Powell compares the shutdown to driving in fog, and does not rule out postponing the planned and discounted December cut. We maintain a forecast for a third rate cut on December 10, but we think that in 2026 it will be difficult to meet what the market was discounting.
In this scenario, the bond market pauses the euphoria, there is room for monetary normalization with the current price level, but it will not be as fast as the markets want to discount. Real rates in the United Kingdom and the United States > 100 basis points (core), room to continue normalizing monetary policy. In Europe, opportunities have moderated after 8 rate cuts from 4.5% to 2%, real rate at 30 basis points. Limited risks in a scenario of controlled prices and weak growth.
“Everything Rally” backed by business profits beating at the highest rate in 4 years and a FED lowering rates. Powell does not consider being in a bubble in AI, being a real investment in infrastructure, in contrast to the speculative dotcom boom.
When Donald Trump and Xi Jinping begin trade talks in South Korea full of good intentions. Trump called his Chinese counterpart a “very tough negotiator” and “great leader,” while Xi said he was willing to continue collaborating with the United States.
