Economics Weekly: Divergent Paths for the Fed and ECB
US/Eurozone: As ECB concludes easing, Fed prepares rate cuts. The Fed is anticipated to resume rate cuts next week despite higher August headline inflation as weak labour market data takes precedence...
Chief Investment Office - Hong Kong12 Sep 2025
  • US/Eurozone: Weaker labour data overshadows higher headline inflation; market expects Fed to prepare rate cuts next week while ECB concludes its easing cycle, marking a notable divergent path
  • Japan: LDP election is likely to be held in early October as PM Ishiba resigns; there is a slim possibility that an opposition party leader could become the next PM
  • Vietnam: We delay Vietnam’s rate cut forecast of 50 bps to 2026 as the economy has held up well despite US tariffs and cooling exports, driven by domestic strength and FDI
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US/Eurozone: As ECB concludes easing, Fed prepares rate cuts. The Fed is anticipated to resume rate cuts next week despite higher August headline inflation as weak labour market data takes precedence. Last week’s August nonfarm payrolls disappointed at a paltry 22k vs July’s 79k, and US jobless claims jumped to a nearly four-year high of 263k for the week ending 6 Sep. Preliminary revisions from the Bureau of Labor Statistics also brought down payrolls by 911k in the year ending Mar 2025, signalling that the labour market has been weak for some time. On the other hand, overall August inflation numbers were in line with expectations, except for the headline CPI rising 0.4% m/m faster than the market consensus’ 0.3%.

Regarding tariffs imposed under the International Emergency Economic Powers Act (IEEPA), the Trump administration has petitioned the Supreme Court to expedite its review of a federal appeals court ruling that struck down most of its tariffs, proposing oral arguments in early November. The Supreme Court must decide whether to take the case by 14 Oct which is the appeals court’s deadline for Trump’s tariffs to stay.

Shifting to the Eurozone, ECB left deposit facility rates unchanged at 2%, aligning with expectations, given well-contained inflation around its 2% medium-term target. Updated forecast sees headline inflation slightly rising to 2.1% in 2025 and 1.7% y/y in 2026, while 2027 inflation is lowered to 1.9% y/y, below the ECB’s target. 2025 GDP growth has been revised up to 1.2% y/y (from 0.9%), driven by a strong 1H25 performance, though 2026 growth sees a slight downward revision to 1% y/y.

Meanwhile, French PM Francois Bayrou was ousted by a 364-194 vote of no-confidence in the National Assembly on Monday (8 Sep). President Emmanuel Macron has been tasked with appointing a replacement, though the deeply fractured National Assembly, which lacks a majority for any single party or coalition following the July 2024 snap election, points toward continued political instability and gridlock.


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