A DESERVING LOOK

One hates to keep beating on economists but they're such a deserving bunch.

Mexico's Central Bank, in a surprise move Friday, cut interest rates 50 basis points to 3.0 percent, citing economic weakness. Recall that Mexico was on the list of many who picked the U.S.'s southern neighbor to do well in 2014. Such has yet to materialize.

But two news organizations, Bloomberg and Reuters, reported that--you guessed it--not a single economist, zero, saw it coming. The cut sent Mexico's benchmark interest rate lower after Latin America's second largest economy behind Brazil barely grew in Q1.

This wasn't the first time the MCB surprised with an interest rate change. It happened a couple times before, all the more reason some might say for economists to be less flatfooted.

Some are suggesting the U.S.'s frigid winter and higher Mexican taxes contributed to the slow growth. Earlier the government ramped up taxes on snacks and surgery drinks in an anti-obesity move. Maybe there's a lesson here for ex-New York mayor Bloomberg and the new guy, Blasio.

The MCB also noted further rate cuts were not expected given that U.S. rates will most likely soon rise. That sounds more like wishful thinking on the administration's part given Mexico's heavy dependence on exports to the U.S.

Instead of waiting on the world to change as the words in a recent popular song go, it looks more like the world is waiting on U.S. interest rates to go up so they can export their way to recovery. Much of Mexico's  economy is based on the two Bs--buying and building. And so far both have been lackluster.

Mexican bond yields tumbled while equities hit their highest level in nearly six months as the news circulated through the market. The peso also fell briefly. In January annual inflation floated above four percent, the MCB's benchmark but recently has been falling. One of the central bank's concerns, according to Reuters, is declining domestic demand.

Mexico's situation, in some ways, is the opposite of the EU, slow growth with a inflation rate that is still too high. Meanwhile, the Mexican government in May reduced its growth forecast to between 2.3 percent and 3.3 percent after the U. S. economy faltered in Q1. And some expect another downgrade to the economic growth forecast sooner rather than later.

The U.S. is Mexico's biggest trading partner. Consumer confidence in Mexico in January hit its lowest level in four years. According to one report, Mexican President Pena Nieto's approval ratings fell to 49% from 54% since he took office, lower than his two predecessors at this stage of their administrations.

The move may make the Fed's next Open Market Committee June 16-17 meeting all the more important since it may signal an earlier than expected rise in the first hike in rates. The Fed's federal funds target has been stuck at the 0-0.25 level since late 2008.