After moderating in April, expectations for Fed rate hikes, as implied by the 2-year Treasury yield, strengthened again in May, driven by uncertainty surrounding the prolonged conflict in the Middle East, resilient economic activity, and the Fed’s hawkish tone adopted in its latest policy decision.

Looking further ahead, as core inflation converges toward 3.5% in 2027 and the Fed potentially resumes easing, Banxico could consider additional rate cuts, bringing the policy rate closer to 6.0%.