Archive

Brazil’s High-Rate Path

• Brazil's Copom unsurprisingly held the Selic at 15%, signalling a prolonged, highly contractionary stance to force inflation back toward the target.
• Deanchored inflation expectations and resilient services inflation mean cuts are unlikely before clear disinflation and weaker labour data emerge.
• Fiscal doubts, BRL weakness and US policy risks raise upside inflation pressures, keeping the door open to renewed hikes and delaying the start of an easing cycle.

Brazil's Cautious Monetary Pause

• Brazil's Copom holds Selic at 15% as expected, but signals a very prolonged pause ahead with rates to stay elevated while inflation expectations remain deanchored above target.
• The committee emphasises that a contractionary policy is needed despite moderate growth, citing tariff risks, currency depreciation pass-through, and resilient labour market pressures.
• Rate hikes remain optionally available if inflation expectations fail to re-anchor, but markets now price March 2026 easing, contingent on fiscal discipline and external stability.

Fed: Politics Vs Fundamentals

• President Trump’s current preference for rate cuts is not unconditional. Higher-order logic suggests this would not override fundamental resilience or fairly prove “TACO”.
• Political pressure is state-dependent, with the messenger mattering more than the objective truth beneath any message. Trump’s Chair will have a stronger hand.
• Brazil suffered President Lula’s pressure, but he still supported his “Golden Boy’s” turn from dovish dissent to forceful rate hikes. Fed pricing ignores the potential for change.

By Philip Rush

Brazil: Copom Pause Amid US Tariffs

• Brazil's Copom held Selic at 15% as expected, pausing after seven hikes amid US tariff uncertainty, with policy to remain restrictive for an extended period.
• Inflation expectations persist above target at 5.1% (2025) and 4.4% (2026), despite a moderation in activity, requiring a prolonged contractionary stance.
• Rate cuts are unlikely before December 2025, pending sustained disinflation; future hikes remain possible if inflation pressures intensify.