The answer my friends is blowing in the wind

The minutes of July’s Fed meeting all but confirm what we already assumed: There will be a cut in US interest rates in September. The question is by how much and then how many more will follow this year. The Bureau of Statistics confirmed what analysts had anticipated: the US employment market was weaker than thought, as they revised down the number of jobs created in the year to March. Yesterday’s monthly flash PMI came in pretty much as anticipated, as did the latest jobless claims, helping support the slow-down no-recession view. US stock markets fell yesterday, and the Nasdaq took the brunt of the sell-off. Travel and arrive is a phrase I use often in these market comments.

The market wants and expects rate cuts from around the globe, except obviously from Japan, but not too much and not too quickly. As an aside the Bank of Japan prepared the market for further interest rate hikes being on the cards yesterday. Jerome Powell, later today, when he takes his turn to speak at the annual Jackson Hole get-together, will undoubtedly want to present that message: slow and steady is the plan. Too quickly, the markets will fret that the US economy is in a worse state than the data suggests and officials have decided they are behind the curve; too slowly, the market will fear this increases the risk of the US economy going into recession.

What will happen to UK interest rates in the coming months is another question closer to the hearts of those on this side of the pond. The answer, my friends, is blowing the wind. Interest rates in the UK should start to fall further. Still, one has to wonder how much Mr Bailey and his fellow members fear the potentially inflationary policies Ms Reeves and her colleagues are currently taking. So far, the bond market seems pretty relaxed about life, but above inflation, increases in the public sector eventually put pressure on the private sector. Sterling is back above 1.3 dollars to the pound, which I think is more about the recent weakness in the dollar than a renewed love of the pound.