5 September 2025: There are some signs that the disinflationary process is slowing

Bank of England Monetary Policy Committee member Megan Greene spoke yesterday of her feeling that the disinflationary process is losing momentum, and that is why she voted for rates to remain unchanged at the most recent rate-setting meeting. She also believes that little has changed in the intervening period, and while she is prepared to be persuaded by the data, as things stand, she will vote the same way at the next meeting in two weeks.

She feels that Household and business inflation expectations have been elevated for some time, while recent inflation news has been in food prices, which are highly salient for expectations.

Greene is one of three hawks among the independent members of the committee who still see inflation as a greater risk to the economy than growth. Her colleague Catherine Mann frequently doubled down on her belief that rates should remain “higher for longer”, since she expects inflation to peak at 4% later this year, before falling in Q1 of 2026, although inflation is likely to remain above the Bank’s 2% target through next year.

Rachel Reeves spends an inordinate amount of time defending actions she has already taken, and not enough of her days preparing for the future. She said earlier this week that she has not yet begun to consider what actions she will be taking in late November when she presents her second budget to Parliament.

That comment is unlikely to be true, since her team at the Treasury has been busy obtaining opinions from all levels of market influencers for the past couple of months.

Currently, she is often fielding questions about the fate of the Deputy Prime Minister following the revelation that she underpaid the stamp duty on a property she bought in May by £40k.

Reeves has said that she has “full confidence” in Angela Rayner following the revelation, although her excuse that she received the wrong advice has, to a large extent, been debunked by the comment by the firm of solicitors who handled the conveyancing on Rayner's behalf that they did not provide any tax advice to the Housing Minister.

The Prime Minister was decidedly uncomfortable during an interview with the BBC yesterday, in which his avoidance of a straight answer on whether Rayner is found to have broken the ministerial code, she would be sacked, was compared to Boris Johnson’s lack of candour over “Partygate”.

The Chancellor has at least begun to consider her Budget, the thrust of which will be to provide for working people across the entire country. The Treasury released a video yesterday in which Reeves said: Britain’s economy isn’t broken. But I know it’s not working well enough for working people. Bills are high. Getting ahead feels tougher. You put more in, get less out. That has to change.

We’ve got huge potential, world-leading brands, dynamic industries, brilliant universities, and a skilled workforce. We’re a global hub for trade. Fixing the foundations has been my mission this past year.

Her comments had a familiar ring to them, but the public is beginning to demand results that will provide them with a quantifiable rise in living standards.

The pound had a quieter day as the market prepared for today’s release of the U.S. jobs report. It traded between 1.3593 and 1.3416, closing towards the lower end it its day’s range at 1.3433

The weekly data for jobless claims is continuing to rise. White, there is no direct correlation between this and the Monthly unemployment figures, market participants view the weekly numbers as a bellwether over the general state of the jobs market.

Traders have prepared themselves for a weak headline number for job creation when the data is released at 1.30 pm UK time. The predictions for the Non-Farm Payrolls are for between 70k and 90k new jobs to have been created in August. Anything lower and the Federal Reserve will be almost certain to cut interest rates at their September meeting on the 17th.

As the news blackout for the meeting approaches, several members of the FOMC are taking the opportunity to provide their opinions to reporters. They have been given a break from being asked about the potential fate of their colleague, Lisa Cook, to discuss the outlook for the economy during the final quarter of 2025 and beyond.

Williams, Bostic, and Goolsbee all spoke yesterday, and their message is generally the same.

Federal Reserve Bank of New York President John Williams said yesterday that a gradual lowering in short-term borrowing costs is likely to happen over time if the economy meets his current forecast of modest gains in unemployment and a softening of inflation trends next year.

The current setting of monetary policy is at "modestly restrictive" levels that are "appropriate" given the current state of the economy, Williams told a gathering of the Economic Club of New York. Meanwhile, Chicago Fed President Austan Goolsbee said on Friday that the US labour market might be deteriorating, adding that there is a bit of wait-and-see because of uncertainty, while the latest quarterly economic report for the southeastern United States shows a slight economic decline.

The Sixth District of the Federal Reserve includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee. According to the report, the region is experiencing price increases, a cooling job market, a slowdown in consumer spending and travel, plus rising requests for food assistance.

The President of the Atlanta Fed, Raphael Bostic, commenting on the data, said that changing trade policy and rising tariff rates on U.S. imports from 2% in late 2024 to 18% are major drivers of uncertainty in the economy and labour market. Bostic said he toured the Sixth District and spoke to entrepreneurs who are experiencing the stress of current economic times.

The Justice Department has issued subpoenas targeting the Fed governor Trump is trying to oust. If a judge temporarily allows her to stay on the Fed board, Lisa Cook faces unresolved allegations and political pressure that could complicate her job. This is a sharp escalation of the Trump administration’s efforts to oust her from the Central Bank’s board.

The inquiry originated with a criminal referral from Bill Pulte, director of the Federal Housing Finance Agency, who is well known for doing the President’s bidding.

The dollar index remained in a tight range yesterday as traders were not willing to take on large positions given the proximity of the most important monthly economic report. The index reached a high of 98.44 and closed at 98.29.

Stablecoins are a type of cryptocurrency designed to maintain a stable value relative to a specific asset or a basket of assets, typically fiat currencies like the US dollar or the euro.

The primary purpose of stablecoins is to provide the benefits of digital currencies, such as fast transactions and low fees, while minimising the volatility commonly associated with cryptocurrencies like Bitcoin and Ethereum.

Christine Lagarde, the president of the European Central Bank, has called for stricter regulations for non-EU stablecoin issuers operating in the European Union.

During her speech at the ninth annual European Systemic Risk Board conference earlier this week, Lagarde emphasised that gaps remain in the EU’s Markets in Crypto-Assets regulation (MiCA), particularly concerning multi-issuer stablecoins and potential risks from non-EU entities.

The European Central Bank has voiced concerns over the lack of clear guidelines for stablecoin issuers operating between the EU and other countries.

While MiCA regulations require stablecoin issuers to maintain robust reserves and provide redemption rights at par value for investors, these requirements are only applicable to EU-based entities.

This creates room for regulatory arbitrage when non-EU issuers collaborate with EU counterparts, raising the risk of imbalances in stablecoin operations.

There has been a great deal of conversation regarding the issue of stablecoins within the ECB recently, as the European Union tries to stay abreast of the growing trend for their use.

ECB board Member Isabel Schnabel has returned for her summer vacation in an even more hawkish frame of mind than when she left. It appears that the hawks on the Central Bank’s Governing Council allowed the hawks to “have their day”, cutting rates by 200 basis points over the past year.

Now it seems that the time has come for the ECB to once again consider inflation, as rates have now become mildly supportive for the economy.

The ECB is expected to maintain current borrowing costs due to persistent upside risks to inflation, according to Executive Board member Isabel Schnabel. In a recent interview with Reuters, Schnabel, known for her hawkish views on monetary policy, indicated that the current level of accommodation is appropriate given the economic conditions in Europe.

Economists were divided last month on the possibility of further rate reductions, but recent data have shifted sentiment. Inflation remains close to the ECB's 2% target, the economy continues to show resilience, and unemployment is at a record low.

That is in contrast with the U.S. Federal Reserve, which is weighing the risk of higher inflation against a weakening labour market while also facing serious questions regarding its independence.

Several ECB Governing Council members, including President Christine Lagarde, expressed concerns over the eroding of Fed independence, but that was unlikely to affect the Eurozone central bank's policymaking, at least for now.

The euro was under mild pressure yesterday. It fell to a low of 1.1630 and closed at 1.1642.

Have a great day!