The Volatility Cycle and Mexico Might Raise Rates

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The Volatility Cycle and Mexico Might Raise Rates

By Erik Norland, Senior Economist, CME Group

End of the Volatility-Yield Curve Cycle?

  • U.S. yield curve steepened slightly in 2021 but remains flat by historical standards.
  • Flat yield curve at the start of growth cycle could be due to quantitative easing.
  • Yield curve could steepen amid growing budget deficit, robust economic growth.
  • Mismatch between debt issuance and Fed buying could also steepen yield curve.
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Mexico’s Inflation Edges Higher

  • Mexican economy remains 4% smaller than before the pandemic.
  • Mexico’s core inflation has topped central bank’s overnight rate.
  • Interest rate markets expect rates to rise 50 basis points August-October 2021.
  • With growth still slow, does Bank of Mexico have the latitude to raise rates?
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