Atlanta Fed President Raphael Bostic, who is in the dovish camp, urged colleagues to exercise caution as they tighten policy. “I plan to be mindful of progress and avoid recklessness as we quickly return monetary policy to a more neutral stance to bring inflation closer to our 2 percent target,” he wrote in an article published Tuesday by the Atlanta Fed. "Events and market shifts that we've seen during the pandemic can happen very quickly." The Fed raised rates by 50 basis points earlier this month, and Chairman Jerome Powell hinted at a similar amount at its June and July meetings rate hike action. Both FOMC hawks and doves have since embraced the plan to cool the hottest inflation since the 1980s. The shift to policy tightening has led to wild swings in financial markets, with investors worried that an overly aggressive Federal Reserve will trigger a recession, even as rising prices weigh on corporate profit margins.

On the second day of the World Economic Forum in Davos, Switzerland, Bank of America CEO Brian Moynihan said U.S. consumers have money to spend and are unlikely to be intimidated by inflation and a downturn. Such optimism contrasted sharply with the rhetoric at the meeting about the impact of Russia's invasion of Ukraine. European Commission President Von der Leyen had earlier made an urgent appeal, saying the international community should act to avert a global food crisis that Russian President Vladimir Putin was planning to trigger. European Central Bank President Christine Lagarde told Bloomberg Television that there will be no rush to withdraw stimulus. Her French colleagues also responded, saying there was no consensus on raising rates by 50 basis points.

U.S. business activity fell back to a four-month low in early May as surging costs and high selling prices dampened demand for service providers. S&P Global's preliminary May U.S. composite output index slipped 2.2 points to 53.8 on Tuesday. A reading above 50 indicates growth. An indicator of input prices edged up to the highest level since 2009, while output price growth eased from a record high in April. New business metrics for service providers fell to their lowest level since August 2020, suggesting some customers are starting to reject higher prices. But the costs facing businesses continue to balloon amid rising wages, interest rates, fuel costs and raw material prices. "Businesses report demand is being pressured by the cost of living, higher interest rates and a broader economic slowdown," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Russia is one step closer to a potential debt default as the U.S. Treasury Department announced the expiry of a key sanctions waiver benefiting U.S. investors. The U.S. Treasury Department said in a statement on Tuesday that a license allowing U.S. investors to accept payments on Russian bonds will expire, and U.S. banks and individuals will be barred from accepting payments on Russian government bonds starting at 00:01 a.m. New York time on Wednesday. Treasury Secretary Janet Yellen said last week that there was reason to think the exemption would end when it expired, saying it was a temporary measure anyway. The decision to end the waivers shows that the United States would rather force Russia to default than allow Russia to consume its treasury to repay American investors. But while the U.S. policy change has increased the hurdle for Russia to pay its bonds to foreign investors, it is unclear whether this will be enough to prompt a real Russian default.

U.S. Secretary of State Anthony Blinken will deliver a long-promised speech on Thursday on U.S. policy toward China. At the time, Washington was arguing with Beijing over trade, human rights, Russia's invasion of Ukraine, and more. After months of delays and internal discussions, the speech was intended to outline the broad U.S. strategy for the world's second-largest economy. Blinken had planned to speak earlier this month, but was forced to cancel after testing positive for Covid-19. After Russia's invasion of Ukraine, the top U.S. diplomat has been busy organizing global support for Russia and coordinating punitive sanctions against Putin's regime. Again, other world crises, from the Middle East to Eastern Europe, have undermined the commitment of the US president to return to Asia. At the same time, it also shows that the challenges posed by China are the biggest focus of U.S. defense and foreign policy.

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