Publications

Alongside the uncertainty from the recently ended federal government shutdown, markets scaled back expectations of a deep, linear easing cycle. Uncertainty remains over the December Fed move, though a third “risk-management” cut still appears marginally more likely.

After the fastest monetary tightening cycle in decades (2022-2023), the main central banks have begun a process of lowering interest rates, with the “last mile” characterized by a cautious approach.

We think the room to continue easing is unlikely to have been materially affected by the Fed’s more cautious tone from last week, as some Board members have indicated that a narrowing rate spread is not a binding constraint.

Lima’s Consumer Price Index (CPI) fell 0.10% m/m in October. Despite the decline—driven by lower prices in communications, food, and energy—annual inflation remained virtually stable at 1.4% compared to September, within the Central Bank’s target range.

The ECB struck a more positive tone than in September, showing greater confidence in growth despite global uncertainty. It considers the 2% deposit rate appropriate and, unless incoming data materially change the outlook, appears ready to maintain its stance well into next year.

Before the meeting, we already saw scope for fewer cuts than the three currently penciled in for 2026. Following today’s meeting, we now hold a stronger bias toward fewer rate cuts ahead.

Treasury yields fell over the past month as futures almost fully price in a second straight rate cut next week, after Powell warned last week that the labor market may now be at a stage where “further declines in job openings might very well show up in unemployment.”