As expected, The Federal Reserve Bank of the United States (Fed) increased its reference interest ratefederal funds, although this increase moderated.
Sothe Fed decreed an increase of 50 base points and took its rate to a maximum of 4.50 percentthis is how the benchmark for the cost of money in the United States will end this year, it is worth remembering that this indicator started the year at practically absolute zero, at zero percent.
Also, with all certainty, the Bank of Mexico (Banxico) will determine this Thursday a similar increase in the reference rate, so that it ends the year at 10.50 percent.
So far there is nothing new, although this series of adjustments made by central banks is still relevant. The important thing was presented once again in the press conference offered by the head of the FedJerome Powell, after the announcement of the Fed’s decision.
The words of the head of the Fed, whatever his name, are always decisive for the markets, and also for the vast majority of central banks, including our country’s.
Let’s see a brief summary of what Powell said, and its relevance and possible impact for the decisions that Banco de México must make soon.
This said Powell
Jerome Powell said a lot in his December 14 press conference, but in an effort to summarize and highlight what we find most relevant, we are highlighting two of the statements.
1) Powell said the Fed will continue its interest rate hike for the following year, with an estimated cumulative increase of 75 basis points. That means the Fed rate could go as high as 5.25 percent sometime next year. The truth is that there is nothing surprising about it, this was something that had been previously announced, but confirmation is important to remove any doubt, the Fed will maintain its rate hike the following year yes or yes.
2) No reductions in interest rates are expected for the following year; the Fed also confirmed somewhat that, once the rate hike target is reached, it will take a pause in adjustmentsbut by no means expect immediate reductions in interest rates.
Most specialists consider that the Fed will adjust its reference rate in the first half of the year and will take the entire second half of the year on pause.
What does it mean for Mexico?
The actions of the Fed do not mean anything other than the same trend in Banxico; that is, further increases in the interest rate, at the same rate as the Fed, and a pause as soon as this central bank does the same. If so, the maximum rate that Banxico would reach would be 11.25 percent.
But, more than one specialist also considers the possibility that Banxico decouples from the Fed, because it started its interest rate adjustment earlier.
Will Banxico decouple?
Despite the fact that next year the upward adjustments in the interest rate will continue by the Fed and Banxico, It is also a fact that the famous “terminal rate” is already close in both cases.unless something happens that disrupts economies again.
This is very important because It is not the same that Banxico decoupled now than 6 months ago. Therefore, it is likely that an eventual decoupling from Banxico would have fewer effects than at other times.
In any case, the decision will be made towards the first quarter of 2023, and it could be that the adjustments are minor to begin with, or possibly with interspersed adjustments; that is, an increment and a pause.
It is also important to know if at some point Banxico will set a terminal rate or you will prefer the market to manage its own levels.
Of course, everything will depend on what happens in the coming months, on the conditions of the global economy and that of the United States.
Banxico, in fact, accompanied the Fed at the peak of the escalation to cool the economies and thereby bring down inflation, today it is in a position to determine a decoupling, or perhaps a partial decoupling, everything will depend on various factors, among them the performance of inflation in our country.
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