City Watch: US inflation appears to be under control

Last week’s 50bps (basis points) reduction by the US Federal Reserve was therefore quite interesting, and the first time that rates have been cut in over four years.

While investors will question whether Jay Powell, chair of the Federal Reserve, knows more about the economy than they do, on this occasion it seems to be a case of cutting because they can, rather than because they need to.

In short, it appears that US inflation is under control, the labour market remains healthy, and a cut in rates should help maintain this position and orchestrate a soft landing for the economy, which I imagine will be constructive for markets into the year end.

Andrew Mann from JM Finn (Image: JM Finn) The Bank of England clearly doesn’t feel it is quite at this point, perhaps influenced by still-elevated service sector inflation, but it seems likely that the hiking cycle is over and UK rates should also now be “gradually on the path down” according to governor Andrew Bailey.

Elsewhere, China’s central bank took centre stage earlier in the week, announcing its most aggressive stimulus since the pandemic in an attempt to restore confidence in the world’s second largest economy after the recent slowdown.

Hong Kong’s Hang Seng Index rose by over 4% on the news, and UK-listed miners in particular rallied due to their reliance on Chinese demand for raw materials.

So what does this all mean for investors? In what is likely to be a period of lower rates, dividends could once again come into focus.

According to the Janus Henderson Global Dividend Index, global dividend payments are estimated to reach US$1.74 trillion in 2024, an increase of over 6% on last year and, while I say this in little more than a whisper, perhaps seemingly cheap valuations and generous income on offer in our own domestic market will become increasingly attractive.