Fynsa
At its most recent meeting, the Federal Reserve noted that the cycle of rate hikes was not over, despite the pause it had taken. After a constant back-and-forth, in which the market consistently anticipated that rate cuts were imminent, the Fed remained firm in its anti-inflationary stance, included an additional 50 basis points in its rate projections by year-end, and gave no indication of monetary easing in 2023.
It is true that macroeconomic conditions in the U.S. are not the same as those in Chile, but there are similarities, especially when it comes to prices. In both economies, inflation has been easing, but only to the extent that was expected. And, within those expectations, rates were set to remain at current levels for some time. Given this, why was the market so fixated on the idea that central banks wouldn’t do what they had said they would do? This isn’t the first time; it’s something that has been happening repeatedly lately, with the constant search for a turning point that would change the course of events, as if it were some kind of Holy Grail. They were systematically wrong.
I have the feeling—as you may have read in my previous posts here—that the local market is also somewhat fixated on the same question. Pardon my bluntness, but this is separate from what I would do as a central banker; the debate here is what the current Central Bank board would do with the available information. In that regard, official statements and communications have all followed the same line: it’s still too early to tell, there are high risks, and a policy mistake could prove very costly. What if the same thing happens as in the country to the north?
With the release of a new IPoM just around the corner, all eyes will be on whether that remains the central bank’s assessment of the economy or if there have been any changes in its outlook. In our analysis, we see no grounds to justify major changes from what was published in early April, which would be consistent with the TPM remaining at 11.25% at least through September. That said, once the board is convinced that the inflation convergence process is well on track, rate cuts would not be modest, likely ranging from 75 to 100 basis points at each meeting going forward.
