Weekly Report 124
✅ The implementation of tariffs on Brazilian imports, expected today, was brought forward, but the United States surprised by exempting a long list of products. Many sectors were not covered – only reciprocal tariffs (10%) were in effect, bringing relief to businesses and local assets. For now, support measures for companies are being studied, with a focus on preserving jobs. According to our initial estimates, the impact on economic activity should be limited, while inflation could benefit from an increase in the domestic supply of taxed products, contributing to a less unfavorable outlook in the short term, although the environment remains turbulent and susceptible to volatility.
✅ On the monetary policy front, the Copom (Copom) confirmed the maintenance of interest rates, indicating that they should remain high for a prolonged period, but this new situation favors bets on earlier cuts. The labor market remains quite resilient, according to this week’s Continuous National Household Sample Survey (PNAD Contínua), and incomes were also under pressure again. However, other indicators reinforce the narrative of an economic slowdown to some extent. And, considering our recent studies of possible disinflationary impacts, we believe the disinflation process could be faster.
✅ In the US, expectations for interest rate cuts also grew, after the Payroll report indicated greater labor market weakness. Only 73,000 jobs were created in July, in addition to significant downward revisions for May and June. Therefore, an interest rate cut at the next September meeting is more likely, according to our baseline scenario. In its last decision this week, the FOMC maintained interest rates, but not unanimously, and Powell’s speech was quite hawkish, reinforcing that inflation remains above target and avoiding providing guidance for the next decision. In any case, the data opened the door to a Fed Funds reduction, and so we revised our expectations: previously, we projected a single rate cut in the US, and now—with the more pronounced deterioration in the labor market—we expect two cuts by the end of the year, one in September and another in December.
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