Take it easy at this time: Understand why Fed Powell data reassured markets

After weeks of volatility, the market started this Wednesday fearful of what could happen with the signals provided by the monetary policies of Brazil and the United States: in the morning, minutes cup (Central Bank Monetary Policy Committee), the afternoon meeting of feed it (Federal Reserve, which is the US BC).

At the end of the day, the investors’ assessment was that the disclosures calmed the anger, lowering the trading dollar, which closed 1.42% lower, at BRL 5.59, and future interest rates – a DI contract with a maturity in January 2025, for example, working down 59 basis points to 11.99%.

The main reason for the relief came from the Federal Reserve, where the institution’s president, Jerome Powell, said that the complete withdrawal of stimulus to the economy is not related to the rise in US interest rates. the end of diminishing (also called a gradual reduction in bond purchases) in the middle of 2022 has been linked by analysts to the moment when the monetary authority will begin to raise the base rate, today between zero and 0.25% per year.

In his post-meeting speech, in addition to reiterating that the two operations are unrelated, Powell said that regional Fed officials had not detected “disturbing increases” in workers’ wages that could increase the risk of an inflationary spiral. In other words, there is still no clear prospect for a US interest rate hike, which could be seen as good news for assets in emerging countries like Brazil, which are stymied by more attractive rates in the world’s largest economy.

“The market has improved in response to the Federal Reserve, which has made clear that the horizon for a rate hike in the US is still a long way off,” said Jefferson Laatus, chief strategist at Grupo Laatus.

In the statement, the monetary authority said it would buy $15 billion less debt securities and mortgages per month — and the current pace corresponds to a total of $120 billion per month. The current buying program was designed right after the start of the coronavirus pandemic, in the first half of last year, as a way to ensure liquidity in the markets.

Cobum’s minutes indicated that interest rates would rise at the end of the session

Here, the minutes of Copom (Central Bank Monetary Policy Committee) indicated that SelicThe basic interest rate of the economy, will end the current monetary tightening cycle higher than expected a month ago, as a result of the change in the financial scenario. In late October, the government announced a change in the spending cap to accommodate more spending in 2022.

The document indicated that the current financial situation is “much more deflationary” than initially expected, and was well received as it showed that BC was still willing to try to stabilize expectations for the inflation Next year.