Weekly Report 127
Following the release of the now-dated FOMC minutes, Jerome Powell’s Jackson Hole speech signaled the start of rate cuts in September. In the minutes, most members opted to keep rates unchanged, stressing that they still viewed inflation as a greater risk than weakening activity and employment. However, Powell’s Jackson Hole remarks marked an important inflection point: he acknowledged that the labor market slowdown was far sharper than previously estimated, highlighting the sharp decline in payrolls in recent releases. As a result, while the minutes had dampened expectations for September easing, Powell’s speech reversed market sentiment, with a majority now betting on a first cut at the next meeting. We therefore reaffirm our baseline scenario of two Fed Funds cuts this year, starting in September and followed by another in December.
In domestic politics, Lula’s popularity recovers amid lower food inflation and Trump’s tariff shock. The Genial/Quaest poll showed signs of a rebound in President Lula’s approval, which rose from 43% to 46%, while disapproval fell from 53% to 51%. This improvement is mainly attributed to better economic perceptions and Lula’s firm stance in response to U.S. tariffs. In the 2026 presidential race, the poll indicated that Lula widened his advantage in second-round scenarios after previously showing a technical tie with São Paulo Governor Tarcísio de Freitas. He now leads by 43% to 35% and maintains favorable margins against all other tested opponents, including members of the Bolsonaro family. The rebound in popularity becomes even more relevant in the current context of scandals surrounding the former president, which are damaging the image of his allies.
In inflation, we revised our IPCA projections to 4.7% in 2025 and 4.2% in 2026. This week, Paraná Governor Ratinho Júnior announced a cut in the state vehicle tax (IPVA), from 3.5% in 2025 to 1.9% in 2026, benefiting 3.4 million vehicle owners. We estimate this measure will generate a meaningful disinflationary impact on the national CPI, equivalent to around -12bps in next year’s IPCA. In this scenario, additional downward pressures also stem from the recent decline in automobile prices, impacted by IPI tax cuts on compact cars, reinforcing the disinflationary outlook for this group. Against this backdrop, we revised our IPCA forecast for 2025 to 4.7% (from 4.8%) and for 2026 to 4.2% (from 4.3%). These revisions reinforce our scenario of the Central Bank beginning its easing cycle in January 2026.
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