Archive

BoC: Structural Pause at 2.25%

• The BoC held the policy rate at 2.25%, matching the consensus, and framed this as a pause near neutral that likely extends the horizon for stable rates.​
• Strong but trade‑driven Q3 growth and still‑soft domestic demand argue against near‑term hikes, keeping the bias toward a prolonged hold rather than renewed easing.​
• With CPI near 2% and core around 2.5%, the Bank sees inflation anchored, reducing pressure for further cuts and reinforcing a data‑dependent, higher‑for‑longer rate stance.​

Dual Mandate, Divided Fed: 2026 Crossroads

• The Fed cuts by 25bp for the third time, but hawkish dissent is deeper than voting suggests. Six members judged rates should still be 3.875%, and three members are pencilling in rate hikes next year.
• Despite revising 2026 PCE inflation forecasts down to 2.4% (from 2.6%), the Committee still projects only one 2026 cut, making a hawkish shift in the reaction function.
• 2026 rate projections split, with seven dots above the 3.375% forward median, four at the median, and eight below. Policy will depend on labour market and inflation data.

Brazil’s High-Rate Path

• Brazil's Copom unsurprisingly held the Selic at 15%, signalling a prolonged, highly contractionary stance to force inflation back toward the target.
• Deanchored inflation expectations and resilient services inflation mean cuts are unlikely before clear disinflation and weaker labour data emerge.
• Fiscal doubts, BRL weakness and US policy risks raise upside inflation pressures, keeping the door open to renewed hikes and delaying the start of an easing cycle.

China Re-rooting Rather Than Dumping

• China’s rising export growth to Europe in November demonstrates base effects around a steady trend that predates US tariff increases. It isn’t about dumping.
• Avoidance measures remain rife, with transhipping through Vietnam not dented by the provisions in their US trade deal. Effective tariff rates aren’t rising belatedly.
• Profit-maximising companies still seem to be working around US measures, keeping the impact on inflation and growth smaller than many other economists feared.

By Philip Rush