Weekly Report 131
✅ Fed Funds Expected to Reach 3.75% (upper bound) by End-2025, Supporting Recent Exchange Rate Dynamics. Last week in the U.S., the FOMC began its rate-cutting cycle, lowering rates by 25bps to 4.00%-4.25% in an almost unanimous decision (11-1), with Stephen Miran advocating a 50bps cut. The statements reflected heightened concern about the labor market following significant revisions to payroll job creation. Individual members’ expectations, the so-called “dots,” shifted the median Fed Funds projection to 3.6% for 2025, signaling three cuts this year. In his speech, Powell adopted a more dovish tone, describing the cut as risk management and avoiding commitment to a pre-defined path in the coming months. U.S. activity data for August, showed mixed signals but remained consistent with a moderation in economic activity, reinforcing the view of slower momentum indicated by prior surveys. Other monetary policy decisions around the world are also worth noting Canada, U.K. and Japan.
✅ Copom Maintains a Hawkish Tone, but Rate Cuts Could Still Come This Year. In Brazil, as widely expected, Copom kept the Selic at 15.0% p.a. in a unanimous decision, though the statement was more hawkish than anticipated. The BCB preserved its IPCA projection at 3.4% for 1Q27 (our estimate: 3.2%) and maintained a symmetric risk balance. The tone reflects caution amid external uncertainty but acknowledges moderation in domestic activity. Despite the hawkish tone, we still expect rate cuts to start only in December 2025, as we believe the disinflation process could accelerate.
✅ Furthermore, Brazilian Economic Activity Continues at a Moderate Pace, Consistent with Delayed Effects of Monetary Policy, While Labor Market Remains Strong. Similar to the U.S., Brazilian activity indicators showed mixed signals but remain consistent with slowing activity since March, contrasting with labor market resilience and reinforcing the view of moderation in domestic growth.
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