Archive

Broadly Slower Services PMIs

• PMIs broadly disappointed and declined relative to August, but absolute levels mostly remain robust or at least expansionary. We are not concerned by these noisy moves.
• Such broad slowing seems shocking relative to the past few months, but it is historically a regular occurrence. Five of the previous twelve were at least as broadly bad.
• The labour market remains tight in the euro area, softened in the UK, and steady in the US. Slower activity does not mean disinflationary slack. We stay relatively hawkish.

By Philip Rush

Fed Cuts Amid Deep Policy Division

• Fed cuts rates 25bp as expected, with new Trump appointee Miran dissenting for a 50bp reduction.
• Labour market weakness drove the policy shift as job growth averages 29k monthly, below the levels likely needed to maintain stable unemployment.
• Projections show a 9-9 split between one or two more cuts in 2025, and only one more in 2026. The FOMC is not as dovish as the market's pricing.

Fed: Politics Vs Fundamentals

• President Trump’s current preference for rate cuts is not unconditional. Higher-order logic suggests this would not override fundamental resilience or fairly prove “TACO”.
• Political pressure is state-dependent, with the messenger mattering more than the objective truth beneath any message. Trump’s Chair will have a stronger hand.
• Brazil suffered President Lula’s pressure, but he still supported his “Golden Boy’s” turn from dovish dissent to forceful rate hikes. Fed pricing ignores the potential for change.

By Philip Rush

Cutting After Pauses

• The BoE and Fed rarely resume cutting cycles after a pause, yet the Fed seems set to break its hold with a cut just as the BoE and ECB enter their own pauses.
• 2002-03 is the best historical parallel for the Fed, which signals potential cuts should be shallow and are likely to be reversed. Politics is no match for the fundamental need.
• Persistently excessive UK pressures should prevent the BoE from cutting in November or beyond, with a quarterly pause historically unlikely to resolve in another rate cut.

By Philip Rush