The Fed fires the starting gun

The US Federal Reserve has cut interest rates by 50 basis points to a range of 4.75-5%, marking the initiation of its first easing cycle since the onset of the Covid-19 pandemic. This decision aligns with adjustments made by other central banks, including the European Central Bank, which recently lowered its rates to 3.5%.

As inflation in the US decreased to 2.5% in August, Fed Chair Jerome Powell emphasized that reducing borrowing costs was necessary to support the economy, especially with the presidential election approaching. The Fed's "dot plot" indicates potential further rate cuts by year-end.

Meanwhile, money market funds are projected to remain attractive despite falling rates, as institutional clients are likely to maintain or increase their holdings in these funds rather than withdrawing cash, unless rates reach near zero. In the UK, investors are preparing for the first budget statement by the new Labour government on October 30, mindful of the market sensitivity demonstrated during the previous government’s mini-budget.

Observers note that while the UK economy has regained stability, potential budgetary changes may put pressure on voters and markets alike.