a year ago, which itself was up +43% on the same basis.</p><p><a href="https://www.destatis.de/EN/Press/2022/03/PE22_123_61241.html" target="_blank"><strong>German producer prices</strong></a> were up +1.4% in February from January. But the startling data was the year-on-year result, up +26%. And this survey was carried out before the actual Russian attack on Ukraine, although it does reflect the rising tensions.</p><p>The invasion of Ukraine is severely straining EU:Ch