Astute Market Overview - 3rd October 2023
Let’s start over in the US with the Federal Reserve (Fed) – the US central bank, which delivered no interest rate increase following the latest Federal Open Market Committee meeting (FOMC).
Will there be another increase from the Fed this year? The Fed are alert and cautious, waiting with bated breath at every data release to assess whether they have done enough to bring inflation down sustainably to 2%. Whilst there may be room for another hike in the US, data allowing, this may be the end in this cycle.
During the meeting, participants submitted their economic projections, with one of the most watched projections called the “dot plot”. This gives us a view of where the decision makers believe that future interest rates will be, given current data. In their latest dot plot, the committee increased their 2024 and 2025 interest rate forecast, showing rates may remain higher than initially forecast.
In the UK, we had an interest rate decision form the Bank of England, which resulted in a pause, leaving the base rate at 5.25%. The first time that the monetary policy committee have decided to pause since Dec 2021. The pause was voted for 5-4, which begs the question “will there be one more increase?”. The clue will lie in upcoming data, but they may have done enough for now.
UK retail sales revealed growth of 0.4% in August from July, following a sharp fall the previous month. As inflation bites, when comparing the data to pre-pandemic it is clear that the volume of sales is broadly flat, however the value (or rather the amount that people are spending) has greatly increased.
US Core Personal Consumption Expenditure Index data (PCE) was released. This is the Fed’s preferred measure of inflation, given, in part, to its more comprehensive coverage of goods and services when compared to CPI. And it was good news – the core PCE figures slowed to 3.9% year on year, a continued slowdown.
And finally, over the weekend just gone it was looking increasingly likely that the US government would shut down. In the small hours before, this was narrowly avoided as a spending bill was passed to get the country through the next 45 days, which will hopefully be enough to agree on detailed spending for the full fiscal year.
Whilst a shutdown, if it were to happen, wouldn’t be unprecedented, and wouldn’t amount to a debt ceiling default, it could still cause damage to the reputation of the US.