It’s been another positive week for global markets, with the main story coming from the US. Here’s Goncalo Machado, Investment Manager here at InvestEngine, with the top market stories from this week.
Federal Reserve makes first rate cut of the year
The US Federal Reserve lowered interest rates by 0.25% this week, the first cut of 2025. The decision follows signs of easing inflation and slower job growth, even as employment continues to edge higher.
September’s meeting was particularly closely watched because it included the Fed’s “dot plot” – a chart showing policymakers’ expectations for future interest rates. This update suggests two more cuts could be on the way before the end of the year, one in October and another in December. If delivered, rates would finish 2025 around 0.5% lower than they are today.
Markets had already fully priced in this week’s cut, so reaction was muted. Even so, US equities managed to notch another record high.
UK inflation remains elevated
In the UK, inflation held steady at 3.8% in the 12 months to August, unchanged from July but still a 19-month high. Food prices have been a big driver of the figure, which remains well above the Bank of England’s 2% target.
The Bank will be watching these numbers closely as it considers when it can begin to ease policy. For now, inflation running at nearly double the target suggests rate cuts may not be imminent in the UK.
Softer inflation in Europe
Meanwhile, consumer prices in the eurozone rose by 2% in August. That’s right on the European Central Bank’s target, and softer than many economists expected.
For European policymakers, this gives some breathing space after a period of higher inflation pressures, and may shape expectations for monetary policy into year-end.
What this means for investors
- Rate cuts in the US are generally supportive for markets, though expectations are already largely reflected in prices.
- UK inflation sticking higher could delay the Bank of England’s next move.
- Softer inflation in Europe may mean a smoother path for the ECB compared with its peers.
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