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Earlier this month, the Fed delivered the fourth consecutive 75bp hike, taking the fed funds rate to 3.25-4.00%. Last week’s positive surprise on inflation tilted the balance significantly towards an upcoming slower rate-hike pace, but 100bp worth of additional hikes still seem likely.

Banxico continued following in the footsteps of the Fed and lifted the policy rate by 75bp, to 10.00%, as widely expected. Banxico will likely still match December’s Fed hike but a decouple in February seems now possible.

Banxico will continue following in the footsteps of the Fed and will lift the policy rate by 75bp, to 10.00%. The main question going forward is whether Banxico will stick to its strategy of matching every additional Fed hike or will start to …

However, it also laid the ground for a slower pace of hikes as soon as the Dec or Feb meeting; talk about pausing is “very premature.”

We think that clear signs of a possible smaller hike in December are still unlikely, not only because it will depend on upcoming data, but also considering that a wide consensus within the FOMC on the next steps seems still unlikely.

Rates are now pricing in that the Fed will not stop until data shows clear signs of easing inflation and a more balanced labor market. Another fourth 75 bp rate increase in Nov is locked in, while the odds of a fifth in Dec will continue to increase unless core inflation shows clear signs of easing.

Banxico will most likely stick to following in the footsteps of Fed’s upcoming hikes .

There’s a lot of tightening still in the pipeline: Banxico will likely match the (now larger) Fed’s expected rate hikes .

The updated “dot plot” reinforces the Fed’s “higher rates for longer” approach to bring inflation down to 2%. Another 75bp hike is now more likely than not in November and rates will likely go higher than previously thought.

The Summary of Economic Projections (SEP) will point to less confidence in the soft-landing outcome and a challenging road to bring back inflation to below 3.0% levels as the Fed “keeps at it until the job is done”.

Last week the Ministry of Finance presented to the Chamber of Deputies the fiscal package for the coming year. The assumptions on which this package was designed appear to be very optimistic, the growth forecast of 3% for 2023 is very high compared to that of private analysts or multilateral organizations.

Persistent core inflation coupled with a resilient economy give the Fed “flexibility to be aggressive” against inflation. Another supersized rate increase (75 bps) is coming next week: the Fed will continue to front load rate hikes to add 150bp of tightening by December before shifting to a relatively long pause thereafter.