Fed maintains interest rates in the US. How does the decision impact investments?

The North American central bank Federal Reserve (Fed) announced this Wednesday afternoon (1st) that it decided to maintain the interest rate in the range between 5.25% to 5.50% per year. A result without surprises, but which maintains pressure on the interest curve and the exchange rate in Brazil. Higher interest levels abroad act as support for falling interest rates here.

“Much of this movement already seems to be embedded in the dollar, which reached R$ 5.20 this week, and also in longer interest rates (10 years), which have already reached 11.75 again”, observes João Piccioni , fund manager at Empiricus Gestão.

The movement reduces investors’ impetus for risky assets, mainly in shares linked to the domestic economy, due to the structural increase in the cost of capital and the worsening of expectations regarding the fall in the Selic rate.

Next Wednesday (8), the Central Bank’s Monetary Policy Committee (Copom) is expected to reduce the current Brazilian interest rate by 0.25 percentage points from 10.75% to 10.50%.

“It is worth remembering that most of the companies’ debts are linked to the CDI and, consequently, to the Selic. On the other hand, commodity companies may once again stand out in this environment, given the rise in the dollar and advances in terms of trade”, says Piccioni.

The Fed’s conservative signaling impacts Brazilian rates. “We will expect an opening of the domestic interest curve, which could signal a potential window of opportunities to allocate to public bonds, especially in the most intermediate peaks”, comments the economist at Guide Investimentos, Yuri Alves, noting that the scenario domestic also influences this movement.

In April, uncertainties regarding the fiscal scenario were accentuated with the announcement of the Federal Government’s 2025 Budget Guidelines Bill (PLDO), which revised the primary surplus target from 0.5% to zero deficit. As a result, public bonds maturing in 2029, for example, started paying more interest compared to those maturing in 2045. Normally, bonds with longer maturities pay more in relation to assets with shorter durations.

Pressure on the exchange rate

The economist at XP Investimentos, Francisco Nobre, remembers the strong correlation between the Fed’s decisions and those of the Copom. “Whatever makes prices abroad tends to make prices here in Brazil”, he assesses. Despite this, he believes that this Wednesday’s result will not change the result of the Brazilian Central Bank next week. “The Copom will react to domestic data and our expectation is a cut of 0.25 percentage points.”

Over time, however, the Fed’s decisions – which signal higher interest rates for longer – tend to impact Brazil through the exchange rate. “This would be the main transmission channel because higher interest rates abroad end up reducing the attractiveness of our assets here”, he explains.

In this way, a more devalued real translates into additional inflationary pressures. Therefore, financial market estimates for the Selic at the end of 2024 have been deteriorating. “We were working with a scenario in which the Central Bank could cut interest rates up to 9%, but we revised it to 10%”, says Nobre, remembering that higher interest rates translate into lower prices for risky assets. “This ends up impacting variable income.”

At this juncture in which American interest rates are shortening the cycle of rate cuts in Brazil, the chief economist at Nippur Finance, Cristian Pelizza, believes that the second half of the year will be a challenging period. “Investors will have to get used to a little more volatility,” he says.

FOR THE EDITOR, POINTS OF ATTENTION IN THE FED’S DECISION:

– FOMC statement: The market expects a statement very similar to the previous one, in which the committee preferred to remain cautious, stipulating that there is a need for more evidence that inflation is heading towards the target of 2% per year before making any adjustments to rates. (There is a specific mention in the statement that the committee assesses that it will not be appropriate to cut interest rates until there is an improvement in the inflation scenario. If they remove or change this phrase, the scenario will change, but the expectation is that this will not happen now , only for the end of the year).

– Powell speaks half an hour after the announcement at 3pm: Main event this Wednesday. concern in the tone of the speech in a more hawkish direction (reduction in the number of cuts this year from 3 to 2). Expectation of cautious speech. An important point is the question about the possibility of additional cuts, a topic that is gaining relevance… if the tone is harsher, the market reacts badly. In general, what is expected is for him to talk about data dependence. If it goes along this line, it avoids turbulence.