Powells cup is more than half full

Jerome Powell’s cup was not half full but overflowing with joy as he described the prospect of inflation heading back down to the magical 2% as the Fed cuts rates by 50 basis points from a position of economic strength. Stocks cheered Mr Powel and his team as the S&P 500 hit a new record. The Fed is normalising rates, not fixing a broken economy. The soft landing scenario took a big boost.

In contrast, Andrew Bailey and his band of merry men at the Bank of England did not follow the Fed or the ECB, deciding otherwise to leave interest rates where they, as only one member, voted for a cut. The Bank of England is in a difficult position. Economic growth may be lacklustre, and the headline inflation rate may be close to their 2% target, which should favour another cut; however, according to the figures released on Wednesday, the core rate remains elevated at 3.6%. Not only that, but wages are growing over 5.5% year on year, threatening to push prices higher again.

The Fed news boosted our stock market. However, there was a sell-off in UK gilts, and sterling rallied to 1.33 against the US dollar, as the market apparently expects the Fed to be more aggressive in cutting interest rates than the Bank of England in the coming months. The Bank of England gave Rachel Reeves a 10 billion pound fiscal boost as it slowed down the sale of government bonds, giving hope that the October budget may not be as draconian as we are being prepared for. There was good news on the UK economy this morning as the latest retail sales numbers came in far better than expected; perhaps people decided to spend their money before Ms Reeves decided how to spend it on their behalf, or all the fact that wages are growing in real terms, consumers feel they have a little more at their disposal to spend.

Stock markets may be cheering on the Fed, but some warning signs are coming on the underlying state of the global economy from Daimler, who announced they are cutting 30000 jobs as the car market slows. FedEx, whose job it is to shift parcels and packages around the globe and, for this reason, is often described as a bellwether for the underlying economy, comfortably missed its numbers as the stock fell over 10% in after-hours trading.