Recent Mexico growth weakness and labour market reversal counters the Fed risk

The OECD estimates put the output gap in 2014 at 1.3%. Given the recent growth weakness, although temporary in nature, the output gap could remain high for a much longer period of time than had originally been expected. 

Moreover, the unemployment rate rose in Q2, reversing some of the gain from H2 14, and raising the labour market slack. With inflation remaining low for now and the labour market expected to take time to improve, recent growth weakness provides some counter to the upside risk associated with the timing of Fed rate tightening. 

"The Banxico will find it difficult to start normalising rates and chasing the spread with the Fed Funds rate as long as growth and inflation remains low", says Societe Generale.