By Philip Marey, senior US strategist at Rabobank
The Bank of England’s MPC cut the benchmark rate by 25 basis points to 4.50%. This move was fully expected by analysts and markets. The vote split was 7-2, with the dissenters pushing for a 50 basis point cut, which was a big surprise. The near-term growth outlook was revised down, while the inflation outlook was revised up. When choosing between protecting growth and controlling inflation, the Bank of England clearly opted for the former. Today’s decision reveals their preferences. The MPC continues to guide the market towards gradual cuts but now emphasizes a careful approach. We suspect this is intended to soften the market impact of today’s decision. We expect the next cut to take place in May. We forecast three cuts this year to bring the policy rate to 3.75% this year, with downside risks. For more details, please read Stefan Koopman's BoE post-meeting report.
The Bank of Mexico (Banxico) cut the policy rate 50bp from 10.00% to 9.50% on at the February 6th meeting. This is the fifth consecutive cut since the August meeting and the sixth cut since the cutting cycle began in March 2024. The decision was split, with Jonathan Heath voting in favor of a 25bp cut. The new Deputy Governor, José Cuadra Garcia, who was only approved by the Senate on Wednesday, voted with the majority to cut 50bp. The Bank’s inflation projection remained largely unchanged, though short term expectations in the headline and core were tweaked. Risks to the Bank’s inflation projections remain skewed to the upside. We are now forecasting five more cuts from Banxico this year. We expect the decision at the next meeting, on March 27th, to be a 50bp cut, followed by four 25bp cuts. We still see the terminal rate at 8.00%. Despite recent volatility, we expect USD/MXN to remain range-bound throughout most of 2025, but the risk to this outlook is skewed towards MXN weakness. If the one month delay to Trump’s tariff plans prove to in fact be just a delay and they are implemented and enforced, then we see the risk of USD/MXN rising to the 23-handle. For more details, please read the Banxico post-meeting report by Christian Lawrence and Molly Schwartz.
While in Mexico City, Dallas Fed President Lorie Logan said that interest rates may already be near the neutral level, potentially removing the need for further cuts even if inflation continues to cool. She said: “What if inflation comes in close to 2% in coming months? While that would be good news, it wouldn’t necessarily allow the FOMC to cut rates soon, in my view. Inflation falling toward the central bank’s target in an environment marked by strong demand and a stable labor market would suggest the Fed’s benchmark policy rate may be close to neutral.” She added that there wouldn’t be “much” near-term room for cuts if this were to continue. However, she said the Fed would likely lower rates if the labor market deteriorated.
Further South, Panamanian President Molino called the US State Department’s post on X on Wednesday that Panama had agreed to give US government vessels free passage through the Panama Canal full of lies and falsehoods and he said there was no deal. US Secretary of State Rubio later said the US had made its expectations clearly understood, although he admitted that Panama had a legal process to work through. Trump and Molino are expected to have a phone call later today. Clearly Trump can intimidate Molino into accepting his terms. Panama does not even have a real army, instead the country has a paramilitary security force of about 30K active personnel. Is the Fuerza Publica de la Republica de Panama going to board a US destroyer when it wants to use the Panama Canal without paying its regular fee?
US destroyer to Panama Canal authorities: “This is the USS Intimidator and we want to enter the canal”
Panama Canal authorities: “That’s OK, but you first have to pay the usual fee”
US destroyer: “No, we don’t and what are going to do about that?”
Back in the US, a judge paused the deadline – originally yesterday – for federal government workers to decide whether to take a buyout offer (by replying ‘resign’ to the fork-in-the-road-email from DOGE). Officials from the Office of Personnel Management earlier confirmed that more than 40K federal workers have already accepted the buyout, so this number could still increase. In fact, it seems DOGE expected a higher response rate.
Meanwhile, the Wall Street Journal is reporting that the White House is preparing an executive order to cut thousands of federal health workers in the Department of Health and Human Services (HHS). The executive order could come as soon as next week, but Trump could still decide against it. Yesterday, the White House denied that there is an executive order related to HHS coming.
House Republicans met at the White House yesterday and it is reported that they could announce a budget deal as soon as today. An important point of disagreement was whether the extension of the expiring tax cuts from the 2017 Tax Cuts and Jobs Act would be permanent or not. House Majority Leader Scalise suggested a compromise may have been reached that some portions would be permanent while others wouldn’t be.
