This Week in Review | US Inflation, UK Gov’t Budget, ECB Interest Rate Decision

Transcript

Hello and welcome to This Week in Review.

This weekly segment is designed to highlight a few things you may have missed this week, what they could mean for financial markets and why they matter to investors like you. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. Now, let's review what happened this week.

First, US inflation.

On Friday, the U.S. Bureau of Labor Statistics released August Consumer Price Index data, or CPI, showing headline inflation remained unchanged at 3.4% year over year, while core inflation, which excludes food and energy prices, came in at 2.4%. The story behind these numbers is largely an energy story tied to the ongoing Middle East conflict. Back in February, just before the conflict broke out, headline inflation was running at 2.4% year over year. But while 3.4% is above those pre-conflict levels, it is far from the massive, energy driven spike many feared when the fighting began. As we have noted in past segments, inflation is ultimately a monetary phenomenon. Sustained broad-based inflation usually comes from rapid money supply growth. Right now, global money supply growth remains moderate. That suggests these energy-related pressures should keep fading over time, rather than settling in as lasting inflation. In other words, while the latest CPI reading is worth monitoring, it doesn't necessarily change the broader inflation picture investors should be focused on. That distinction is particularly important when headlines around inflation and the Fed start dominating the conversation. Inflation data always draws a crowd, especially with a Federal Reserve meeting days away. But we'd caution against reading too much into any single report. Markets are forward-looking, and investors have spent weeks pricing in economic conditions well before the numbers land. One month's CPI rarely settles the inflation debate. Trends matter more than individual ratings, and the Fed weighs a broad range of indicators when shaping policy. For long-term investors, CPI is one meaningful data point within a much larger economic picture. Focusing on the broader trend is often more valuable than reacting to any single month's number.

Next, John Healey's economic speech.

On Monday, British Chancellor of the Exchequer John Healey gave his first major public speech in his role as the government's chief financial minister. Healey used the moment to outline Prime Minister Andy Burnham's vision for economic growth ahead of October's budget. As a reminder, earlier this year, Prime Minister Keir Starmer resigned following mounting pressure within his own party, paving the way for Andy Burnham to take over as Labour leader and prime minister. As a result, investors are still assessing how the government's approach to taxes, spending and economic growth may evolve under the new leadership. Healey named fiscal discipline his top priority, and reaffirmed the government's fiscal rules. At the same time, he framed growth as the sustainable path to healthier finances, outlining plans to spur investment and strengthen advanced manufacturing. Those comments may have provided some reassurance to investors, as some have worried a Labour government could ultimately pursue policies perceived as less business-friendly or rely more heavily on tax increases. The speech drew particular attention because investors are already looking ahead to October's budget, when Healey is expected to provide more detail on proposed tax, spending and borrowing plans. Budget announcements often generate elevated anxiety because they can offer the first concrete look at a government's fiscal priorities. However, it is also important to remember that budget proposals must still move through Parliament before becoming law. Those concerns have been amplified by recent volatility in UK government bonds, which has fueled debate over spending, taxes and borrowing. But it's important to keep the broader context in mind. Rising government bond yields have been a global story this year, not just a UK one. Similar debates around deficits, borrowing costs and fiscal sustainability are taking place across many developed markets. For investors, it's worth noting that the political and legislative realities that existed under Starmer, such as divisions within the Labour Party, likely remain. That should help water down more radical changes, creating room for positive surprise.

Finally, the European Central Bank meeting.

On Thursday, the European Central Bank, or ECB, announced its latest interest rate decision, raising its key policy rate by 25 basis points. The move marked the ECB's second rate hike this year and came amid ongoing debate over eurozone inflation, economic growth and whether policymakers should continue tightening financial conditions. But we think investors should be careful about placing too much weight on any single central bank meeting. Rate decisions grab headlines, but they're just one of many forces shaping markets and the economy. Corporate earnings, lending conditions, business investment and consumer demand all matter, too. The more important question is whether financial conditions still support growth. And right now, they do. Rate changes can influence borrowing costs at the margins, but one decision won't rewrite the outlook for European stocks on its own. Eurozone GDP grew in the second quarter despite higher borrowing costs, and recent economic data have generally come in better than many expected. We also think it's worth remembering that sentiment towards Europe remains relatively subdued compared to the United States. Where some see a region weighed down by a laundry list of internal and external factors, we see an economy that continues to expand, albeit modestly. Importantly, stocks don't require rapid growth to perform well. With expectations still relatively low, economic reality doesn't need to be spectacular to surprise positively. For long-term investors, maintaining perspective is key. Central banks command enormous attention, but their power to determine market outcomes is often overstated. We think Europe's economic backdrop and corporate fundamentals are likely to matter far more for stocks than any single quarter-point move from the ECB.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more insights, don't miss our other series Three Things You Need to Know This Week, released every Monday. You can also visit FisherInvestments.com anytime for our latest thoughts on markets. Thanks again for joining us, and don't forget to hit Like and Subscribe.