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Data-Driven Fed Holds the Line

• The Fed holds rates at 3.50%-3.75% as expected, pausing after three cuts. Two dissenters sought 25bp reductions, highlighting debate on easing timing.
• Inflation remains the key hurdle: Core PCE ~2.8-3.0%. Downside risks from unemployment were removed, delaying cuts.
• Two cuts are expected in H1 2026 (April-June), but tariff pass-through and wage pressures risk fewer/delayed cuts; labour weakness could accelerate easing.

Brazil Holding Before the Cut

• Brazil's Copom holds Selic at 15% as expected. It signalled easing in March if inflation moderates, while maintaining a contractionary stance through 2026.
• Deanchored expectations (4.0% 2026, 3.8% 2027) constrain the cutting pace despite headline inflation below 4.5%.
• Fiscal stimulus vs monetary restraint dilemma: a 50bp March cut is likely, but the pace depends on labour market cooling and currency stability.

Chile Holds Steady, Cuts Deferred

• Chile's central bank held the policy rate at 4.5% as the consensus expected, signalling a pause in the easing cycle rather than a shift to tightening.
• With inflation falling toward the 3% target and expectations anchored, the decision preserves scope for future cuts if activity data weaken further.
• Forward guidance points to the March IPoM as the key juncture for potential renewed easing, keeping a gradual rate-cut path in play but highly data-dependent.

UK Politics: The Beginning of the End?

• A post-local election Labour Party leadership challenge remains high, despite Andy Burnham being blocked from standing for parliament in a forthcoming by-election.
• In this event, whoever prevailed would likely still be beholden to the left within the Parliamentary Labour Party, which markets would not welcome.
• However, investors might find some solace in a new leader’s likely willingness to move more quickly on closer economic and defence ties with Europe.

By Alastair Newton