The late-summer disinflation that had briefly convinced markets the Fed was finished gave way in September to a decisive hawkish turn. On 16 September, the FOMC raised the funds rate by 25bp to 3.75 to 4% in a unanimous 12–0 vote. The data around the decision were mixed enough to justify it, with a firm jobs rebound and hot producer prices set against a softer-than-feared consumer inflation print.

August headline CPI rose 0.4% month-on-month, after July's 0.1%, leaving the annual rate unchanged at 3.4%. Gasoline, up 3.9% on the month, accounted for over a third of the increase, and energy was still up 16.3% year-on-year. The reassurance was in the core CPI, which rose 0.3% but eased to 2.4% year-on-year from 2.5%. PPI, however, accelerated, rising 0.4% on the month and 5.4% year-on-year from 4.8%. The Fed's preferred gauge, core PCE, rose just 0.2%, below the 0.3% expected, easing the annual core rate to 3.0%.

Growth and labour both firmed. The third estimate of Q2 GDP was revised sharply higher to 2.2% annualized, up from 1.5%, driven by consumer spending (+3.8%). August payrolls rebounded hard, up 162k against the roughly 55k expected, with June and July revised up by a combined 55k. The unemployment rate held at 4.1% as participation rose back to 62%. Wages, though, kept cooling, with average hourly earnings rising 0.3% on the month but down 3.1% year-on-year, the softest since May 2021. August retail sales rose 1.2% (after -0.5%), with the control group up 1.4%. The August ISM manufacturing PMI eased to 54.6 from July's four-year high of 55.6, but the prices index held at 71.1, marking the 23rd straight month of rising input costs, driven by steel, aluminum, tariffs, and energy.

The September payrolls report released last week slowed sharply to just 29k, well below the roughly 85k expected, and the prior two months were revised down by a combined 60k (August fell to 133k from 162k, and July turned negative to -10k). The unemployment rate ticked up to 4.2%, though for relatively benign reasons, as a 485k surge into the labour force lifted participation to 61.8% while wage growth eased further to 3.0% year-on-year. 

UK inflation re-accelerated, as we flagged. August CPI rose to a five-month high of 3.1%, from 2.9%, with the all-goods rate jumping to 2.7% from 2.2%. The composition was again more reassuring than the headline: services inflation, the BoE's key metric, held at 3.4% for a second month, and core CPI was unchanged at 2.6% for a fourth month, even as manufacturers' input and output prices rose more sharply.

Growth held up better than expected, with July monthly GDP rising 0.4%, well above the flat consensus, after 0.3% in June, with services the driver and the three-month rate at 0.4%. The September flash PMIs, however, pointed to a loss of momentum, slipping to a three-month low of 51.7 from 52.5, with services easing to 51.7, while manufacturing firmed to 52.0. 

The BoE held Bank Rate at 3.75% on 17 September in a 6–3 vote, with Greene, Mann and Pill again dissenting for a hike to 4%.  Governor Bailey explicitly warned that prolonged Middle East conflict and higher energy costs may require tighter policy, and the Bank signalled that inflation would top 4% early next year. The MPC also voted unanimously to continue quantitative tightening, unwinding its gilt stock at roughly £46bn a year. As with the Fed, the stable core buys time, but the energy-led headline leaves the next prints skewed higher.

China's August activity data remained weak, though not uniformly so. Retail sales grew just 0.4% year-on-year, down from 1% and well short of the 1.5% expected. Fixed-asset investment deteriorated further, down 7.2% year-to-date (from -6.7% through July), dragged down by a 19.9% collapse in real estate investment and a 10.1% drop in private investment. The lone bright spot was industry output reaccelerating to 5.2% year-on-year from 4.5%, led by high-tech manufacturing (+16.7%) and manufacturing PMIs still in growth territory. New-home prices fell 3.0% year-on-year, the 38th straight monthly decline but the mildest since December 2025, with Shanghai (+3.0%) once again the only major city still rising.

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