The Prices Hike Effects Over Brazil 's Economy

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The US’ interest rate hike effects over Brazil’s economy Introduction The market is looking forward to the next meeting of the Federal Open Market Committee (FOMC). During the meeting the committee will announce whether they will increasing or not the target interest rate in the US, which is now between 0.00 - 0.25% per year. The two main factors that the FOMC considers when taking this decision are the inflation, and unemployment rates in the US. There is enough evidence to believe that the US economy is returning to growth. Which creates a lot of expectations about when and by how much will the interest rates rise. With this expected hike, central banks around the world look very close to all FED movements. The meeting is important for…show more content…
Indeed, a possible resurgence of inflationary pressures was the main determinant of the Fed 's decision to raise the interest rate at that time. Since 2001, the Fed had been following a strategy of reduction of interest rates. The aim of the 2004 event was to promote the recovery of the US economy, which went through a recession that began just before the end of the Clinton administration. (CNN, 2004) However, it is worth noting, that for at least two reasons the effects that the interest rates hike had on the Brazilian economy were of small magnitude. The first is that the movements of the Fed tend to be mild, with gradual increases. Since the increase in interest rates by the Fed was already anticipated, the Fed 's announcement did not cause any exacerbated oscillation in the Brazilian financial market. Thus, Brazilian economic agents had already incorporated the Fed decisions in its monetary policies. The second reason is that Brazil was conducting its monetary, and fiscal policies in a balanced way. That way Brazil was gaining more and more credibility on the international stage. Given a very calm scenario, with small uncertainties, the Fed 's change did not cause any catastrophic capital outflows in the Brazilian economy. (IBGE, 2004) This Time is Different. Today Brazil is the center of a "perfect storm" - term used to describe a combination of various bad events happening at the same time. The combination of a political and economic crisis, expose the
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