O Federal Reserve and several rich country pairs are expected to cut interest rates again this week, on the heels of a U.S. presidential election that may not yet be decided. In Brazil, the tendency is for the Banco Central raise interest rates again.
Central banks responsible for more than a third of the global economy will set borrowing costs, clinging to whatever certainty they can discern about the likely course of American policy over the next four years.
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With Vice President Kamala Harris and former President Donald Trump tied ahead of the Nov. 5 election, policymakers from Washington to London may still remain in suspense.
Election aside, American policymakers have already communicated a desire to proceed with a more gradual pace of rate cuts following September’s half-point reduction. Economists widely expect a 0.25 point cut on Thursday (7), followed by another in December — and their conviction grew after data from Friday (1) showed the weakest hiring since 2020.
Fed officials try to stay out of politics, but they have begun a rate-cutting cycle heading into the home stretch of an election whose outcome could depend on how voters feel about the economy. While Chairman Jerome Powell will likely emphasize that current conditions justify a less restrictive policy when he speaks after the decision, he and his colleagues still risk political retaliation.
And in Brazil?
In Brazil, warnings from Central Bank President Roberto Campos Neto about unanchored inflation expectations, along with rising readings of the general index, have led analysts to predict a half-point increase in the interest rate to 11.25% on Wednesday -Friday (6).
The initial consensus is also for a third consecutive increase at the BC’s December meeting.
Europa
The Bank of England’s decision on Thursday could draw particular attention, coming just after plans for greater borrowing and spending revealed in the Labor government’s budget pushed UK borrowing costs to their highest level in a year.
This tense scenario should not distract policymakers from further easing for now. All 49 economists surveyed by Bloomberg predict they will deliver a quarter-point cut on Thursday.
With the budget featuring fiscal easing, Bloomberg Economics believes the quarterly forecasts accompanying the decision are likely to show higher medium-term growth and inflation.
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Meanwhile, the UK will take a tougher approach to future public sector pay rises as part of a renewed effort by Finance Minister Rachel Reeves to reassure financial markets that she will carefully manage the nation’s finances.
In Sweden, expectations for the Riksbank shifted decisively in favor of a half-point cut to 2.75% on Thursday after data showed the economy remains stagnant. Production shrank in the third quarter, and the country’s large export sector is becoming more pessimistic.
After nearly three years of stagnation, Swedish authorities may adopt a greater sense of urgency in supporting growth, especially as inflation has fallen below its 2% target and threatens to remain stagnant unless domestic demand recovers again.
On the same day, Norwegian Norges Bank is expected to maintain its rate at 4.5%, with renewed corona weakness likely to preserve its no-easing outlook until March next year.
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