Week ending 21st March 2025.

As you can see, markets broadly closed the week higher, with interest rate decisions taking centre stage. Investors got a boost Wednesday as the Federal Reserve held interest rates steady at 4.25%-4.5% and signalled confidence in short-term stability. In response, US stocks rallied, closing higher as the Fed met expectations.

In a statement after the decision, Fed Chair Jerome Powell acknowledged slowing consumer spending and cautioned that tariffs could drive prices higher. The Fed downgraded its growth forecast to 1.7% for this year, down from 2.1%, while raising its core inflation estimate to 2.8%. Emphasising policymakers’ commitment to a data dependent approach, Powell also said the Fed would be ready to keep rates high if inflation persists but signalled flexibility if the labour market weakens or inflation cools faster than expected.

In the UK, the unemployment rate remained steady at 4.4% in January, while wage growth showed signs of easing but remained relatively strong (outpacing inflation), according to data from the Office for National Statistics (ONS). Regular pay, excluding bonuses, rose by 5.9% in the three months to January, while total pay, which includes bonuses, increased by 5.8%, slightly down from 6.1% in the previous period.Following this, and despite the UK economy showing signs of weakness when it contracted by 0.1% in January, the Bank of England held interest rates at 4.5% during its policy meeting on Thursday, citing ongoing global uncertainties, including risks posed by US trade tariffs and geopolitical tensions. Governor Andrew Bailey reaffirmed that rates remain on a “gradually declining path,” though policymakers caution that inflation is expected to temporarily rise to 3.7% this year, driven primarily by higher energy costs and supply-side constraints.The Japanese yen lost ground against major currencies in Friday’s European session after fresh inflation data painted a mixed picture of the country’s economic landscape. Headline inflation in Japan eased to 3.7% in February from 4.0% the previous month, largely due to government energy subsidies. Similarly, core inflation, which excludes fresh food, slipped to 3.0% from 3.2%. However, stripping out both fresh food and energy, inflation inched up to 2.6% from 2.5%, reflecting persistent price pressures in services and wages. Despite signs of cooling inflation, mounting wage growth and steady services inflation are keeping the Bank of Japan under pressure to consider further rate hikes.

Still to come this week we have Eurozone manufacturing and services PMI, UK retail prices, UK CPI and US PCE data.

Nicola Tune, Portfolio Specialist