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- Dollar appreciates and Fed rate cut bets recede following yesterday’s upbeat data
- Rising consumers inflation expectations in the euro area complicate ECB’s outlook
- Gilt yields underperform peers on fiscal concerns and domestic developments
- Yen hovers around key level amid unexpectedly weak Japan inflation data for August
- Brazil’s new quarterly monetary policy report suggests a high bar for rate cuts
- Chinese yuan consolidates as People’s Bank of China sets fixing at one-month low
The US announces new sector-specific tariffs
Incoming data is prompting reassessment of the Fed’s policy path. Strong GDP and labor prints suggest growth is holding, but a potential US government shutdown could delay key data releases—raising the question of how the Fed remains data dependent. The case for deeper rate cuts hinges on whether the neutral rate has declined—a point still unsettled amid resilient economic momentum and continued fiscal support. Most Fed officials, including San Francisco Fed’s Daly, remain cautious about a frontloaded cutting cycle reaching neutral too quickly. Separately, Dallas Fed’s Logan has argued for shifting the policy benchmark from the fed funds rate to the triparty general collateral repo rate, which captures far more money market volume. Meanwhile, new US tariffs effective October 1 target pharmaceuticals, heavy trucks, and furniture. For pharmaceuticals, the plan would allow exemption from the 100% tariff if firms begin construction of a plant in the US. This idea aligns with another draft proposal by Commerce Secretary Lutnick. According to a Reuters news article today, the draft plan would require chipmakers to match imported volumes with domestic production to avoid tariffs, aiming to reduce reliance on foreign-made semiconductors.
