The Week Ahead - A Sticky Situation
The outlook centers on sticky inflation: the guest expects the Fed to hold in October, while higher tech-sensitive goods prices could keep upward pressure on terminal-rate expectations into 2027. Forecasts point to mixed growth and inflation signals across the UK and China, alongside expected rate hikes in Indonesia and the Philippines and a pause in South Korea. Trade tensions between China and the EU may ease in the near term, while France faces difficult budget and deficit targets. In markets, the Nasdaq remained below recent highs as investors weighed AI-related credit risks, which the guest says are still limited.
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The guest reports that the core PCE tracking estimate rose from about 20 basis points to 31–32 after the inflation data, while linking potentially persistent tech-goods inflation to AI capital expenditure and a global memory-chip shortage. The guest expects the Fed to hold in October, though the data could keep upward pressure on terminal-rate expectations into 2027; an AI CapEx boom turning into a bust is presented as a possible, non-imminent reason the Fed might reconsider rate cuts.
The Nasdaq was about 5% below its recent highs amid AI-trade concerns and widening credit spreads at some major companies, which weighed on rate expectations despite stronger-than-expected U.S. inflation. The guest says AI-related credit contagion remains limited, but a shift in credit conditions or indiscriminate selling would mark a more serious change and could make the issue more immediate for the Fed.
The UK entered the third quarter with solid growth signals after being the G7’s strongest-growing economy in the first half, but the guest cautions that growth could weaken as the effects of the US-Iran War feed through with a lag. The economist expects CPI to rise from 3.1% to 3.5%, including a 4% monthly increase in vehicle-fuel prices and another 4% rise in October, while expecting another payroll decline and watching pay growth for possible second-round effects next year.
GEO-POLITICS
“So, basically, we view the outcome as moderately positive. So mainly reducing the near term risk of escalating trade trade tensions. But the structure…”—
ECONOMY
“You know, our core PCE tracking estimate before the data was around 20 basis points, currently stands at around 31 or 32. So that's a pretty sizable upward revision.”—
“So on the one hand, part of the beat was driven by rent inflation, which can be sticky, but also noisy month to month…”—
“You know, that said, you know, we do think that Fed speak was fairly consistent ahead of this data saying that they were comfortable staying on hold in October…”—
MARKETS
“US inflation has been stronger than expected and might normally have seen expectations for US rate hikes to push higher, but concerns about the AI trade and equity markets with…”—
Fed Inflation Outlook
The host introduces the week's market cross-currents, and the US economist says sticky inflation—especially rising tech-sensitive goods prices—supports an October Fed hold but keeps terminal-rate expectations elevated into 2027.
AI Credit Risks
The economist says a reversal in AI investment could cool growth and inflation, but current credit-market stress remains limited and has not yet triggered a broad pullback in business spending.
UK Growth Resilience
The UK economist describes strong first-half growth, continued momentum into the third quarter, and household savings that could help consumers withstand cost-of-living pressures.
UK Inflation And Wages
UK inflation is expected to rise as energy prices lift fuel costs, while mixed labor-market data leave wage growth important for judging potential second-round inflation effects.
France Budget Risks
Political divisions and voters' resistance to austerity make France's budget difficult to pass, while ambitious deficit targets, high debt, and rising interest costs leave fiscal risks unresolved.
China Growth Forecast
The China economist expects a limited third-quarter rebound and below-consensus growth, with modest improvements in industrial production and retail sales but continued weakness in fixed investment.
China-EU Trade Truce
Recent China-EU understandings may reduce near-term trade tensions, but the economist says structural imbalances remain and the apparent reprieve may not last over the medium term.
Asian Rate Decisions
The host expects rate hikes in Indonesia and the Philippines in response to financial pressures and sticky inflation, while South Korea is expected to pause and assess prior tightening.
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