Milestone 3

Federal Reserve Monetary Policy

The Federal Reserve reports that its monetary policy is mandated by Congress to fulfill its duties by, “promoting maximum employment, stable prices, and moderate long-term interest rates” (Board of Governors, 2022). In recent years, the Federal Reserve has intervened in credit markets of corporations such as Walmart, Coca-Cola, and Marriott. In 2020, hundreds of millions of dollars were put towards individual corporate bonds, which provided some much needed relief to these corporations and helped alleviate the recession during the pandemic. Economists were concerned, “that an ongoing commitment to corporate bond purchases could create a so-called ‘moral hazard,’ encouraging companies to borrow more from less-selective lenders on the expectation that Fed intervention would limit risks” (Newswire, 2021). Earlier this year, Walmart released a weak profit report. CBS News reported that “Walmart shares are plunging after the nation's biggest retailer lowered its profit forecast and said surging inflation on basics like food that is making shoppers cut back” (CBS Interactive, 2022). Inflation in 2022 has been at an all-time high since 198l, and the economy has slowed down; however, “Fed officials who publicly support a rate hike also cite a strong job market as evidence the economy can stand higher borrowing costs (CBS Interactive, 2022). Retailers like Walmart have lost a bit of profitability recently, as consumers are shifting their spending from binge-purchasing merchandise during the pandemic, to services and experiences such as vacations and entertainment. Bloomberg reports,

From the perspective of federal policy makers, any slowdown in merchandise inflation is positive, since that’s the component that’s led to the fastest year-over-year inflation since the 1980s. Inflation for services, while rising more recently, has largely maintained its pace from previous years. Lower demand for goods would also alleviate pressure in the shipping and labor markets. (Rockeman, 2022).

While these changes may help set the inflation rate and supply chain back in balance, Walmart has lost significant amounts of investors in light of this. As demand has waned, their inventory remains high. In most recent news according to Fox, while the Federal Reserve has spiked interest rates, Walmart has pulled back on hiring for the holidays by 73% compared to last season (FOX Business, 2022). Walmart is in a position of recovery from the effects of some crippling monetary policy effects.

Bank of Mexico Monetary Policy

In a recent press report, the Bank of Mexico reported on its monetary policy decisions:

Global inflation continued increasing in an environment where imbalances between demand and supply in several markets and high levels of food and energy prices persist. This continues generating expectations of an accelerated monetary tightening worldwide and of reference rates at elevated levels for an extended period. Financial conditions remained tight while the dollar continued gaining strength. (Mexico, 2022, p. 1)

According to the Bank for International Settlements, “Since 2001, Banco de M ́exico has used an inflation targeting (IT) regime as a framework for monetary policy and to comply with its constitutional mandate to ensure price stability” (Aguilar, 2022, p. 7). The Mexico Project Hub reported promising news for corporations like Walmart, stating that “The monetary policy implemented by Banco de México has created favorable conditions for sustained economic growth, reaching stable and significantly low inflation levels” (Why Mexico?, 2022). Based on the ARA (Assessing Reserve Adequacy ) from the International Monetary Fund, Mexico is placed in an adequate level to support its balance of international payments, while preserving financial and economic stability in the presence of external negative shocks” (Why Mexico?, 2022). There has been a recent strain on monetary policy to control inflation on its own. In response to the post-pandemic economy, “the Central Bank also had to consider that using an aggressive monetary policy response to stimulate the economy by lowering real interest rates, apart from preventing it from achieving its inflation target, could also create problems with the exchange rate and financial stability (Heath, 2022).” Like many other central banks, efforts are continually being made to lower inflation rates. This inevitably affects the capability of corporations like Walmart to manage prices.

U.S. Fiscal Policy

The U.S Bureau of Fiscal Service defines a sustainable fiscal policy as, “one where the ratio of debt held by the public to GDP (the debt-to-GDP ratio) is stable or declining over the long term,” and cites GDP as a useful indicator of economic capacity, currently revealing that U.S. fiscal policy is not sustainable (Executive, 2022). The Bureau summarizes the last few years of fiscal policy as follows:

The ratio (deficit-to-GDP) spiked again in 2020 rising to 13.3 percent of GDP due to increased spending to address the COVID-19 pandemic and lessen the economic impacts of stay-at-home and social distancing orders on individuals, hard-hit industries, and small businesses. Spending remained elevated in 2021 due to additional funding to support economic recovery, but increased receipts reduced the primary deficit-to-GDP ratio to 10.8 percent. The ratio is projected to fall to 4.7 percent in 2022. (Executive, 2022)

For retail businesses like Walmart, these fiscal policies affect consumer demand, business costs, investments, and competition. Walmart’s consumer purchasing power has recently decreased in light of inflation, and the company has been forced to lower prices. However, “the company has made market share gains in the area of groceries, which it attributes to people choosing to shop at the retailer to save money on necessary products” (Johnson, 2022). The U.S. Government Accountability Office (GAO) explains that the COVID-19 pandemic severely disrupted the economy, causing debt to rise and decreased revenues, which resulted in increased government spending to compensate: “We project the debt will grow faster than the economy in the intermediate- and longer-term, which is unsustainable. This situation will pose serious economic, security, and social challenges if not addressed” (U.S. Government, 2022). Walmart, as well as many other companies, wait patiently as the U.S. continues to adjust its fiscal policy to try and recover fully from the pandemic economy, though Walmart still remains fairly profitable in the midst of the changes.

Mexico Fiscal Policy

In recent years, Mexico’s fiscal policies have strived to impact people’s wellbeing and public expenditures by better managing finances.Mexico’s Projects Hub cites the International Monetary Fund, stating that “Mexico has a solid and sensible administration of its public debt based on risk diversification and sustainability. As a percentage of GDP, this debt is lower than that of countries like Japan, Brazil, Germany and the United States” Fiscal policy, 2022). Walmart is Mexico’s largest retailer, and therefore is heavily affected by all of Mexico’s fiscal policies. In 2020, Walmart’s profitability was affected by President Andrés Manuel López Obrador’s decision to claim tax evasion, and tax Walmart about $359 million. In spite of some setbacks, Walmart revenues and net profits have risen as of earlier this year. The Economic Times reports that “Walmart de Mexico, the biggest retailer in Mexico, said its net profit rose to 13.3 billion pesos…from the prior October-to-December period. Revenue increased 9.5% to reach 214.6 billion pesos” (Walmart Mexico, 2022). As the government continues to find means of recovery for the post-pandemic economy, Walmart has remained profitable in Mexico.