Published on Thursday, February 16, 2023

Mexico | Fed: rates higher for longer

Currently, the big question in international financial markets is how much more the United States Federal Reserve (the Fed) will have to raise the monetary policy rate and when it will be able to start a cycle of cuts.

Key points

  • Key points:
  • As is well known, given the most relevant increase in inflation in 40 years, the Fed has responded with the most pronounced cycle of rate hikes in that same period.
  • A year ago, the monetary policy rate in the United States was at 0%, while now it is between 4.5% and 4.75%.
  • How much more the Fed will raise it will depend on the behavior of inflation in the coming months.
  • In this regard, everything indicates that a disinflationary process has begun in the United States. Inflation is still high because of the high prices of rents, that should start easing by the summer.
  • Despite this, the Fed will try to avoid the mistake of the 1970s, when it began to cut early. This is why we think it will delay the easing cycle in 2Q24.

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