The director of Monetary Policy at the Central Bank, Gabriel Galípolo, said this Friday that the election of Donald Trump to the Presidency of the United States reduced the prospect of successive cuts in the interest rate in that economy.
Speaking at the Cria G20 Project event in Rio de Janeiro, Galípolo said that if before Trump’s election there was an expectation of six cuts in the Federal Reserve rate, the forecast now is for a maximum of two reductions to occur.
Galípolo, who will take command of the institution next year, highlighted that the president-elect’s promises, such as closing the North American economy and combating immigration, are being monitored and priced by the markets — in what has been called the “Trump trade”.
“If Trump is going to combat immigration, there will soon be an increase in the cost of labor in the United States, if Trump is going to impose more import tariffs, prices will rise. This idea caused an increase in short and long-term interest rates,” said Galípolo.
“If you imagined shortly before Trump’s victory that you would have basically six cuts in the North American interest rate, now you are imagining one or two”, he added, highlighting that this impacts the cost of loans around the world.
The director recalled that more peripheral countries that rely on agricultural production as the main driver of their economies face, in parallel, another problem to finance: climate extremes.
“Climate impacts are also reducing their ability to have a more favorable trade balance”, assessed Galípolo. “So on the financial and commercial side, this is penalizing emerging and low-income countries,” he said, highlighting that humanity has a “historical debt” with these countries.
