Archive

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

BNM Holds Rate Amid Trade Headwinds

• BNM holds its OPR at 2.75% as expected. Its data-dependent stance signals patience amid trade uncertainties & resilient domestic conditions.
• Benign inflation (1.4% headline, 1.9% core) provides policy flexibility, and a moderate outlook through 2026 supports an accommodative stance.
• Strong 4.4% H1 growth, driven by robust 7% Q2 domestic demand, leads analysts to expect rates on hold through 2025, with cuts if growth weakens.

Cutting After Pauses

• The BoE and Fed rarely resume cutting cycles after a pause, yet the Fed seems set to break its hold with a cut just as the BoE and ECB enter their own pauses.
• 2002-03 is the best historical parallel for the Fed, which signals potential cuts should be shallow and are likely to be reversed. Politics is no match for the fundamental need.
• Persistently excessive UK pressures should prevent the BoE from cutting in November or beyond, with a quarterly pause historically unlikely to resolve in another rate cut.

By Philip Rush

BOK Holds at 2.50%, Signals Future Cuts

• The BOK maintains a 2.50% rate as expected, but signals continued easing bias through the first half of 2026, citing below-potential growth requiring support.
• Housing price risks in Seoul override growth concerns despite a modest GDP upgrade to 0.9%, with household debt acceleration complicating policy timing.
• An October rate cut is increasingly likely following the expected Fed move, as inflation is stable near 2% target, providing accommodation scope when financial stability permits.