WEEKLY REPORT 147
Fed reinforces rate hold while Copom opens room for easing – 01/30
✅ At its January meeting, the Fed opted to keep the policy rate in the 3.50% to 3.75% range, in line with expectations, but with a qualitatively more hawkish tone. In the press conference, Jerome Powell reinforced this stance, emphasizing that monetary policy is well positioned and close to the upper bound of the neutral rate, suggesting less urgency for further adjustments. This positioning becomes even more relevant in the context of Kevin Warsh’s nomination for the Fed chair, as despite the increase in political noise surrounding Powell’s succession, Warsh stands out for having a more technical profile among the candidates, which tends to preserve the institution’s credibility. In this environment, we assess that, despite political uncertainties, the combination of Warsh’s technical profile and the Committee’s current assessment reduces the likelihood of an abrupt shift in monetary policy.
✅ Accordingly, we have revised our Fed funds outlook and now project two rate cuts over the course of this year, more concentrated in the second half. At the same time, we maintain our assumption of a structurally weaker dollar, supported by geopolitical factors and by the advancement of global portfolio diversification, which tends to reduce marginal demand for dollar denominated assets.
✅ In Brazil, Copom unanimously decided to keep the Selic rate at 15.00 percent, in line with expectations, but the statement carried a more dovish tone compared to previous communications. The central point of the statement was the forward guidance, with the explicit removal of more hawkish language, such as references to a very prolonged period and to the possibility of resuming the hiking cycle. At the same time, the Committee introduced a clear signal that, if the expected scenario is confirmed, it anticipates starting the easing of monetary policy as early as the next meeting, while maintaining the necessary degree of restriction to ensure convergence of inflation to the target.
