The global market confirmed what it had suspected for weeks: the change in tone from the Fed, the American Central Bank. In this context, the central bank positioned itself more clearly and stated that it sees no reasons for further interest rate hikes in 2019. In 2018, there were 4 increases, and this change in positioning, if consolidated, will end a cycle of successive increases over the last three years. The Fed is seeing a slowdown in economic growth, lower inflationary pressure, and a very healthy economy, with an expected growth of about 2% this year. The job market is very strong, and the economy has been generating new jobs. This “dovish” tone, a term in English used to indicate a more positive, less worried stance, has repercussions both for the United States and the rest of the world, including Brazil.
In the financial market, this news, along with a possible reduction in tensions between the USA and China, has been helping stocks in the American market recover their highs after the sharp drop in December 2018. Investors feared that the Fed would continue raising rates and, due to a slowing economy, might plunge the nation into a recession. But since the low in December of last year, the S&P 500 has advanced more than 15%.
But regardless of the criticisms and risks, this decision was applauded by investors on Wall Street and around the world. It signifies expectations of positive repercussions and pushes for at least 2020, when the global economy faces a strong slowdown in the United States, with unpredictable consequences.
And Brazil?
This news is a positive boost for the Brazilian economy.
With the basic rate in the United States stable and no expectation of new increases, it creates an incentive for the Central Bank of Brazil to reduce the Selic rate and avoids the risk of lowering the rate at a time when interest rates are rising in the United States, reducing the spread between the economies and bringing a loss of attractiveness.
A second aspect, logically, if Brazil does its homework and approves the pension reform, is that international investors lose the incentive to keep their resources in the United States. In this context, with a privatization program ahead, the stimulus of external resources and the possibility of resource flow are very welcome.
The Fed’s decision is very important and can positively impact Brazil’s economy.
Source: Clozel Comunicação, by Julio Lage