Fed officials at their January meeting argued that they should raise interest rates as soon as possible and remain vigilant of stubbornly high inflation, or tighten the pace if necessary. Minutes of the FOMC meeting on Jan. 25-26 showed that “a majority of participants indicated that if inflation does not decline as expected, it would be appropriate for the Committee to unwind policy easing at a faster pace than currently anticipated.” Investors raised expectations for tighter monetary policy after a flurry of U.S. economic data released after the January meeting showed a tight labor market and persistently higher inflation. Investors now see at least 150 basis points of rate hikes in 2022, well above the 75 basis points expected a few weeks ago. Gus Faucher, chief economist at PNC Financial Services Group, said the minutes told us "they will raise rates in March, maybe by 50 basis points. Given that the economy appears to have reached full employment, inflation data before the next meeting will be The key factor. Some Fed officials may use the strong CPI data in January as a reason to raise interest rates by 50 basis points in March.”

High-level diplomatic talks to de-escalate the situation between Russia and Ukraine will continue. U.S. President Joe Biden is due to meet German Chancellor Scholz later on Wednesday and European Union leaders will hold an emergency summit on Ukraine on Thursday. G7 foreign ministers will meet in person in Munich on Saturday. Crude oil futures were higher and the Russian ruble fell as Western officials expressed reservations about Moscow's partial troop withdrawal. NATO Secretary-General Stoltenberg said that there was no evidence of de-escalation in Russia and Ukraine, and Russia appeared to be continuing to increase its troops. U.S. Secretary of State Blinken agrees. But the Kremlin denies that claim. The Russian Defense Ministry said earlier that more Russian troops were returning to bases after the exercises in Crimea. Russia has yet to announce plans for the withdrawal of large numbers of troops in the country's southwest along the Ukrainian border and in Belarus, whose exercises are scheduled to end on February 20. Officials in Moscow dismissed U.S. warnings of a possible Russian invasion of Ukraine as "hysteria" and propaganda.

Oil prices erased gains after the market closed, as Iran's top nuclear negotiator tweeted that a deal was nearing a deal that could pave the way for the lifting of U.S. sanctions on Iran. West Texas Intermediate crude futures fell more than $3 to near $90 after the commodities market closed, erasing a 1.7% gain in regular trading. Iran's chief nuclear negotiator, Ali Bagheri Kani, tweeted that efforts to revive the nuclear deal with world powers are "closer than ever" to a deal. However, significant disagreements remain over how to achieve a reduction in Iran's nuclear activities in exchange for sanctions relief.

U.S. retail sales rebounded more than expected and posted their biggest gain since March last year, as the pandemic and inflation kept Americans from spending. Total retail sales rose 3.8% in January after a downwardly revised 2.5% decline the previous month, Commerce Department data showed on Wednesday. None of these figures have been adjusted for inflation. Oil futures have moved back and forth this week as traders struggle to keep up with new geopolitical developments. Tensions between Russia and Ukraine added to market volatility, with the U.S. and NATO warning of an imminent Russian invasion. U.S. President Joe Biden has said the U.S. is ready for economic sanctions against Russia. This could limit oil supplies. Russia has denied planning an attack.

UK inflation unexpectedly accelerated for a fourth straight month in January, raising expectations for a sharp rate hike from the Bank of England next month. The UK consumer price index in January rose by 5.5% year-on-year, hitting a 30-year high, driven by clothing and footwear prices. Economists and the Bank of England had both expected inflation to remain unchanged at 5.4%. An index excluding volatility rose to 4.4%, the highest level since at least 1997. The inflation figures underscore the magnitude of the cost of living crisis, which is set to worsen amid a 54% surge in energy spending and another tax hike in April. The Bank of England expects inflation to reach as high as 7.25% by then, which would be more than three times its 2% target. Sterling was up 0.14% against the dollar at $1.3557 as of 07:45 London time after the data was released.

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