The Fed President, Jerome Powell, acknowledged that global financial conditions will remain favorable, but he did not relate them to the current difficulty in controlling inflation. Since September, long-term bond yields have increased, as have inflation premiums. There is a possibility that U.S. policies will put upward pressure on inflation, so it is suggested that the Bank of Mexico follow the Fed's prudence and keep its rate unchanged at the monetary policy meeting.
Regarding the five-year review of the monetary policy framework to be conducted in 2025, Powell indicated that monetary restriction is significant after a cumulative reduction of 100 basis points in the federal funds rate in 2024. However, he downplayed the previous goal of averaging 2 percent inflation over time, which could affect the credibility of the policy frameworks.
Concerning inflation in Mexico, Powell expressed the need for more progress and reaffirmed the commitment to sustainably return to 2 percent. Inflation rose to 2.6 percent in December from 2.1 percent in September, measured by the Personal Consumption Expenditures (PCE) Price Index. Caution in adjusting monetary policy hastily is highlighted, considering future options of gradually reducing the federal funds rate or doing so more quickly, without mentioning the possibility of increases.
The Fed's FOMC concluded that the risks to achieving the employment and inflation objectives are balanced, pointing to factors such as tariffs, immigration, fiscal policy, and regulations as elements of uncertainty. Although the unemployment rate has remained low and inflation somewhat elevated, the FOMC will show caution in making decisions.
In summary, the Fed, by keeping the federal funds rate unchanged, recognizes the importance of financial conditions and their relationship to inflation. Monetary policy will operate based on what happens with the new policies implemented by the administration. Underlying inflation has increased, and factors such as the volatility of non-core components of the National Consumer Price Index (INPC) may influence short-term data.
