The former governor of Banxico recalled that it was not until September 2021 when Jerome Powell, current president of the Fed, recognized that inflation was not a transitory problem. And it was not until March 2022, that is to say six months later, when the US central bank began the upward cycle of interest rates.
The foregoing, he stressed, led to a credibility problem for the central bank of the most powerful economy in the world. Now, Ortiz anticipated, the US central bank will maintain a restrictive policy for longer to recover that credibility.
The former governor of Banxico said that there are signs that inflation is going down, however, the Federal Reserve has said that this year it will not lower its interest rates; “It’s going to leave them elevated for a long time and it’s going to do more damage.”
“Now in order to reestablish their credentials for a bank that is fighting inflation, they are probably going to go the other way. Now he’s going to be wrong the other way around,” said Guillermo Ortiz.
Unlike advanced economies, emerging countries such as Mexico -whose reference interest rate is 10.5%- began to raise their interest rates earlier.
Experience
For the former Secretary of the Treasury during the six-year term of Ernesto Zedillo, it is not enough to have all the economic and econometric models to forecast what is going to happen to the economy, experience is also important.
In this sense, Alejandro Werner, former Undersecretary of the Treasury, commented that the data available to those in charge of monetary policy in the United States were not going to show inflationary problems.
“The tools they have, based on the data of the last 20 years, were never going to generate inflation,” Werner assured, reiterating that the increase in inflation was low “because you were estimating it with a set where there was never inflation.”
This is where “experience, common sense and perhaps a higher risk analysis are needed. Probably the less experience and technical training in financial and monetary aspects that the FMCO has, compared to 10 years ago, is part of the explanation why we did not see a more aggressive and earlier movement”, he added.
Recession?
Guillermo Ortiz does not see a recession in the US economy, but rather a slowdown. “If there is a recession, it will not be noticed. Most likely it will not be a very deep slowdown and it will not happen this year, ”he assured.
“This is assuming there are no additional shocks,” he added.
Last year, when the world thought the impact of the pandemic was coming to an end, the war in Ukraine came, bringing more inflationary pressures.
Werner believes that there will be a recession in the US, but that it will be “mild” and will impact Mexico “through remittances, through tourism, through exports, where the automotive sector may show some resilience.”
“I do not believe that the multiplier effect in Mexico should be greater,” among other reasons because “we did not have the boom and the expansion of aggregate demand that occurred in the US, nor are we having the withdrawal of the fiscal stimulus,” he added.
“Mexico is experiencing a much slower post-covid rebound than the rest of the world’s economies. If the US economy enters a recession, the Mexican economy with a high probability will do so, ”she anticipated.
