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

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.

Brazil: 25bp Rate Hike To 15% (Consensus 14.75%) in Jun-25

• Brazil's Copom surprised markets by raising the Selic rate to 15.00%, citing persistent inflation and deanchored expectations, contrary to the consensus forecast for a pause.
• The decision reflects ongoing concern over resilient domestic demand, robust labour markets, and external uncertainties, with inflation expectations for 2025 and 2026 remaining above target.
• Future policy will likely see rates held at restrictive levels for a prolonged period, with further hikes possible if inflation risks intensify or expectations fail to converge, while any easing is contingent on clear evidence of disinflation and fiscal discipline.

Brazil: 50bp Rate Hike To 14.75% (Consensus 14.75%) in May-25

• Brazil's Copom raised the Selic rate by 50bp to 14.75%, as expected, slowing the pace of tightening while maintaining a restrictive stance amid persistent inflation pressures.
• Despite early signs of growth moderation, inflation expectations remain deanchored, and inflation readings are elevated, justifying continued policy restraint over a prolonged period.
• Future decisions will reflect heightened uncertainty and the advanced tightening stage, with Copom signalling greater flexibility and data-dependence in calibrating the path to price stability.