Jerome Powell rules out new Fed interest rate hikes

This week, the Federal Reserve held the interest rate steady, as widely expected, attracting investor attention. However, Jerome Powell, Chair of the U.S. Federal Reserve, adopted a softer tone during the press conference following the meeting. He acknowledged that recent data do not provide the necessary confidence to begin a cycle of rate cuts but ruled out any new increases in interest rates.

Two days later, the U.S. Payroll report indicated weaker-than-anticipated job creation, aligning with Powell's view that the slowdown in the job market is one of the signs that interest rates are already at a sufficiently restrictive level.

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The Payroll report showed the creation of 175,000 jobs in April in the U.S., below expectations and at the slowest pace in the last six months. The unemployment rate unexpectedly rose to 3.9%. The participation rate remained as expected at 62.7%, while hourly wage gains slowed both on a monthly and annual basis. The milder reading aligns with Powell's statement at the press conference, where he mentioned that the slowing job market and weakness in interest-sensitive spending are some of the evidence that interest rates are at a sufficiently restrictive level, ruling out further hikes ahead.

The General Price Index - Market (IGP-M), reported by FGV, advanced 0.31% in April, above expectations. The cumulative rate over the last 12 months was -3.0%. While wholesale prices in the agricultural sector accelerated, highlighted by the rise in soy prices, costs in the industrial segment declined, mainly influenced by the drop in iron ore prices. In 12 months, both sectors recorded a decline, while consumer prices and construction costs continued to contribute positively to the indicator.

The unemployment rate for the quarter ending in March was 7.9%, according to the Continuous National Household Sample Survey (Pnad Contínua). The result was slightly below market expectations. With seasonal adjustment, the unemployment rate fell to 7.6% for the quarter ending in February. The participation rate rose to 62.2%, and real effective wage mass advanced, driven by employment growth. Overall, the data support our view of a tight labor market, which should sustain high wage levels.

Industrial production in Brazil grows 0.9% in March National industrial production registered a monthly increase of 0.9%, below market projections, marking the second consecutive increase. Compared to March of the previous year, the industry declined by 2.8%. In the first quarter of 2024, production expanded by 0.3% quarter-over[1]quarter, driven by the advancement of the manufacturing industry, while the mining/extractive sector declined during the period. Thus, we maintain our view of solid economic growth in the first quarter of the year. We project a 2.3% advance for the 2024 GDP.

Moody's, the credit rating agency, revised Brazil's outlook from stable to positive and affirmed the credit rating at Ba2. This is the first change the agency has made to Brazil’s credit outlook since 2018, when it shifted from negative to stable. In a statement announcing the review, Moody's cites more robust growth combined with continued, albeit gradual, progress toward fiscal consolidation.

In the Eurozone, the Gross Domestic Product (GDP) performed better than expected, growing by 0.3% in the first quarter, consolidating an improvement in economic activity at the margin. Meanwhile, the consumer price index (CPI) rose 2.4% in April year-over-year, maintaining the pace from the previous month and in line with expectations. The disinflation adds confidence to the European Central Bank regarding the convergence of inflation to the target, expected to initiate the interest rate cut cycle at its June meeting.

China’s Purchasing Managers' Indexes (PMI) came in slightly above expectations in April. According to data from the National Bureau of Statistics (NBS), Chinese manufacturing declined to 50.3. Despite the drop, the reading above 50 points indicates that activity remains expansionary. Meanwhile, the Caixin manufacturing PMI, a private Chinese survey, recorded an increase, also above expectations. However, the non-manufacturing PMI dropped to 51.2, with services registering a significant decline.