More than meets the eye

BRAZIL ECONOMICS - Report 26 Feb 2026 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

Although the presumed increase in productivity associated with the application of AI is often quoted as reason for a more aggressive stance regarding the definition of US interest rates, there are forces operating in the opposite direction. In particular, as shown both theoretically and empirically in this report, an increase in future (therefore expected) productivity tends to raise the equilibrium—or neutral—interest rate. These considerations suggest that there are risks associated with an acceleration of interest rate cuts relative to what is currently priced in the U.S. fixed-income market. Paradoxically, should such risks materialize, the global depreciation of the dollar could help the Copom lower interest rates.

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