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Next Wednesday will not be just any other month for investors and financial market analysts around the world. It is the day set for the next decision by the Federal Reserve (Fed, the American central bank), on the basic interest rates in the United States, an indicator that affects the economy of all other countries.
For Brazilians, not surprisingly, it will be called “super Wednesday” because of the coincidence of the end of the meeting of the Fomc, the Fed’s monetary policy committee, and that of the Copom, the Brazilian equivalent of the Central Bank (BC).
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The Fed summit, led by Jerome Powell, is expected to move forward with another 0.25 percentage point cut in the interest rate this week, to the range between 3.5 and 3.75%, despite growing discomfort among other directors that inflation remains high.
The Fed carried out a second consecutive reduction in October, motivated by the sudden deterioration of the US labor market during the summer in the Northern Hemisphere. But this was followed by a wave of concern hawkish (more contractionary) of some directors, including five with voting rights this year, signaling hesitation or resistance to supporting a third cut in December.
This growing divide has been exacerbated by the lack of new economic data due to the government shutdown that stretched through much of October and November. The most recent inflation data available to economic policy makers in the E,A released on December 5, refers to September — a report that is unlikely to change the debate on the decision.
In this context, and for about a week in mid-November, investors expressed serious doubts about the possibility of a new cut. But the climate of uncertainty was dispelled on November 21, when New York Fed President John Williams — seen as strongly aligned with Powell — said he saw room for a reduction “in the near term.”
The market received the signal and now assigns more than a 90% chance of movement next week.
Economists consulted by the Bloomberg agency then expect the Fed to pause before carrying out two more reductions in 2026, in March and September. And there is an expectation that a flood of new data — as statistical bodies catch up with the delay caused by the shutdown —help resolve the tension between the Fed’s goals: containing inflation and maximizing employment.
That said, more turbulence at the Fed is on the horizon. President Donald Trump is expected to soon nominate a successor to Powell, whose term as president expires in May.
Kevin Hasset, a Trump ally and senior economic adviser, is the front-runner. That has raised concern among some investors that the next Fed chairman could pursue Trump-driven rate cuts and risk reigniting inflation.
The market reading from the Central Bank in Brazil may show some further improvement in inflation expectations for this year and next, ahead of the November consumer price report, which comes out on Wednesday, and the interest rate decision, which will also be released on the same day, at around 6:30 pm.
Last month’s inflation reading will most likely have slowed for the second month in a row, and will possibly fall below the 4.5% ceiling, although it remains well above the 3% target.
Hours later, it is virtually certain that the Central Bank of Brazil will do nothing more than keep the rate at 15% for the fourth consecutive meeting, but the chances are much greater that President Gabriel Galípolo and his colleagues will offer some substantial guidance.
