As expected, the Federal Reserve (Fed) reduced US interest rates by 25 basis points to a range of 4% to 4.25% at the Federal Open Market Committee’s (FOMC’s) September meeting, taking the key federal funds rate to their lowest level since December 2022.
This was the Fed’s first rate cut since December 2024, and the rate is generally expected to gradually reduce further. 11 of the 12 members of the FOMC voted in favour of the cut, with one member – recently appointed by President Donald Trump – voting for a larger cut of 50 basis points.
Policymakers appear to have become more concerned about the economic outlook for the US. The labour market is showing signs of weakening, and the annualised rate of consumer price inflation (CPI) reached 2.9% year on year in August – considerably above the Fed’s 2% inflation target. Looking ahead, the Fed raised its average inflation forecast for 2026 from 2.4% to 2.6%, after which inflation is predicted to ease to 2.1% in 2027 and 2% in 2028.
The FTSE 100 Index reached a new all-time high during August, closing above 9,000 points for the first time. However, the blue-chip index subsided from its highs towards the end of the month amid speculation that the UK government might levy a windfall tax on the banking sector.
Having expanded by 0.7% during the first quarter of 2025, the UK economy grew by a better-than-expected 0.3% in the second quarter, underpinned by activity in the services and construction sectors. The Bank of England (BoE) cut its key interest rate to its lowest level since February 2023 during August, taking the base rate to 4%.
However, the annualised rate of consumer price inflation remained at 3.8% in August – still at its highest level since January 2024. The BoE predicted that policies in the Spring Statement are likely to dampen economic growth, and that measures, including higher employers’ National Insurance contributions and minimum wages, will stoke inflationary pressures. Tax increases are widely expected in the autumn Budget, confirmed for 26 November.
The eurozone’s economy expanded at an annualised rate of 1.4% during the second quarter, representing a slight slowdown from first-quarter growth of 1.5%. President of the European Central Bank Christine Lagarde highlighted an “already evident” tariff-related slowdown in economic activity in the eurozone, which is expected to continue into the third quarter.
In Japan, the Nikkei 225 Index also hit a fresh all-time high in August, breaching 43,000 points. Following July’s trade agreement between Japan and the US, Bank of Japan policymakers stated their belief that the country’s economic growth may moderate in the short term, but expect growth to recover thereafter. Japan’s economy expanded at a quarterly rate of 0.3% during the second quarter, having grown by 0.1% in the first quarter.
Closer to home, Ireland’s Budget for 2026 is due to be delivered on 7 October. While it follows several years of expansionary policy, this year’s package is expected to be more restrained, due in part to uncertainty around tariffs.
We are always available to discuss any queries or concerns, so just call or drop us an e-mail.
This article is for information only and should not be construed as advice or a recommendation. You should always seek independent financial advice prior to taking any action.
The value of your investment can go down as well as up and you may not get back as much as you originally invested.