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A notable development in recent weeks has been the rise in the 30-year Treasury yield, likely driven by growing concerns over U.S. fiscal sustainability and reduced global appetite for U.S. Treasuries as bond investors want to be rewarded for higher risks.

A key indication that Banxico's primary concern has shifted from inflation to growth is its acknowledgment, for the first time, that “since the inflationary episode has been left behind,” the fight against inflation is at a new stage.

In contrast to the Fed, who held rates unchanged last week, Banxico has room to continue cutting rates. A low exchange rate pass-through and deeper domestic capital markets grant Banxico greater policy independence from the Fed than in the past.

Annual inflation in April surprises on the upside (5.2%), driven by regulated items and goods. Core inflation (excluding food) also increases. Doubts persist regarding the speed of future moderation. This result may lead to upward revisions of forecasts and uncertainty about the future monetary policy stance.

Amid mixed economic data and the delayed effects of recently imposed tariffs, we expect the Fed to keep the policy rate unchanged this week at its 4.25-4.50% target range; it will likely signal it has room to maintain its policy stance heading into the June meeting.

In April 2025, the Consumer Price Index (CPI) rose by 0.32%, exceeding expectations. The increase was driven by seasonal factors related to Easter, which pushed up the prices of fishery products and transportation services. Poultry prices also rose again. In contrast, fuel prices declined.

While Trump recently suggested he would not try to remove Powell from his position following last week’s intensified criticism, such threats to institutions underpinning the dollar’s global dominance pose a serious risk to the future of the global financial system.

The CBRT hiked the policy rate by 350bps to 46%, surprising the consensus of no change, and narrowed down the interest rate corridor to 44.5%-49%. Contrary to previous assessments of recent shocks as transitory, the CBRT becomes more prudent hiking its main tool and reaching an availability of the funding rate up to 49%.