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The Fed appears to have achieved a better balance of risks around its dual mandate of price stability and maximum employment. This suggests that it will soon begin to normalize its policy stance, probably in June, although it will proceed cautiously even after that.

The Fed will likely convey that it continues to look for “more good data” before feeling enough confidence to begin cutting rates as the strength of economic activity has extended and shelter inflation has surprised to the upside.

While the labor market is still on track to a better supply-demand balance and wage costs cool down, two consecutive 0.4% MoM core inflation readings will likely continue to push the Fed to convey it needs “more good data” to gain greater confi…

Doors seem to have closed to the possibility of a rate cut in March. Fed’s need for “more good data” to achieve “greater confidence” of the ongoing disinflation process has been recently supported by recent strong job creation data and signals …

The Fed is moving further away from its long-held tightening bias as it explicitly conveyed that “the risks to achieving its employment and inflation goals are moving into better balance.”

To some extent, the recent adjustment in market expectations and its corresponding impact on broad financial conditions give the Fed some room to continue to convey that the next move will be a rate cut without risking an over-easing of financial conditions.

Even though the recent bond rally appears to have come to a halt, both mid- and long-term Treasury yields have been pricing in the start of a rate-cut cycle for some time.

Not a single Fed official now forecasts that the fed funds rate needs to rise further from its current level in the updated Summary of Economic Projections (SEP) and dot plot.

Banxico is set to hold the policy rate at 11.25% and stick with its message that, with the disinflation process on track, it will likely cut the nominal policy rate in early 2024 to avoid an unwarranted further increase in the real ex-ante rate.

We expect the FOMC to hold the fed funds rate unchanged at the current 5.25-5.50% target range and to steer clear from fueling speculation about rate cuts in early-2024.

Following a less hawkish tone from Chair Powell in his press conference early this month, the yield curve now suggests a potential turning point has been reached, reflecting investors’ belief that the Fed is done raising rates and growing expectations of rate cuts in 2024.

For now, the FOMC will continue with a “meeting-by-meeting” strategy until they are confident that they have achieved a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time.