Fynsa
We have recently had some important news regarding global and domestic monetary policy. First, the Federal Reserve decided to keep its benchmark rate unchanged, as expected by the market, but made it clear that there is still room for an additional rate hike between now and the end of the year. That could happen either at the meeting in early November or the one in mid-December. In any case, this does not represent a major change from what had already been suggested, but it is becoming more likely given the latest U.S. economic data.
Where there were changes, however, was in the outlook for 2024. The market had lost some of its interest in the peak level the Fed Funds rate would reach in 2023 and was beginning to focus more closely on how long rates would remain high—or, in other words, when a normalization cycle might eventually begin and, if so, at what pace. In this regard, there were indeed new developments, which were interpreted as “hawkish.” In its highly anticipated release of projections, the median forecast among board members rose by 50 basis points (from 4.6% to 5.1%), with the same increase projected for 2025 (from 3.4% to 3.9%). For 2026, meanwhile, they set their estimate at 2.9%, which would remain above the neutral level of 2.5%. In short, given the resilience of the U.S. economy, higher rates for longer.
Locally, the news is somewhat different. The Central Bank of Chile has already begun the cycle of monetary policy normalization, which reached historically restrictive levels following the inflationary spiral observed in 2021 and 2022. This was confirmed by an initial cut of 100 basis points (from a high of 11.25% to 10.25%) and, more recently, by an additional cut of 75 basis points. The minutes published from this latest meeting made it clear that, although local macroeconomic conditions had not changed, the international landscape had evolved, particularly in terms of financial conditions.
Thus, taking both factors into account, we believe that, although cuts of 100 basis points remain a possibility and may be more consistent with the evolution of the local macroeconomic scenario, the need to avoid putting unnecessary pressure on local financial conditions—and, in particular, the exchange rate—will mean that, to the extent possible, subsequent cuts to the TPM will remain within the most conservative range of the corridor presented in the latest IPoM. Two cuts of 75 basis points each are consistent with a year-end rate of 8.00%, as stated in the aforementioned report and in line with our macroeconomic scenario.
