Take Two: Fed cuts rates by more than expected; Eurozone inflation lowest since 2021
- 23 September 2024 (3 min read)
What do you need to know?
The US Federal Reserve (Fed) lowered its benchmark interest rate by a bumper 50 basis points (bp) to a 4.75%-5.0% range - its first cut in over four years and exceeding consensus expectations of a 25bp reduction. The Fed’s quarterly summary of economic projections, published alongside the meeting, showed policymakers’ forecasts for another 50bp of cuts this year and 100bp of cuts in 2025. US stocks rose to record highs following the decision, with the Dow Jones index closing above 42,000 for the first time. Elsewhere, the Bank of England and Bank of Japan (BoJ) both left rates unchanged.
Around the world:
Eurozone annual inflation was confirmed at 2.2% in August, its lowest since July 2021 – down from 2.6% in July. While inflation remained above the European Central Bank’s 2% target, it is well below the 5.2% from a year earlier. Core inflation, excluding energy, food, alcohol and tobacco, eased to 2.8% from 2.9%. Meanwhile UK inflation held steady at 2.2% in August, unchanged from July and in line with forecasts. In Japan, headline inflation rose to 3.0% year-on-year in August from 2.8% in July, the highest level in since October 2023, while core inflation rose 2.8% from 2.7% the month before.
Figure in focus: 18%
Global energy demand is expected to rise by between 11% and 18% by 2050, primarily driven by growth in emerging economies, according to a new report from consultancy McKinsey & Company. It found that global emissions would likely increase until around 2025 before declining, but still remain above net-zero targets by 2050. The report said fossil fuels are “projected to continue to play a role, albeit a moderating one, in the global energy system to 2050, meeting between 40% and 60% of global energy demand in 2050, down from 78% in 2023”.It said the pace of change must accelerate and urgent action is needed.
Words of wisdom:
Governing AI for Humanity: A new report from the United Nations (UN) proposes a blueprint for harnessing the transformative power of artificial intelligence (AI) and addressing AI-related risks. It called for a global AI fund to be set up, including contributions from governments and the private sector, to help developing countries advance their AI capabilities to “ensure that vast swathes of the world are not left behind”. The UN highlighted that no global framework to govern AI currently exists, with only seven of 193 member states being party to recent governance initiatives. The UN recommended the establishment of international panels and development networks to combat this inequality.
What’s coming up?
A spate of flash Purchasing Managers’ Indices are published this week, with numbers from the US, UK and Eurozone issued on Monday, followed by Japan on Tuesday. On the same day the Reserve Bank of Australia meets to make its latest interest rate decision while Germany publishes its closely watched Ifo Business Climate survey. On Thursday, the BoJ publishes the minutes of last week’s monetary policy meeting while the US reports its final estimate of second quarter GDP growth.
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Risk Warning
The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.