Mexico's central bank may pause rate cuts, deputy governor Heath says
MEXICO CITY, June 11 (Reuters) - Mexico's central bank may pause cuts to its benchmark interest rate in the face of an inflationary rebound, deputy governor Jonathan Heath said in an interview with local newspaper El Economista published on Wednesday.
Mexico's annual inflation rate accelerated in May and exceeded the upper-end of the central bank's target range of 3% plus or minus one percentage point.
"We expect this small rebound to be temporary and inflation to resume its downward trajectory in the coming months", Heath said.
The inflationary rebound has created an uncertain landscape for borrowing costs in Latin America's second-largest economy, but Banxico is expected to cut its key interest rate by another half percentage point in June.
Analysts believe the pace of rate cuts could slow if prices remain under control.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
2 hours ago
- Reuters
TRADING DAY Dollar despair deepens
ORLANDO, Florida, June 12 (Reuters) - TRADING DAY Making sense of the forces driving global markets By Jamie McGeever, Markets Columnist I'm excited to announce that I'm now part of Reuters Open Interest (ROI), an essential new source for data-driven, expert commentary on market and economic trends. You can find ROI on the Reuters website, and you can follow us on LinkedIn and X. The dollar's slide accelerated on Thursday, as more evidence of cooling U.S. price pressures weighed on Treasury yields and dragged the greenback to lows against a basket of major currencies not seen in more than three years. In my column today I look ahead to next week's Fed meeting. With inflation cooling but tariffs yet to kick in, is Fed policy still in a "good place" as Chair Jerome Powell repeatedly said last month? More on that below, but first, a roundup of the main market moves. If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today. Today's Key Market Moves Dollar despair deepens The dollar grabbed the global market spotlight on Thursday, and once again, for the wrong reasons. If it's failing to get any support when U.S. bond yields are rising, it's getting hit even harder when they're falling. As was the case on Thursday. After a string of recent soft consumer inflation prints, it was the turn of producer price inflation to cement the view that U.S. price pressures aren't as hot as economists have thought. Tariffs have yet to be fully felt, of course, but right now inflation across the board is pretty tame. Rates traders brought forward the timing of when they think the Fed will cut interest rates to September from October and, also supported by a strong 30-year bond auction, yields fell across the curve. The dollar index is now down 10% year to date, and the euro is up 12%. We're only at the half-way point of the year, but it's worth noting that the last time the dollar fell more than 10% in a calendar year was 2003. Much of its weakness this year is down to non-U.S. investors hedging their exposure to U.S. assets much more than they have previously. In effect, that equates to selling dollars, and European pension and insurance funds are at the heart of it. "Our analysis suggests there is much more still to come," reckon analysts at BNP Paribas, recommending that investors buy the euro with a target of $1.20. They calculate that if Dutch and Danish pension funds reduce dollar exposure to 2015 levels as a share of total assets under management, they have a further $217 billion to sell. And that's just Danish and Dutch funds. On the tariffs front, investors are still digesting this week's U.S.-China deal, outlined by Washington on Wednesday and confirmed by Beijing on Thursday. Still, there is some ambiguity around key elements of the deal, including rare earth export licenses and details of the tariffs. JPMorgan's U.S. economists calculate that, all told, the total effective U.S. tariff rate will be around 14%. When levied on $3.1 trillion of imported goods, that equates to a tax on U.S. businesses and consumers of over $400 billion. It remains to be seen how that is split, but history shows consumers bear most of the burden, they note. "The stagflationary impulse from higher tariffs has lowered our GDP growth outlook for this year (4Q/4Q) from 2.0% at the start of the year to 1.3% currently," they wrote on Thursday. On the other hand, economists at Oxford Economics on Thursday raised their 2025 U.S. GDP forecast to 1.5% from 1.3% and said the likelihood of recession has fallen. You pay your money, you take your choice. Is the Fed still in a "good place"? At the Federal Open Market Committee meeting next week, investors will scrutinize all communications for any sign that the recent softening in U.S. inflation could be enough to nudge policymakers closer to cutting interest rates. Current economic data might be leaning in that direction, but policy out of Washington could well keep Chair Jerome Powell and colleagues in 'wait and see' mode. No one expects the Fed to cut rates next week, but businesses, households and investors should get a better sense of policymakers' future plans from the revised quarterly Staff Economic Projections and Powell's press conference. Powell was very clear in his post-meeting press conference last month that the Fed is prepared to take its time assessing the incoming economic data, particularly the impact of tariffs, before deciding on its next step. He told reporters no less than eight times that policy is in a "good place" and said four times that the Fed is "well positioned" to face the challenges ahead. Will he change his tune next Wednesday? Annual PCE inflation in April was 2.1%, the lowest in four years and virtually at the Fed's 2% target, while CPI inflation in May was also lower than expected. The labor market is softening, economic activity is slowing, and recent red-hot consumer inflation expectations are now starting to come down. In that light, it may be surprising that markets are not fully pricing in a quarter-point rate cut until October. "The upcoming meeting offers an opportunity (for Fed officials) to signal that the recent mix of tamer inflation and softer consumption growth warrant a careful 'recalibration' of rates lower, while remaining very cautious about what comes next," economist Phil Suttle wrote on Wednesday. But there are two well-known barriers that could keep the Fed from quickly re-joining the ranks of rate-cutting central banks: tariffs and the U.S. fiscal outlook. Tariffs have yet to show up in consumer prices, especially in goods, and no one knows how inflationary they will be. They could simply result in a one-off price hit, they could trigger longer-lasting price spikes, or the inflationary impact could end up being limited if companies absorb a lot of the price increases. In other words, everything is on the table. Equity investors appear to be pretty sanguine about it all, hauling the S&P 500 back near its all-time high. But Powell and colleagues may be slower to lower their guard, and for good reason. Although import duties on goods from China will be lower than feared a few months ago and Washington is expected to seal more trade deals in the coming weeks, overall tariffs will still end up being significantly higher than they were at the end of last year, probably the highest since the 1930s. Economists at Goldman Sachs reckon U.S. inflation will rise to near 4% later this year, with tariffs accounting for around half of that. This makes the U.S. an "important exception" among industrialized economies, the OECD said last week. The other major concern is the U.S. public finances. President Trump's 'big beautiful bill' being debated in congress is expected to add $2.4 trillion to the federal debt over the next decade, and many economists expect the budget deficit will hover around 7% of GDP for years. With fiscal policy so loose, Fed officials may be reluctant to signal a readiness to loosen monetary policy, especially if there is no pressing need to do so. FOMC members in December last changed their median forecasts for the central bank's policy rate, hiking it this year and next year by a hefty 50 basis points to 3.9% and 3.4%, respectively. They left projections unchanged in March amid the tariff fog. That implies 50 basis points of rate cuts this year and another 50 bps next year, which is pretty much in line with rates futures markets right now. So perhaps Fed policy is still in a "good place", but with economic expectations changing quickly, it's unclear how long that will be the case. What could move markets tomorrow? Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, opens new tab, is committed to integrity, independence, and freedom from bias.
Telegraph
2 hours ago
- Telegraph
Trump ‘may have to force' Fed on interest rates
Donald Trump said he 'may have to force' the US Federal Reserve to change interest rates after labelling its chair Jerome Powell a 'numbskull'. In his latest attack on the central bank, the president said Mr Powell, who the US leader has repeatedly criticised, should slash rates by a whole percentage point and blamed him for keeping America's debt costs high after better than expected inflation data. 'We are going to spend $600bn (£441bn) a year because of one numbskull that sits there, [saying] 'I don't see enough reason to cut the rates',' he said. 'I may have to force something.' Mr Trump's criticism of the Fed chair has previously knocked investor confidence. Since then, the president has been careful to signal that he is not preparing to sack Mr Powell despite the criticism. On Thursday, Mr Trump said: 'The fake news is saying, 'Oh, if you fired him, it would be so bad. It would be so bad.' I don't know why it would be so bad, but I'm not going to fire him.' Earlier this spring, Mr Trump sent markets into turmoil when he lashed out aggressively at the Fed chair and threatened to sack him for not cutting interest rates quickly enough. In April, he wrote on his Truth Social platform: 'Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete 'mess!' … Powell's termination cannot come fast enough!' The post was a major escalation in a long-running attack that extended back to Mr Trump's first term, when he accused Mr Powell of being the 'biggest threat' to his economic agenda after he raised interest rates. His threats earlier this year triggered a rise in yields on US Treasuries as bond investors were spooked over threats to the Fed's independence - forcing Mr Trump to dial down his rhetoric. The Fed will meet next Wednesday to make a fresh decision on interest rates. It voted to hold interest rates at 4.5pc at its last meeting after halting a series of interest rate cuts that it began last year. Mr Powell has adopted a 'wait and see' approach on rates, citing major economic uncertainty in the wake of Mr Trump's trade war. Mr Trump's aggressive tariffs are widely expected to drive up inflation as they will dramatically increase the costs of imported goods. However, the impact is yet to show up in the trade data. Official figures released on Wednesday showed inflation climbed to 2.4pc in May, up from 2.3pc in April but lower than the 2.5pc that economists had expected.
Sky News
3 hours ago
- Sky News
Rachel Reeves 'a gnat's whisker' from having to raise taxes, says IFS
Rachel Reeves is a "gnat's whisker" away from having to raise taxes in the autumn budget, a leading economist has warned - despite the chancellor insisting her plans are "fully funded". Paul Johnson, director of the Institute for Fiscal Studies (IFS), said "any move in the wrong direction" for the economy before the next fiscal event would "almost certainly spark more tax rises". Speaking the morning after she delivered her spending review, which sets government budgets until 2029, Ms Reeves told Wilfred Frost hiking taxes wasn't inevitable. "Everything I set out yesterday was fully costed and fully funded," she told Sky News Breakfast. Her plans - which include £29bn for day-to-day NHS spending, £39bn for affordable and social housing, and boosts for defence and transport - are based on what she set out in October's budget. That budget, her first as chancellor, included controversial tax hikes on employers and increased borrowing to help public services. 3:43 Chancellor won't rule out tax rises The Labour government has long vowed not to raise taxes on "working people" - specifically income tax, national insurance for employees, and VAT. Ms Reeves refused to completely rule out tax rises in her next budget, saying the world is "very uncertain". The Conservatives have claimed she will almost certainly have to put taxes up, with shadow chancellor Mel Stride accusing her of mismanaging the economy. Taxes on businesses had "destroyed growth" and increased spending had been "inflationary", he told Sky News. New official figures showed the economy contracted in April by 0.3% - more than expected. It coincided with Donald Trump imposing tariffs across the world. Ms Reeves admitted the figures were "disappointing" but pointed to more positive figures from previous months. 7:57 'Sting in the tail' She is hoping Labour's plans will provide more jobs and boost growth, with major infrastructure projects "spread" across the country - from the Sizewell C nuclear plant in Suffolk, to a rail line connecting Liverpool and Manchester. But the IFS said further contractions in the economy, and poor forecasts from the Office for Budget Responsibility, would likely require the chancellor to increase the national tax take once again. It said her spending review already accounted for a 5% rise in council tax to help local authorities, labelling it a "sting in the tail" after she told Sky's Beth Rigby that it wouldn't have to go up.
