Economy

BOGOTA (Reuters) -Colombia’s central bank on Friday cut its benchmark interest rate by 25 basis points to 9.50%, a smaller move than expected by markets, as it slowed the pace of its easing due to domestic fiscal uncertainty and decisions by its peers around the world.All 25 analysts in a recent Reuters poll said they expected the central bank’s board to deliver a 50-basis-point cut in borrowing costs. Five of the board’s seven policymakers voted for a 25-basis-point cut, one for 50 points and another for 75 points, Leonardo Villar, the board’s director, said in a press conference.”There is room to continue to lower the interest rate,” Villar told journalists, adding that the central bank is confident Colombia’s inflation will converge toward its 3% target next year.The Andean nation’s 12-month inflation rate through the end of November was 5.20%.However, the bank’s technical team expects movement towards the inflation target will be slower than it previously expected due to exchange rate pressures and how they affect prices, Villar said while presenting the board’s statement.”This reduces the room for maneuver to maintain the pace of interest rate cuts,” the statement said.The economy has grown 1.6% through September, the board added, compared to the same period in 2023, and the labor market has remained relatively stable.”Uncertainty about the situation of public finances in Colombia has generated volatility in the exchange-rate and public debt markets,” the board added.President Gustavo Petro’s leftist government has faced fiscal troubles that threaten its compliance with the country’s so-called fiscal rule, which is designed to impose limits on spending to prevent deterioration of public finances. Colombia’s Congress earlier this month rejected a $2.7 billion fiscal reform proposed by the government to finance 2025 spending.On Thursday, Colombia’s Autonomous Fiscal Rule Committee said the Andean country would need to cut spending this year by 40 trillion pesos ($9.1 billion), followed by a subsequent cut of 52 trillion pesos next year.Colombia and other emerging market nations also are keeping a wary eye on the U.S. dollar, which could be bolstered next year by potentially inflationary policies of the incoming Trump administration and a shallower Federal Reserve rate-cut path.Colombia’s central bank has cut its benchmark rate by 350 basis points since December of 2023.($1 = 4,394.50 Colombian pesos) More

“Market participants have grown increasingly focused on a potential EU fiscal policy response via higher defence spending,” analyst said.Defence budgets have already risen since the Ukraine invasion but remain below NATO’s 2% of GDP target in several member states. Potential funding options include national fiscal deficits, repurposing Next (LON:NXT) Generation EU funds, or creating a multilateral defence funding facility.The most likely approach involves a mix of national deficits and the European fund, but early implementation faces hurdles, including political uncertainty in Germany, France, and EU institutional approval. Any significant changes are unlikely before 2025, Goldman noted.Raising defence spending to 2.25% of GDP or 2.5% by 2026 would increase the structural deficit by 0.3%-0.5% annually over the next three years, note added.The economic impact is expected to be modest, with defence spending multipliers estimated at 0.6 due to high import and short-lived effects compared to investment.Goldman estimates the fiscal impulse from higher defence spending would add not much significant annual growth until 2027, up to 0.2 percentage points.A larger boost could occur if spending leads to reduced foreign input dependence and an expansion of Europe’s defence industry. More

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Donald Trump gave LVMH’s billionaire chief executive Bernard Arnault a pumping handshake as they exited the lifts in the gold and marble lobby of Trump Tower in Manhattan.  “One of the great men, Mr Arnault,” said Trump — then president-elect for the first time around — as they wrapped up the January 2017 meeting. “They’re [LVMH] going to do some wonderful things in this country. Jobs. A lot of jobs.” The world’s biggest luxury group obliged. In 2019, Trump attended the opening of Louis Vuitton’s Texan factory, its third on US soil, where he declared that Arnault had “really delivered”, especially as some products would bear “Made in the USA” labels. Eight years on, that relationship may prove an advantage for LVMH as the threat of tariffs looms large. The second Trump administration has threatened to levy across-the-board tariffs of up to 20 per cent on exports from Europe while China risks being much harder hit. Trump attended the opening of Louis Vuitton’s Texan factory, its second on US soil More

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The PCE price index, the Fed’s preferred inflation gauge, showed an increase of just 0.1% from October and a 2.4% annual rate, both below expectations.
Excluding food and energy, core PCE also increased 0.1% monthly and was 2.8% higher from a year ago, with both readings being 0.1 percentage point below the forecast.
Personal income rose 0.3%, short of the 0.4% estimate. Personal expenditures increased 0.4%, one-tenth of a percentage point below the forecast.

Prices barely moved in November but still held higher than the Federal Reserve’s target when looked at from a year ago, according to a Commerce Department measure released Friday.
The personal consumption expenditures price index, the Fed’s preferred inflation gauge, showed an increase of just 0.1% from October. The measure indicated a 2.4% inflation rate on an annual basis, still ahead of the Fed’s 2% goal, but lower than the 2.5% estimate from Dow Jones. The monthly reading also was 0.1 percentage point below the forecast.

Excluding food and energy, core PCE also increased 0.1% monthly and was 2.8% higher from a year ago, with both readings also being 0.1 percentage point below the forecast. Fed officials generally consider the core reading to be a better gauge of long-run inflation trends as it excludes the volatile gas and groceries category.
The annual core inflation reading was the same as in October while the headline rate rose 0.1 percentage point.
The readings reflected little increase in goods prices and a 0.2% rise in services prices. Food and energy prices both posted 0.2% gains as well. On a 12-month basis, goods prices have fallen 0.4%, but services have risen 3.8%. Food prices were up 1.4% while energy fell 4%.
Housing inflation, one of the stickier components of inflation during his economic cycle, showed signs of cooling in November, rising just 0.2%.
Income and spending numbers in the release also were a bit light compared with expectations.

Personal income rose 0.3% after having jumped 0.7% in October, falling short of the 0.4% estimate. On spending, personal expenditures increased 0.4%, one-tenth of a percentage point below the forecast.
The personal saving rate edged lower to 4.4%.
Stock market futures held in negative territory after the report while Treasury yields also slumped.
“Sticky inflation appeared to be a little less stuck this morning,” said Chris Larkin, managing director of trading and investing at E-Trade Morgan Stanley. “The Fed’s preferred inflation gauge came in lower than expected, which may take some of the sting out of the market’s disappointment with the Fed’s interest rate announcement on Wednesday.”
The report comes just two days after the Fed cut its benchmark interest rate another quarter percentage point to a target range of 4.25%-4.5%, the lowest in two years. However, Chair Jerome Powell and his colleagues reduced their expected path in 2025, now penciling in just two reductions compared with four indicated in September.
Though Powell said Wednesday that inflation has “moved much closer” to the Fed’s goal, he said the changes in the projected path for rate cuts reflects “the expectation inflation will be higher” in the year ahead.
“It’s kind of common sense thinking that when the path is uncertain you go a little bit slower,” Powell said. “It’s not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down.”

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