Closing summary: Table Mountain or the Matterhorn
Bank of England chief economist Huw Pill wants a Table Mountain shape to UK interest rates. Pill contrasted higher-for-longer rates with the short, sharp peak of Switzerland’s Matterhorn.
In the US, a quicker turnaround in interest rate policy may be appropriate, given diminishing inflationary pressures, according to the reading of Ian Shepherdson, chief economist at Pantheon Macroeconomics, a consultancy. He said:
The bigger picture here is that it is becoming harder to dismiss the improvement in the inflation numbers as mere noise.
Our base case is that the year-over-year increase in the core PCE will fall to around 3% by the end of the year, setting the stage for rate cuts starting next spring.
But there are still other indicators that could push the Fed to hike further, argues Ryan Brandham, head of global capital markets, North America, at Validus Risk Management, an investment software company. He picked up on weekly jobs data, which came in better than expected. 228,000 new jobs were created, compared to an expected 235,000. He said:
While the US economy may be slowing, the labour market is showing signs of resilience. The Fed will need to determine whether they should take actions to weaken the labour market in order to get inflation down to 2%, or if the recent slowing is enough to feel confident that inflation is under control.
There is data still to come ahead of the September Fed meeting, but this result indicates another hike this year may still be on the cards.
The eurozone inflation upside surprise also offers a problem for central bankers.
Charles Hepworth, investment director, GAM Investments, an asset manager, said:
Just when everyone assumed eurozone inflation was going to continue its downward trajectory, data published today showed the consumer price index remained stuck at 5.3% over the year. Meanwhile, core inflation also stayed at the same level.
This presents somewhat of a problem for the ECB when it meets in two weeks to decide interest rate policy. A 0.25% hike is most likely on the cards after this data print, which will take the deposit facility rate to 4%.
In other business news:
Job cuts at Wilko’s head office and warehouses are to begin on Monday after a surprise £90m bid for the discount retailer fell through.
Marks & Spencer has launched a legal challenge against a government decision to block its plans to demolish and redevelop its store on London’s Oxford Street.
The former chancellor Nadhim Zahawi is in line to become chair of the Daily Telegraph and the Sunday Telegraph after brokering a deal between Middle Eastern investors and the Barclay family, according to reports.
The Adanis, a billionaire Indian family with close ties to the country’s prime minister, Narendra Modi, secretly invested hundreds of millions of dollars into the Indian stock market, buying its own shares, newly disclosed documents suggest.
The US has expanded the restriction of exports of Nvidia artificial intelligence chips beyond China to some countries in the Middle East.
You can continue to follow our live coverage from around the world:
In the UK, Grant Shapps appointed defence secretary as Claire Coutinho takes energy brief in mini-reshuffle
In the US, Hurricane Idalia brings intense flooding to Carolinas as Floridians count the cost
In US politics, Donald Trump is accused of inflating net worth by $2bn in New York civil case
In our coverage of the Russian war on Ukraine, Prigozhin’s ‘right-hand man’ in Wagner buried
Thank you for reading today on the official last day of summer. Join us tomorrow for the sequel: autumn. JJ
Slower inflation is making some people predict the Federal Reserve can engineer the much hoped-for “soft landing”, bringing down inflation while avoiding a recession.
Consumer spending in the US increased in July by 0.8%, but inflation figures came in as expected, picking up only slightly.
Paul Ashworth, chief North America economist at Capital Economics, a consultancy, said:
Despite the apparent strength of real demand, inflationary pressures continued to ease, with both the headline and core PCE [personal consumption expenditure] deflators increasing by 0.2% month-on-month.
Unfavourable base effects pushed core PCE inflation back up to 4.2%, from 4.1%, but the three-month annualised rate slowed to a two-and-a-half year low of 2.8%, from 3.3% the month before. That’s still above the 2% target but, factoring in the coming slowdown in housing inflation, a return to target by mid-2024 is now well within reach.
🇺🇸Soft landing or turbulence? 🛬
— Gregory Daco (@GregDaco) August 31, 2023
✅Spending +0.8% in July
🟢Inflation-adj +0.6%
💵Disposable income +0%
🔻Inflation-adj -0.2% (⚠️first decline in 13months)
🏦Savings rate 3.5% (-0.8pt)⚠️not sustainable
PCE #inflation
🔼Headline: 3.3% y/y (+0.3pt)
🔼Core: 4.2% y/y (+0.1pt) pic.twitter.com/QyysedSuNi
