The Week Ahead (3rd - 7th November): Interest Rate & Budget Countdown

Hello and welcome to this week’s edition of the Week Ahead!

This will mostly be an interest rate edition, taking a quick look at recent central bank decisions and then looking ahead to the decision that’s coming up next week for the UK.

Federal Reserve: the US is in the throes of political strife over a government shutdown, but I’ll put that to one side and focus on what the Fed had to say about its last interest rate cut. Note however that the shutdown means that some official US economic data is not currently being published.

Here’s a 10-year chart of the Fed Funds rate. The latest cut takes it to 3.75% - 4.0%:

Source: tradingeconomics.com

The latest FOMC statement opens as follows:

Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.

The Fed has the so-called dual mandate - it’s explicitly tasked with both maximum employment and price stability (rather than just price stability).

This means that even if inflation is higher than its 2% long-run target, it can still, without embarrassment, keep rates low in order to boost economic activity.

And inflation has been rising recently:

Source: tradingeconomics.com

Rising inflation should be a reason to hike rates, but the Fed is clearly not convinced that this is what the US economy needs at this time.

Which is strange, because the language used by the Fed in relation to the economy is actually more positive now than it was in the previous statement. This statement says that economic activity is “expanding at a moderate pace”, whereas the previous statement said that activity was moderating.

But they remain fundamentally cautious:

Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.

The US unemployment rate is 4.3% and while this is still a little higher than it’s been over the past year, I would have always considered this to be full employment, or at least very close to it. So the Fed’s stance does strike me as rather timid!

As usual, they provide very little forward guidance, as future decisions depend on future data points.

After the meeting, markets became less certain of another rate cut in December, causing some interest rates to rise.

While the government shutdown is a domestic political crisis of sorts, the overall investment picture seems positive to me: moderate inflation, close to full employment, and a balanced monetary policy. Perhaps this is the “Goldilocks” type of economy that everyone is always talking about!

ECB: the ECB has been running much lower interest rates than the Federal Reserve, and it has kept its rates unchanged this week, as expected. Its main refinancing rate is 2.15%.

Here is their lead statement from Thursday:

Inflation remains close to the 2% medium-term target and the Governing Council’s assessment of the inflation outlook is broadly unchanged. The economy has continued to grow despite the challenging global environment. The robust labour market, solid private sector balance sheets and the Governing Council’s past interest rate cuts remain important sources of resilience. However, the outlook is still uncertain, owing particularly to ongoing global trade disputes and geopolitical tensions.

Euro area inflation is indeed running at 2.1%, close to target. That being the case, there is little reason to change policy, although these low euro interest rates make for a pretty poor environment for European savers.

I note again the mention of “uncertainty” - this is a running theme.

Bank of England preview: no cut is expected next Thursday with Base Rate forecast to remain at 4%.

A key data point was the inflation release this month, which stayed constant at 3.8%. A rise to 4% inflation had been expected by economists.

The news was bearish for Sterling as it pulled forward expectations of a rate cut to February 2026.

In politics, speculation is mounting ahead of the Autumn budget. Leaks to the media suggest that the OBR will find a £20 billion “gap” or, more dramatically, a “black hole” that will need to be filled in the public finances.

Tax rises and spending cuts are on the menu, as confirmed by Rachel Reeves.

Economic bearishness and pulled-forward rate cut expectations have generated some weakness in the pound against the dollar:

Source: xe.com

And similarly, there has been euro strength against the pound:

Source: xe.com

From an investment point of view, we will of course be on the lookout for Budget changes that could impact the companies we cover. The effects of higher national insurance contributions and increased government spending in certain sectors have already rippled through countless listed UK stocks - and more drama of this nature could be on the way in November.

Company news: there will be a large flow of company news for us to get our teeth into. And for those who follow US stocks - the flow of news there will be enormous, too. I’ve only mentioned the largest US and international companies below. Let me know if I’ve missed anything!

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Economic Calendar

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Companies Reporting