US Fed’s preferred inflation metric set to validate jumbo rate cut

Crucial US inflation data is poised to back up the Federal Reserve’s jumbo interest rate cut as investors question where other central banks will follow in its footsteps.

Economists expect the personal consumption expenditures price index, which is the Fed’s preferred price metric, to rise just 0.1 per cent in August for the second time in three months.

The index, due to be published on Friday, is expected to show an increase of 2.3 per cent year on year. This would mark the lowest level since early 2021, albeit still slightly above the Fed’s two per cent target.

The slowdown is poised to reflect a drop in energy and food prices. Stripping out volatile food and fuel prices, the core PCE index is expected to show a monthly gain of 0.2 per cent.

Last Wednesday, Fed officials drew attention to the “further progress” on inflation as they voted to lower interest rates by a jumbo 50 basis points – the first cut since 2020.

The larger-than-usual cut suggests the Fed is worried about the potential impact of high interest rates on the economy. The central bank said it was “strongly committed” to maintaining full employment.

August’s inflation numbers will be released alongside figures on personal spending and income, and economists anticipate another strong reading for consumer spending growth.

Several influential Fed officials, including governors Michelle Bowman, Lisa Cook, and Adriana Kugler, will also make public remarks this week.

The Fed is considered a trendsetter in Western monetary policy. Still, the day after its cut, the Bank of England voted 8-1 to hold interest rates, after making its first cut since the pandemic in August.

UK and eurozone policymakers will be paying attention to a “flash” reading of purchasing managers indexes for private-sector activity in September due to be released on Monday.

On London’s corporate diary, Raspberry Pi will release its first set of results as a listed company on Tuesday, one day after officially entering the FTSE 250.

Raspberry Pi’s earnings will be seen as a key test for whether its IPO has lived up to the hype, a sign that London can be an attractive listing venue for tech firms, similar to US markets.

Elsewhere, FTSE 100 engineering giant Smiths Group, best known for its airport security and detection machines, is scheduled to post its full-year results on Tuesday.

In March, Smiths lifer Roland Carter replaced Paul Keel as chief executive. Keel’s departure marked the second abrupt exit of a Smiths chief in the last three years.

“Carter has continued to focus the FTSE 100 firm on businesses that have high barriers to entry, may have a regulatory driver to them, are technology-led, asset light and come with strong service revenue streams to offer defensive qualities in terms of the consistency of demand,” said analysts at AJ Bell.

Other results include AG Barr, the drinks giant behind the production of Irn Bru.

It is due to unveil its half-year results on Tuesday as new chief executive Euan Sutherland, who took over from longstanding boss Roger White in May, looks to sustain a rally that has seen the firm’s stock price hit a five-year high.