Summary of the European Central Bank Update / Briefing December 18, 2025 Industry Overview - **Industry**: European Central Bank (ECB) and Eurozone Economic Outlook Key Points and Arguments 1. **Interest Rates Decision**: The ECB decided to keep the three key interest rates unchanged, indicating a cautious approach to monetary policy amid economic uncertainties [2][3][13] 2. **Inflation Projections**: - Headline inflation is projected to average 2.1% in 2025, 1.9% in 2026, and stabilize at 2% in 2028. - Inflation excluding energy and food is expected to average 2.4% in 2025 and gradually decline to 2% by 2028 [2][9] 3. **Economic Growth Outlook**: - Economic growth has been revised upward to 1.4% for 2025 and 2027, and 1.2% for 2026, driven by domestic demand and investment [3][5] - The labor market remains robust with unemployment at 6.4% in October, close to historical lows [4] 4. **Domestic Demand as Growth Engine**: Real incomes are expected to rise, and a gradual decrease in the saving rate will support consumption. Business investment and government spending on infrastructure are also anticipated to bolster growth [5][12] 5. **Geopolitical Context**: The ECB emphasizes the need to strengthen the euro area economy in light of geopolitical tensions, particularly the war in Ukraine, which poses risks to economic stability [5][10] 6. **Inflation Dynamics**: - Annual inflation remained stable at 2.1% in November, with energy prices down 0.5% year-over-year and food price inflation at 2.4% [6] - Services inflation has increased, contributing to overall inflation, with compensation per employee rising at an annual rate of 4% [7][29] 7. **Risks to Economic Outlook**: - Potential risks include geopolitical tensions, global trade challenges, and volatility in financial markets, which could disrupt growth and inflation [10][11] - A stronger euro could further lower inflation, while fragmented supply chains might increase import prices [10][11] 8. **Monetary Policy Approach**: The ECB will continue a data-dependent approach to monetary policy, assessing inflation outlooks and economic data on a meeting-by-meeting basis [3][13] 9. **Digital Euro Initiative**: The ECB is progressing with the Digital Euro project, aiming to enhance financial stability in the euro area [34][35] 10. **Future Projections**: The ECB plans to review economic and inflation projections in February, considering the impact of AI and other factors on growth [17][18] Other Important Content - **Labor Market Trends**: The job vacancy rate is at its lowest since the pandemic, indicating a cooling labor demand [4] - **Investment Trends**: The contribution of exports, particularly from the chemical industry, has surprised on the upside, indicating resilience in certain sectors [18] - **Financial Stability Concerns**: The ECB acknowledges risks to financial stability due to geopolitical uncertainties and potential market volatility [12][10] - **Legal Considerations**: Discussions around the ECB presidency succession and the implications of appointing a sitting member of the Executive Board were addressed, emphasizing the need for clarity on legal frameworks [33][25] This summary encapsulates the key insights from the ECB's briefing, highlighting the current economic landscape, inflation dynamics, and the central bank's strategic approach to monetary policy amidst ongoing uncertainties.

David, good to see you. Thank you so much for being here. Your takeaway from the Fed moves yesterday.>> Hi, Maria. Good morning. I think the rate cuts were too small and too late.Uh they should have started in June and you can wonder why did they wait until now. If they're going to make the cuts now, the cost to the economy has been huge uh because they didn't start earlier. You know, all the interest on the national debt is paid at this rate that the that the Fed is setting.Uh so but but that's that's done ...

Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is atte ...

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]