The federal government's fiscal policy in 2026 is expected to remain expansionary until the election, sustaining economic growth at around 2%.
Although the fiscal framework remains insufficient to guarantee the sustainability of public debt, presidential candidates tend to avoid discussing the issue during the election campaign, which should push a deeper fiscal adjustment to 2027.
These and other predictions for 2026, including falling interest rates and the outlook for the US economy, were discussed by Fabio Kanczuk and Jeferson Bittencourt , macroeconomics experts at ASA , this Tuesday, December 16, in a conversation with journalists.
Bittencourt, head of macroeconomics at ASA, believes that the polarized political environment will create an unfavorable climate for a broad discussion about fiscal adjustment by presidential candidates.
“I understand that the 2026 election will be similar to that of 2022, with virtually no chance of candidates engaging in a debate that tends to wear them down, that is, making a commitment to fiscal adjustment of the size that the country needs,” says Bittencourt, adding that whoever is elected will only worry about making adjustments from 2027 onwards.
He cites the case of the commitment to free public transportation already suggested by the current government, which is not expected to be implemented until after the election. "Adopting this measure now would create an additional difficulty in implementing fiscal adjustments, which are only projected by the market for 2027," he says.
According to Bittencourt, the current government anticipated the problems faced by the previous administration of Jair Bolsonaro, which announced programs in the final stretch of the campaign that ended up generating questions regarding the limitations of electoral law, such as aid to truck drivers and taxi drivers.
This time, according to him, the Lula government created a pipeline of announcements similar to a production line. "In January, the income tax exemption for those earning up to R$ 5,000 will begin, then the new Vale-Gás program will come, there will be a possible expansion of the Pé-de-Meia Program and the Desenrola project for legal entities, in short, a series of announcements compatible with the government's approval rating and without violating electoral law," he says.
Kanczuk, director of macroeconomics at ASA and former director of Economic Policy at the Central Bank, provided an in-depth discussion of the Central Bank's monetary policy and the trend of the start of the interest rate cut cycle as early as January.
According to him, the Central Bank has already paved the way to start cutting interest rates by removing all constraints in its latest statements to allow for this flexibility.
Among these changes is the replacement of the expression that justified high interest rates for a "quite prolonged" period with the expression "ongoing"—a way to refer to the period "that has already passed" and not to the "future." Another obstacle removed was the flexibility of inflation convergence to the 3% target, signaling the Central Bank's inflation projection over the relevant horizon, which fell from 3.3% to 3.2%.
“By removing these constraints, both from the text and the projections, the Central Bank was free to cut interest rates,” says Kanczuk, adding that the start date for the cuts will depend on data analysis.
Even so, ASA predicts the start of the Selic rate cut cycle as early as January, with a 0.25 percentage point (pp) increase, accelerating to 0.50 pp in March. The start in January is attributed to the calmer scenario, with the dollar below R$ 5.40. The estimate is that the Selic rate will end 2026 at 11.50%.
Kanczuk notes that the central bank's monetary policy is already operating in contractionary territory. However, he states that this effect took time to materialize.
"Monetary policy only became contractionary in March, when the real interest rate reached 8%, meaning that if the economy has slowed drastically in the last three years, even with high nominal interest rates, it proves that the neutral interest rate should indeed be 8% and not 5%," he emphasizes, referring to the lowest necessary neutral interest rate estimated by the Central Bank.
This difference is due to the current increase in fiscal spending, which means that the economy will only reach equilibrium — without raising inflation or reducing GDP growth — with a real rate significantly higher than the market consensus.
Regarding inflation, Kanczuk states that it is necessary to closely observe the scenario in the second half of 2026, which may reflect a more expansionary fiscal policy due to the election.
"It is necessary to observe the asymmetry of inflationary risks: there is a much greater chance of inflation surprising above 4.5% than falling below 1.5%," he warns, referring to the limit of the tolerance bands of the inflation target.
Kanczuk also addressed the outlook for the American economy in 2026. He projects GDP growth of 2.5% in 2026, above the consensus of 2%, driven by an expansionary fiscal policy from the Trump administration and strong investment in AI, with the risk of inflation above 3% and a possible bubble in technology-related assets.
"The fiscal effect of Trump's 'Big Beautiful Bill' ( legislative package approved in July ), with tax cuts, should boost the economy in the first quarter of 2026," he estimates, also citing the effects on GDP of Trump's possible income transfer policy to combat the high cost of living.
Among the risks, he cites inflation. "Fiscal expansion could push inflation above 3%, and there are fears that Trump will dominate the Fed ( Federal Reserve, the US central bank ) by replacing its chairman, although the ASA believes the committee will resist pressure to cut interest rates," he adds. "The discussion about a possible stock market bubble should intensify next year," he concludes.
