Group 1 - The Treasury market is currently hovering below a key level of 4.25%, but remains above the significant 4% level, indicating market stability despite inflation concerns [1][2] - Year-over-year core PCE inflation is reported at 2.9%, which is above the pre-COVID levels and indicates persistent inflationary pressures, well above the Federal Reserve's 2% target [2][3] - The Federal Reserve may reconsider aggressive easing strategies due to the persistent inflation and stable labor market, as evidenced by the tame claims data of 218,000 [3] Group 2 - The Treasury yields have increased, with a rise of seven basis points on the week for the 10-year and five basis points for the two-year, reflecting market reactions to recent economic data [4] - The dollar index has appreciated by approximately 1.6% since the Federal Reserve's easing on the 17th, indicating a strengthening dollar amidst the current economic environment [4]

Core Viewpoint - Brazil's central bank has entered a "new stage" of monetary policy, opting to keep interest rates unchanged at 15% while assessing if this level is sufficient to achieve the 3% inflation target [1][2]. Monetary Policy - The rate-setting committee acknowledges that the current economic scenario aligns with its monetary policy stance, indicating a gradual moderation in growth [2]. - The central bank halted an aggressive tightening cycle in July, which had increased the Selic rate by 450 basis points since September 2024 [3]. - Policymakers remain vigilant, particularly monitoring services inflation, and have noted a more favorable inflation dynamic compared to earlier this year, although concerns about deanchored inflation expectations persist [3]. Inflation Data - Brazil's 12-month inflation rate reached 5.13% in August, while the central bank's target is set at 3%, with a permissible range of plus or minus 1.5 percentage points [4]. Criticism of Monetary Policy - Finance Minister Fernando Haddad criticized the central bank's high borrowing costs, stating he sees "no justification" for maintaining elevated interest rates and believes there is room for rates to decrease [5].

Monetary Policy Strategy - The Federal Open Market Committee (FOMC) is reviewing its monetary policy framework, focusing on price stability and the implications of inflation experiences over the past five years [4][5][6] - Participants reaffirmed their commitment to a 2 percent longer-run inflation objective, emphasizing the importance of anchored inflation expectations for achieving price stability and maximum employment [6][7] - Discussions included the advantages and disadvantages of flexible average inflation targeting versus flexible inflation targeting, with a consensus leaning towards flexible inflation targeting as a more robust strategy [8] Financial Market Developments - Significant market volatility was observed, with longer-maturity Treasury yields rising and the dollar depreciating by over 2 percent against major currencies [9][10] - Market participants lowered GDP forecasts and raised inflation expectations, increasing the probability of a recession within the next six months [9][10] - Liquidity in foreign exchange markets deteriorated but remained consistent with historical volatility measures [11] Economic Situation - Consumer price inflation was reported at 2.3 percent in March, with core PCE inflation at 2.6 percent, both lower than the previous year [22] - The unemployment rate stabilized at 4.2 percent, with solid labor market conditions and average monthly payroll gains consistent with previous years [23] - Real GDP showed a slight decline in the first quarter, attributed to measurement issues and a surge in imports ahead of anticipated tariff hikes [24] Financial Stability - The U.S. financial system's vulnerabilities were characterized as notable, with asset valuation pressures and high housing valuations amid economic uncertainty [37] - Credit quality remained stable for large firms and most mortgage categories, but concerns were noted in the commercial real estate sector [35] - The staff projected a weaker economic outlook due to trade policies, with expectations of slower productivity growth and a widening output gap [41] Committee Policy Actions - The FOMC decided to maintain the federal funds rate target range at 4¼ to 4½ percent, citing solid economic activity and elevated inflation [59][64] - The Committee expressed a commitment to supporting maximum employment and returning inflation to the 2 percent objective, while remaining cautious due to increased uncertainty [63][64] - Future adjustments to the federal funds rate will be based on incoming data and the evolving economic outlook [60][64]