All eyes are on the world’s leading central banks

Key takeaways

Interest rate predictions and decisions are at the top of investor minds this week, as we await decisions from central banks in the US and UK, and digest the latest verdict in Europe.

The US central bank continues its balancing act
There were further signs of strain in US jobs markets last week, as the weekly number of new unemployment claims rose. However, financial markets remain focused on the potential for an interest rate cut by the US central bank (the Federal Reserve, or ‘Fed’) following its committee meeting this week. The Fed continues to walk a tightrope between inflation concerns and employment market health, but as its policymaker committee has now entered the customary pre-meeting ‘blackout’ period, no commentary will come from key Fed decision makers until its upcoming official announcement. Investors continue to expect a rate cut following the meeting this week, as well as further rate cuts before the end of 2025.

Inflation news could help make their decision
Last week also saw the release of the latest US inflation data, measured by the Consumer Price Index (CPI). Inflation has been generally muted globally, but we are starting to see a modest pickup in pricing pressures, and these US figures were no exception. Headline inflation (which includes volatile priced items like food and fuel) was slightly above the levels anticipated by economic analysts, but it’s worth noting that the key factors driving headline CPI higher – airfares and lodging costs – are not included in the Fed’s own preferred measure of inflation: Personal Consumption Expenditures (PCE). Prices paid by US manufacturers (the Producer Price Index, or PPI) also fell in their latest readings, released last week. This provided some reassurance that inflation due to President Trump’s tariffs has yet to impact prices too much.

Interest rates held steady in mainland Europe
In the post-pandemic era, the European Central Bank (ECB) has typically been quicker than its international peers when it comes to interest rate changes. However, last week the ECB opted to hold interest rates steady at 2%, and indicated that it was inclined to hold rates at these levels indefinitely, pending any economic shocks. Investors have duly amended their expectations for interest rate changes in Europe in the future, and no longer expect significant rate cuts for the time being.

Market moves

• Global stock markets had an upbeat week, with share prices in developing economies leading the way. Stock markets in these regions were boosted by a weaker US dollar, making dollar-based transactions (including debt repayments) more affordable/lucrative for governments and businesses in these geographic areas.
• The price of gold continued to surge higher, in an exceptional year for the performance of this asset. This is good news for our multi asset funds, which have long held gold among the assets designed to diversify financial returns.

What to look out for this week

• The eyes of economists and investors all over the world will be laser focused on the US central bank this week, awaiting their latest decision (and accompanying commentary) on interest rates – announced on Wednesday.
• On Thursday, it’s the Bank of England’s turn to make an interest rate decision. Unlike the Fed, the Bank is expected to hold rates steady.

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