It is very likely that as soon as December, the federal government will receive some good news from a central bank.
But the news will not be “courtesy” of Banxico, but of the Federal Reserve Bank of the United States, the Fed, which yesterday anticipated what will happen in the coming weeks.
yesterday wednesdaythe markets knew the minutes of the Fed, of its most recent meeting held on November 1 and 2 of this year.
The Fed will slow down
What is relevant about the Fed’s minutes is that the body announced that those who make the decisions consider it appropriate to reduce the rate of interest rate hikes; it is worth mentioning that the Fed has increased the reference rate by 75 basis points throughout four meetings held this year, until bringing this indicator to 4 percent from practically absolute zero.
Fed members hope that by slowing the pace of interest rate increases, will have more elements to better assess the level that the terminal tax should reach; that is, the maximum rate that this indicator will reach in its bullish streak, the rate at which the cycle will end. In addition, the Fed considers that smaller increases will reduce financial risk.
For this reason, the markets consider that, during the next Fed meeting, scheduled for December 13 and 14, the most influential central bank in the world increases its reference rate by 50 basis points and will place it at 4.5 percentthis expected increase is a slower pace than the 75 basis points of the last four meetings.
Banxico will follow
With the Fed decreeing a lower rate of increases in the reference rate, the Bank of Mexico will surely reduce the rate in the same proportion. This means that our central bank will increase the rate by 50 base pointsduring December 15, that is, only one day after the Fed’s announcement.
Thus, it is highly probable that our central bank’s reference rate will end the year at levels of 10.5 percent, above what was projected at the beginning of 2022 when a maximum of 8 percent was expected.
Decreasing the rate of interest rate rises will be good news for the federal government, which has been very critical of Banxico for raising interest rates to control inflation and, in general, with the policy of increasing rates of central banks. of the world, led by the Fed.
However, the bullish cycle is far from over.
However, the reduction in the pace of the rise in reference rates by the central banks of Mexico and the United States is one thing, and another thing is that the upward cycle of interest rates has ended.
Fed members recorded in the minutes of the last meeting that the decrease in the rhythm in the increase of the rates will allow to evaluate, among other things, the effects that this bullish cycle has left on the economy.
However, the consensus was also very clear that the rate hike is far from over (something Fed Chairman Jerome Powell has insisted on).
The minutes allude to the issue in its classic cryptic language: The Fed considers that it is necessary to continue with the monetary tightening and to bring the rate to a sufficiently restrictive level. Despite some slowdown in activity, he considers that the labor market is still too tight.
The Fed also warns that a price-wage spiral can develop, although it is not something that at the moment is observed imminent. Regarding inflation, the Fed observes an acceleration in the prices of services, which may make it difficult to reduce general levels. Therefore, the Fed considers that the terminal rate will be higher than previously estimated, without daring to set a target, in addition to considering that it will remain longer than estimated.
The decrease in the rate of increase in interest rates will be relatively positive news. The central banks consider that the time has come to lower the magnitude of the increases, but they do not believe that the cycle of increases is over and, therefore, the increases will continue. These will take the reference rate to higher levels than expected, even a pause is expected after the terminal rate has been reached, before thinking about starting a reverse process, something that not expected until at least the end of the following year or the beginning of 2024if things go as expected and no other war, geopolitical conflict, or crisis comes our way.