Sterling Holds Ground After BoE, Dollar Loses Momentum

Markets bet Fed rates will tumble below 3% next year

Source: Reuters

Former Treasury secretary Lawrence Summers said Federal Reserve policy is leaning towards being too slack, emphasising that the US economy’s biggest risks lie in inflation rather than the job market.

“My own guess is that policy is currently a little looser — looking at all financial conditions — than people view it as being,” Summers said on Bloomberg Television’s Wall Street Week with David Westin. “The balance of risks is a bit more tilted towards inflation rather than unemployment.”

Summers spoke after Fed policymakers cut their benchmark interest rate for the first time in a year. Jerome Powell, the central bank’s chair, said the decision reflected a shift in the balance of risks, with “the much lower level of job creation and other evidence of softening in the labor market” apparent in data in recent weeks.

“The biggest risk in this situation is being that we lose contact with our 2% inflation target and become a country with an inflation psychology,” said Summers, a Harvard University professor and paid contributor to Bloomberg TV.

“I think we’re a bit on the loose side with respect to monetary policy and monetary policy signalling,” Summers said. “But that’s very much a difference of degree.”

Fed governors and reserve bank presidents, in updated projections released on Wednesday, boosted their inflation forecast for next year. The median estimate shows a 3% increase in the Fed’s preferred gauge, the personal consumption expenditures price measure, for 2025, and a 2.6% rise next year — higher than the 2.4% predicted in June.

“If I were sitting in chair Powell’s shoes, my greatest concern would be very much” on the inflation side, Summers said.

The pressure from President Donald Trump and his allies on the Fed to slash interest rates underscores the need to retain credibility on fighting inflation, the former Treasury chief added.

“I don’t think they’re doing it based on political pressure,” Summers said of the Wednesday rate reduction. “But I think you have to bend over backwards at a moment like this. And I’m not sure they’ve bent over quite as far backwards as I would have liked to see.”

Source: Theedgemarkets

The UAE Central Bank on Wednesday lowered its benchmark interest rate, mimicking the US Federal Reserve’s move to cut its policy rate, the first since President Donald Trump resumed office in January.After hitting the pause button for several quarters, the rate cut comes amid mounting pressure from the White House and open criticism of the Fed from Mr Trump amid weakening US economy.The Fed lowered its benchmark rate a quarter of a percentage point, from 4 per cent to 4.25 per cent, at the end of the two-day meeting of the rate setting Federal Open Market Committee.

With the much anticipated cut in the benchmark interest rates, the US has entered the latest monetary policy easing cycle as the Fed tries to stave off a recession, quell divisions within the bank and fend off pressure from Mr Trump, who has been demanding a major rate cut to reboot growth in the world’s biggest economy.Most central banks in the six-member economic bloc of GCC move in lock-step with the Fed's policy rate moves because their currencies are pegged to the US dollar, with Kuwait the only exception in the Gulf region as the dinar is tied to a basket of currencies.The UAE Central Bank said it would cut the base rate applied to its overnight deposit facility by 25 basis points to 4.15 per cent, from 4.40, effective Thursday.

The base rate, which is anchored to the Fed's interest on reserve balances (IORB), signals the general stance of the Central Bank's monetary policy and provides an effective interest rate floor for overnight money market rates.

Strong economic fundamentals

The UAE economy, which has maintained a robust growth momentum since the coronavirus pandemic driven slowdown, grew by 3.9 per cent on an annual basis in the first quarter of 2025,Gross domestic product at the end of the three-month period rose to Dh455 billion, according to preliminary estimates released by the Federal Competitiveness and Statistics Centre earlier this month.Non-oil GDP posted 5.3 per cent rise on yearly basis, rising to Dh352 billion, contributing more than 77 per cent of total real GDP as the country continues to diversify its economy away from oil.

Non-oil contributions to GDP have risen consistently in the past five years, from 71.3 per cent level in 2020. Oil-related activities accounted for 22.7 per cent of GDP in the first three months of 2025.Non-oil private sector activity in the UAE also rose in August, with output growth and business confidence increasing in the Arab world's second-largest economy, driven by the fastest pace of activity in six months.The seasonally adjusted S&P Global UAE Purchasing Managers' Index climbed to 53.3, from 52.9 in July, partly boosted by an expansion in output levels in the third quarter.

The CBUAE expects the UAE’s GDP to expand at 4.7 per cent in 2025 and by 5.7 per cent in 2026. The country’s non-oil economy is set to grow by 5.1 per cent this year.The banking regulator estimates the country’s hydrocarbons economy to jump by 3.6 per cent in 2025 and by 8.5 per cent the following year.Inflation in the UAE stood at 1.4 per cent in the first quarter of 2025 and the central bank has slightly revised down its inflation forecast for 2025 to 1.9 per cent from 2 per cent.The UAE Central Bank has also lowered its inflation estimate for 2026 to 1.9 per cent from 2.1 per cent.

Source: THENATIONALNEWS

The number of Americans filing new applications for unemployment benefits fell last week, but the labor market has softened as both demand for and supply of workers have diminished.

Initial claims for state unemployment benefits decreased 33,000 to a seasonally adjusted 231,000 for the week ended September 13, the Labor Department said on Thursday. The decline partially reversed a surge in the prior week, which had pushed claims to levels last seen in October 2021.

That increase in applications was concentrated in Texas, with the state's Workforce Commission later saying it had since the September 1 Labor Day holiday "observed an uptick in identity fraud claim attempts aimed at exploiting the unemployment insurance system."

Economists polled by Reuters had forecast 240,000 claims for the latest week. Layoffs remain relatively low, but the hiring side of the labor market has almost stalled. Demand for workers has slowed, with economists blaming uncertainty stemming fromtariffson imports. At the same time, an immigration crackdown has reduced labor supply, creating what Federal Reserve Chair Jerome Powell on Wednesday described as a "curious balance."

"Typically when we say things are in balance, that sounds good," Powell told reporters. "But in this case, the balance is because both supply and demand have come down quite sharply. We now see the unemployment rate edging up."

FED CUTS INTEREST RATES

The U.S. central bank on Wednesday cut its benchmark overnight interest rate by a quarter-percentage-point to a 4.00%-4.25% range and projected a steady pace of reductions for the rest of 2025 to help the labor market. The Fed paused its policy easing cycle in January because of uncertainty over the inflationary impact of President DonaldTrump'simport tariffs.

The claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls component of September's employment report. Payrolls increased by only 22,000 jobs in August, with employment gains averaging 29,000 positions per month over the last three months.

The unemployment rate is near a four-year high of 4.3%. The government said last week payrolls could have been overstated by 911,000 jobs in the 12 months through March.

Though layoffs remain low, those who lose their jobs are experiencing long bouts of unemployment because of the stall-speed pace of hiring. The number of people receiving benefits after an initial week of aid fell 7,000 to 1.920 million during the week ending September 6, the claims report showed.

The average duration of joblessness jumped to 24.5 weeks in August, the longest since April 2022, from 24.1 in July.

Source: Reuters

After months of pressure from President Donald Trump, Federal Reserve Chair Jerome Powell made clear Wednesday he and most of his colleagues aren’t about to buy the administration’s argument on inflation or the case for slashing rates.

While policymakers did trim their benchmark rate by 25 basis points, it was really just a “risk-management cut,” Powell said in his press conference after the decision to bring the target to a 4% to 4.25% range. He said the move reflected “the much lower level of job creation and other evidence of softening in the labor market apparent in data in recent weeks.

As for where the economy is headed from here, however, he flagged risks to both of the Fed’s main mandates – price stability and full employment. But “our tools can’t do two things at once,” so policy isn’t on any pre-set path.

The Fed’s new board member, Stephen Miran, who was Trump’s White House chief economist until shifting roles Tuesday, dissented for a 50 basis-point cut. But the other two Trump appointees on the board, Christopher Waller and Michelle Bowman, failed to join him, even after having dissented themselves in July in favor of a quarter-point cut.

“Really the only way for any voter to really move things around is to be incredibly persuasive,” Powell said. And, apparently, Miran wasn’t. “There wasn’t widespread support at all for for a 50 basis point cut today,” Powell said.

Peppered with questions about Fed independence and political pressure, he dismissed the idea of the US central bank becoming a politicized cabal. “Really strong arguments based on the data and one’s understanding of the economy” is all that matters, he said. “And that’s how it’s going to work,” said Powell, who’s been on the board since 2012.

“That’s in the DNA of the institution, that’s not going to change,” he emphasized. For good measure, he also declined specific comment on Treasury Secretary Scott Bessent’s call for an independent review of the Fed, saying he wouldn’t reply to anything an “officer” says.

Perhaps most provocative to Trump and his team, Powell continued to hold out the possibility that he stays on the Fed board even after his term as chair ends in May. (His governorship runs to January 2028.) That would limit Trump’s ability to revamp its leadership.

Waller and Bowman might have taken themselves out of the running to succeed Powell as the next Fed chair, but “it does signal that the independence of the institution may be more durable than some have feared,” Michael Feroli, chief US economist at JPMorgan Chase, wrote in a note.

Is Trump bringing an end to US free market capitalism? On this week’s Trumponomics podcast, host Stephanie Flanders is joined by Bloomberg managing editor Shelly Banjo and senior reporter Ian King to discuss how the US president’s dealmaking is reshaping corporate America and whether it will outlast his presidency. Listen on Apple, Spotify or wherever you get your podcasts.

Before the latest economic projections from Fed policymakers, a group of former central bankers trimmed their own forecasts for rate cuts, taking the benchmark rate down to 3.5% by the end of 2026. The survey, conducted by ex-reporter Jon Hilsenrath, now a visiting scholar at Duke University, also warned about the consequences of political pressure.

“Twenty-four of 25 people described the risk of a policy error due to political interference as ‘extreme,’ ‘serious,’ or ‘elevated,’” the survey, which included nine former policymakers and 16 staff members, showed. “More specifically, people said the Fed risked cutting interest rates too much and spurring more inflation than is already projected.”

The former officials “strongly support” Waller, who served as research director at the St. Louis Fed before joining the Fed board in 2020, to succeed Powell as chair next year, “in part because he was deemed most independent among leading contenders for the job.” However, “several people expressed skepticism that Waller will get the job,” because of that same perception of independence.

Source: Bloomberg Europe