Global Economic Outlook — Week 38, 2025: Fed, BoE, and BoJ at the Turning Point

Overview

U.S. inflation has drifted back toward ~3% while the labor market softens sharply after a record downward jobs revision and slower recent hiring. With prices sticky but employment wobbling, the Fed is expected to start cutting rates in September, keeping Treasuries supported and the USD mixed to soft. Global policy paths are diverging. Europe/LatAm is mostly cautious, with Norway and Mexico nearing the end of their easing cycles. Turkey is loosening, but facing firm price pressures, and Argentina is facing rising political risk.

• ECB: Kept the Deposit Rate at 2.00% for a second meeting. Projections are mildly dovish (underlying inflation seen at 2.4% (2025), 1.9% (2026), 1.8% (2027), but Lagarde’s comments balanced the tone. Baseline: one last 25 bp cut in December to 1.75%.
• United Kingdom: GDP flat in July (0.0% m/m) with broad softness (IP −0.9%, manufacturing −1.3%, services +0.1%). BoE is likely to hold at 4.00% next week; easing expected from November into H1-2026.
• Norway: CPI 3.5% y/y; underlying 3.1% y/y (steady) and −0.7% m/m. Supports a cautious path; base case 25 bp cut in September to 4.00%.
• Mexico: Aug CPI 3.57% y/y, core 4.23% y/y (0.22% m/m). With resilient growth and a narrow Fed spread, Banxico is near the end of easing; one more 25 bp cut in September could be the last.
• Brazil: Inflation eased to 5.13% y/y; −0.11% m/m due to a one-off power discount. Selic likely unchanged at 15.00% next week; cuts from Q1 next year.
• Turkey: CBRT cut 250 bp, surprising markets. Inflation remains high and maybe firming; policy-misalignment risks rising. The base case is gradual lira depreciation, with elevated downside risks.
• Argentina: Provincial results hint at Peronist momentum ahead of October midterms; Milei’s LLA underperformed, threatening the reform agenda. Markets under pressure; cabinet changes signaled.

U.S.A

Disinflation alongside softer activity keeps the case for Fed easing intact. Growth still looks resilient thanks to credit and retail, lending support to Treasuries, while the dollar’s near-term bias is mixed-to-soft against low-beta FX. The consumer is shifting from robust to merely solid, housing remains hamstrung by affordability and supply, and the Fed is set to restart cuts. How retail sales print and how durable housing proves will determine whether easing proceeds steadily through year-end or pauses to reassess the trade-off between sticky inflation and rising employment risk.

Economic Review

Slow Build, Then a Jolt

After weathering the post-pandemic surge in inflation and the fastest rate-hike cycle in decades, the economy is bumping into a new set of strains. This week’s data shows pressure building on both sides of the Fed’s dual mandate—prices and employment.

Inflation: Edging Back

Headline CPI rose 0.4% in August and 2.9% year over year, continuing its climb from April’s 2.3% low. Core CPI advanced 0.3% on the month and 3.1% on the year. Under the hood, firm gains in apparel and used cars pushed core goods to their fastest monthly pace since January, while travel services—airfares and hotels—kept core services running well above the Fed’s 2% goal. Based on these CPI details, we estimate core PCE—the Fed’s preferred gauge—at roughly 2.9% y/y.

Producer prices tell a similar story. Core PPI (ex-food & energy) increased 2.8% y/y in August. A modest 0.1% monthly dip in core selling prices was largely due to margin compression: “trade services,” which capture retailer/wholesaler margins, fell 1.7%—the biggest drop since July 2024—potentially reflecting tariff pressure, though this volatile series is often revised. Stripping out trade services, “core-core” PPI also ran at 2.8% y/y, echoing the hotter drift in consumer prices.

Labor Market: Softer Than It Looked

The BLS’s preliminary benchmark revision indicates the economy added 911K fewer jobs between April 2024 and March 2025 than initially reported—the largest downward benchmark on record. That effectively halves the average monthly gain ahead of March 2025 from 149K to 73K. While the revision doesn’t speak to job growth after March, it implies the year began on shakier footing than thought and aligns with recent cooling: the three-month average through August was just 29.3K, essentially a post-pandemic low.

Policy Implications

With inflation still sticky but the labor backdrop looking fragile, we expect the Fed to begin easing in September and to continue through next year. Our forecast now embeds 125 bps of cuts by June.

Current Situation & Latest Data at a glance

Growth & Demand

• Wholesale dynamics (Jul): Sales +1.4% m/m vs. inventories +0.1% m/m → healthier stock balance.
• Consumer credit (Jul): +$16.0B, strongest since early 2024; Redbook +6.6% y/y indicates steady retail momentum.

Inflation & Prices

• PPI (Aug): Headline −0.1% m/m / +2.6% y/y; Core −0.1% m/m / +2.8% y/y → broad cooling versus prior months, but still nearer 3% than 2% on core trends.

Labor & Sentiment

• Conference Board ETI (Aug): 106.41 (down from 107.13) → gradual softening.
• Michigan (Sep, prelim): Sentiment 55.4; expectations 51.8. Inflation expectations elevated at 1-yr 4.8% / 5-yr 3.9%.

Housing & Credit Conditions

• MBA 30-yr mortgage rate: 6.49% (from 6.64%); applications +9.2% w/w; refi activity up—demand responding to lower rates.

Energy & Industry

• EIA (w/e Sep 6): Crude +3.94M bbl; gasoline +1.46M bbl (bearish for oil).
• NatGas storage: +71 Bcf (comfortable).
• Rig count: Oil 416 / Total 539 (slight increase).

Fiscal, Liquidity & Auctions

• Federal budget (Aug): −$345B (wider deficit).
• Fed balance sheet: $6.606T; reserves $3.151T (slightly lower).
• Auctions: Strong demand; yields lower — 3Y 3.49%, 4W 4.06%, 8W 4.00%, 30Y 4.65%.

 USA Economic Outlook — Week Ahead

The U.S. economy enters the week with consumer spending still resilient but clearly slowing, housing momentum looking fragile, and monetary policy poised to turn more supportive as labor-market slack builds. July’s retail data surprised to the upside and strengthened the starting point for third-quarter growth, yet the balance of evidence—softening sentiment, elevated inflation expectations, and weaker hiring—argues for a gradual downshift in consumption and continued caution from businesses.

Retail sales will set the tone on Tuesday. July’s headline increase of 0.5%, alongside an upward revision to 0.9% for June, underscored the staying power of goods demand. Motor vehicles led the month, and there were solid gains in clothing, sporting goods, and non-store retailers. Offsetting that strength, home-improvement stores and restaurants weakened, consistent with extended softness tied to housing and a pullback in discretionary services. The control group—retail sales excluding autos, gasoline, building materials, and food services—rose 0.5% and, together with prior revisions, implies more momentum in real consumption than previously assumed. We have raised our estimate of third-quarter real consumer spending growth to about 1.5% (saar) from 0.7%. For August, however, we expect headline retail sales to cool to a 0.4% monthly gain, with sales excluding autos advancing about 0.5%. Households generally still have the means to spend, but a weakening labor market and worsening perceptions about job security suggest a slower pace of consumption into year-end.

Housing is unlikely to provide an offset. Wednesday’s report on housing starts follows a firmer July, when total starts rose 5.2% to a 1.428 million annualized pace—the strongest since February—and stood 12.9% above a year earlier. The improvement was driven by a surge in multifamily construction, with single-family activity improving more modestly. Importantly, building permits declined 2.2%, a forward-looking sign that July’s momentum may prove fleeting. That caution aligns with what builders themselves report: the NAHB/Wells Fargo Housing Market Index has fallen to its lowest level since December 2022; more than one-third of builders are cutting prices by roughly 5% on average, and about two-thirds are offering buyer incentives. Inventories have climbed to their highest level in more than a decade, buyer traffic remains weak, and affordability headwinds persist. Although mortgage rates have edged down in recent weeks, they remain more than double their 2021 average near 3%, keeping a lid on activity. Against that backdrop, we look for August to start pulling back about 3.4% to a 1.380 million annualized pace.

Monetary policy is set to re-enter the picture. The FOMC left rates unchanged at its July 30 meeting for a fifth consecutive time, citing still-elevated inflation alongside a labor market that, at the time, appeared stable. Since then, the labor data have deteriorated: payroll gains have averaged roughly 29,000 over the past three months, and the unemployment rate has risen to 4.3%, the highest of the cycle. Those developments, together with dissents from Governors Waller and Bowman favoring a 25-basis-point cut in July, have shifted the Committee toward resuming easing. We expect a September cut that lowers the federal funds rate to a 4.00%–4.25% target range. The September Summary of Economic Projections should reflect this more dovish tilt, with the median participant penciling in around 75 basis points of cuts for 2025 (versus 50 bps in June) and a lower 2026 median near 3.125%, while leaving the longer-run neutral estimate unchanged.

Inflation remains the key obstacle to a faster pivot. Core PCE is still running about one percentage point above the 2% target on a Q4/Q4 basis, and recent tariff increases have re-ignited some goods inflation even as services disinflation has slowed. Our baseline anticipates a 3.1% rise in the core PCE deflator in 2025 (Q4/Q4). Given that backdrop, the post-meeting statement will likely acknowledge a weaker labor market but stop short of pre-committing to another immediate reduction, preserving optionality to cut again on October 29 or to proceed at a more measured pace.

For markets, the near-term read-through is straightforward. A modest August retail gain and softer housing print would keep September easing expectations intact, support Treasuries—particularly at the front end—and leave the dollar mixed as rate differentials compress against low-beta currencies. A stronger-than-expected retail report would firm the dollar and cheapen the front end temporarily, but, given labor-market dynamics, it is unlikely to derail the Fed’s initial cut. Conversely, a weak retail outcome would amplify recession chatter, bull-flatten curves, and weigh on risk sentiment, especially for consumer-exposed equities and housing-related names.

USD & Wall Street — Week-Ahead Outlook (Sep 15–19, 2025)

The week is framed by three key catalysts for the dollar and U.S. equities: August Retail Sales on Tuesday, Housing Starts and Permits on Wednesday, and the two-day FOMC meeting concluding Wednesday. Markets broadly expect a 25-bp cut; as a result, the updated dot plot and Fed Chair Powell’s press conference will likely matter more than the move itself. Any indication that the Committee will proceed meeting-by-meeting—rather than pre-committing to October—should help contain volatility. Conversely, stronger language on labor-market deterioration would favor duration and growth stocks, while a firmer emphasis on inflation risks would tend to support the dollar and bolster value/cyclical shares.

On the dollar, the DXY has softened from early-September highs but remains range-bound in the high-97s. Into the meeting, options and futures pricing lean toward a 25-bp cut with some tail risk of a larger move—an environment that typically caps the dollar unless data surprises to the upside. A firm retail print, particularly with a resilient control group, would nudge yields higher and support the greenback. By contrast, a miss alongside cooler housing data would likely keep the DXY biased lower heading into the statement and dots. Recent positioning shows traders adding to rate-cut bets and high open interest in interest-rate futures, underscoring the dollar’s sensitivity to guidance. From a technical perspective, the broader USD trend remains cautiously bearish, with a key pivot near 97. The risk of a break below that area is still elevated, and a slowing On-Balance Volume line points to waning buying interest. At the same time, an RSI around 47 suggests bears are not in full control.

On Wall Street, the S&P 500 sits near record territory after all-time-high closes in late August and fresh highs in September. Friday’s session finished higher as investors positioned for a Fed cut this week, leaving sentiment balanced but constructive. A modest cut paired with “optionality” for future easing should keep multiples supported; however, an unexpectedly hawkish tone—or a hotter-than-expected retail print—could cheapen the front end and dampen risk appetite in the near term. Technically, the trend remains higher, and the RSI is below overbought territory, which is consistent with ongoing momentum. That said, CFTC data show S&P 500 speculative net shorts deepening to roughly −173.7K contracts (from −161.1K), signaling more cautious positioning and hedging against downside. While heavier shorts can weigh on sentiment, they also raise the risk of short squeezes if momentum turns. Notably, net shorts are near their deepest since early 2023, reflecting caution amid Fed policy uncertainty and stretched valuations.

BoE Meeting & GBP — Preview for Thu, Sept 18, 2025

The Bank of England is widely expected to keep Bank Rate at 4.00%, one meeting after August’s finely balanced 25 bp cut (5–4 vote). With growth stalling and inflation still above target, the MPC is likely to stress a data-dependent, meeting-by-meeting approach rather than pre-committing to a fixed pace of easing. Sensitivity to Wednesday morning’s CPI print will be high; unless inflation cools decisively, any further cuts are likely to be paced cautiously against sticky domestic price pressures and a fragile growth pulse.

Macro backdrop

July GDP was flat (0.0% m/m; +1.4% y/y; 3m/3m +0.2%), signalling a broad loss of momentum after a firmer June. By sector, services rose 0.1% m/m (3m/3m +0.4%), construction gained 0.2% m/m (+2.4% y/y), while industrial production fell 0.9% m/m (manufacturing −1.3% m/m; +0.2% y/y). On the demand side, BRC retail sales grew +2.9% y/y in August, but the trade deficit remained wide at £22.24B (non-EU gap narrowed to £10.16B). Inflation expectations have firmed to 3.6% (from 3.2%). The NIESR GDP tracker points to modest momentum (+0.3% in August). Pay growth is easing but remains historically elevated, keeping the MPC wary of underlying price pressures.

Inflation timing

August CPI lands Wednesday, Sept 17 (07:00 UK time)—hours before the decision. A downside surprise would bolster the case for additional easing later this year; an upside surprise would argue for patience and a cautious tone on further cuts.

What to expect in guidance

After August’s narrow cut, the MPC will likely (i) acknowledge softer activity but reiterate risks from wages and services inflation; (ii) leave QT on its existing path, while preserving flexibility if liquidity conditions warrant; and (iii) avoid pre-signalling October, emphasising that policy will follow incoming CPI, wages, and activity data.

Market implications

A hold with balanced language should keep gilts supported at the front end and leave GBP range-bound, with direction set by the CPI print and the vote split. A hawkish hold (resilient services inflation, stickier wages, narrower bloc favouring cuts) would typically lift GBP and cheapen the front end. A dovish hold (soft CPI and weaker demand cues) would reinforce expectations for another cut before year-end and weigh on sterling.

How could this move sterling

If the MPC holds rates and underscores a meeting-by-meeting stance, sterling likely trades choppy but contained, with nuances in the votes and forward guidance doing the heavy lifting. Surprises—either in tone or the dots of the vote—will matter more than the headline decision. The CPI/decision one-two often amplifies intraday swings: a hotter CPI usually supports GBP by hardening BoE rhetoric; a softer print tends to have the opposite effect.

Technical view (GBP/USD)

Trend bias remains constructively bullish on the daily chart, with RSI ~57. A key pivot sits near 1.3200. Immediate resistance is 1.3360, followed by 1.3400; initial support is around 1.3200. A sustained break above 1.3400 would target higher highs, while a decisive move back below 1.3200 would signal a deeper pullback.

BoJ Meeting & JPY — Preview for Friday, September 19, 2025

Policy call. We—broadly in line with consensus—expect the Bank of Japan to leave the short-term policy rate unchanged at 0.50%. The macro case for additional tightening remains in place (a tight labour market, firm wages, and steady GDP), but near-term caution is likely to prevail.

Political lens. Prime Minister Ishiba’s resignation and the LDP leadership contest in early October introduce a window of political uncertainty that could spill over into markets. Against that backdrop, we have pushed back our expected timing for the next BoJ hike from October to early 2026. The medium-term policy path may also depend on whether the incoming leadership deploys more expansive fiscal measures. August CPI (due next week) will be scrutinised for any upside surprise after three consecutive months of deceleration. Until there is greater clarity on the political and fiscal outlook, the BoJ is likely to stay sidelined; our baseline assumes hikes resume in January 2026, lifting the policy rate toward ~0.75%.

Macro snapshot. Activity data points to mixed momentum. Industrial production fell 1.2% m/m in July after a strong prior month, with capacity utilization down 1.1% m/m and still below trend. Investment signals are firmer—machine-tool orders rose 8.1% y/y in August—while business sentiment improved (Reuters Tankan up to 13 from 9). Money growth remains modest (M2 +1.3% y/y; M3 at ¥2,219.7T). On rates, the 5-year JGB auction cleared at 1.12% (from 1.06%), consistent with a slow drift toward normalization.

JPY outlook.

Producer-price inflation has re-accelerated, and core inflation is hovering near or above target, preserving a mild tightening bias if activity holds up. With the Fed likely to cut, U.S.–Japan rate differentials should narrow at the margin—a yen-positive impulse provided BoJ guidance is not more dovish than expected. Authorities in Tokyo and Washington have reaffirmed that FX intervention is reserved for episodes of excess volatility, which serves as a conditional backstop against disorderly yen weakness.

Base case. A BoJ hold at 0.50% with language that keeps gradual normalization on the table, alongside a 25 bp Fed cut and meeting-by-meeting guidance, argues for modest JPY support via narrower spreads and range-bound trading unless the BoJ surprises hawkish or the Fed turns less dovish than priced.

Risk skews. A stronger BoJ emphasis on upside inflation/wage risks—or softer U.S. data and guidance—would likely push USD/JPY lower. Conversely, a cautious BoJ tone focused on growth risks, firmer U.S. data, or a risk-on equity backdrop would bias USD/JPY higher; in the latter scenario, renewed official warnings are possible if moves become disorderly.

Technical picture (USD/JPY). Price action has been sideways after retreating from early-September dollar highs, with spot oscillating in the 146.50–149.00 band. We view 149.00 as near-term resistance and 146.50 as initial support; a sustained break on either side would be a cleaner guide to the next directional leg. Speculative positioning remains elevated, leaving room for two-way squeezes around the BoJ and Fed headlines.

Gold — Current Conditions & Week-Ahead Outlook

Spot gold remains just below record territory after setting a new all-time high near $3,674/oz earlier in the week. It finished Friday around $3,649/oz, up roughly 1.7% on the week, supported by softer U.S. data and firm expectations of Fed rate cuts.

Gold enters the new week with a constructive tone, underpinned by easing bets, a benign U.S. dollar backdrop, and steady investor inflows. Our base case is sideways-to-higher with an upside bias if the Fed validates a gradual cutting path. A hotter data pulse or a more hawkish-than-expected Fed would likely trigger a tactical shake-out, not a trend change—unless it meaningfully reopens the debate around higher real rates.

Flows and positioning remain supportive. Gold ETFs posted a third consecutive month of net inflows in August (led by North America and Europe), while COMEX speculative net longs have risen in recent weeks. Street targets have edged higher as well; for example, UBS now projects $3,800/oz by end-2025.

What could move the price this week?

This is a data-and-Fed week: U.S. Retail Sales (Tue), Housing Starts/Permits (Wed), and the FOMC decision and dot plot (Wed). The base case is a 25 bps cut with a “meeting-by-meeting” message. The growth/price mix across these releases will steer the USD, yields, and real rates—the primary drivers for gold.

If Retail Sales undershoot, housing softens, and the Fed pairs a cut with dovish dots and a cautious press conference, real yields should drift lower and the dollar soften, keeping gold on a bullish footing and inviting a re-test/clear of $3,670–$3,700. A mixed data set and a cut framed as “one-and-then-assess” would favor consolidation between $3,570 and $3,670. Conversely, a hot Retail Sales/control-group print or a surprisingly hawkish Fed tone would likely lift front-end yields and the USD, risking a pullback toward $3,520–$3,550.

Technical picture

• Resistance: $3,670–$3,700 (record zone).
• Support: $3,550 (recent breakout shelf), $3,520 (approx. 20-DMA), then $3,500 (round figure). A decisive break below these would put $3,450 in focus.

Overall, the balance of risks still tilts modestly higher so long as real rates and the dollar remain contained and inflows persist.

WTI — Current Market Conditions & Week-Ahead Outlook

Front-month WTI settled near $62.70/bbl on Friday (Sep 12) after a choppy week shaped by oversupply headlines and soft U.S. demand signals. Brent closed around $67/bbl. The pressure reflects U.S. inventory builds and a widening global surplus narrative. Looking ahead to the FOMC and key U.S. data, our base case is a range trade at $61–$64. A dovish cut paired with softer data could lift prices toward $64–$65, while a hawkish surprise or firmer prints would expose $60–$61 supports.

Fundamentals snapshot

U.S. stocks: The latest EIA weekly showed +3.9 mb crude and +1.5 mb gasoline builds (week ending Sep 5). Refinery utilization eased to ~94.9%, reinforcing a shoulder-season demand lull.

Agency views (last week):

• EIA (STEO, Sep): Projects large inventory builds (>2 mb/d) from 3Q25–1Q26, with Brent ~$59 in 4Q25 and trending toward ~$50 in early 2026 as OPEC+ supply rises.
• IEA (OMR, Sep): Expects supply growth (+2.7 mb/d in 2025) to outpace demand (~+0.74 mb/d), warning of ~2.5 mb/d stock builds in H2-2025 if trends persist.
• OPEC (MOMR, Sep): Keeps a more constructive demand view (+1.3 mb/d in 2025; +1.4 mb/d in 2026) but notes the ORB fell $1.24 m/m to $69.73 in August.

In short, EIA/IEA emphasize a looming surplus and inventory accumulation; OPEC is demand-supportive but acknowledges softer pricing. Rallies are therefore fragile unless supply discipline improves or demand surprises to the upside.

Week-ahead scenarios

• Bullish: U.S. data undershoot and the Fed delivers a 25 bp cut with dovish-leaning dots → softer USD/real yields → WTI attempts $64–$65.
• Base case (range): Mixed data and a “one-and-watch” Fed message as refinery runs step down seasonally → $61–$64 consolidation.
• Bearish (tactical): Hot data or a hawkish Fed lifts the dollar/front-end yields while builds persist → retest of $60–$61.

Technicals (front-month WTI)

• Trend: Short-term downtrend from late-August highs, with momentum stabilizing near support.
• Resistance: $63.80 (recent intraday high), then $65.70 (early-Sep swing).
• Support: $61.55 (last week’s low), then $60.00 (psychological).
• Bias: Range-to-slightly-lower unless price reclaims $63.80; a daily close > $65.70 would neutralize the downtrend and reopen $67–$68.

Geopolitics

Sanction headlines and episodic disruptions can spark short-term squeezes, but thus far, they have not offset the prevailing surplus story.

Crypto Market — Current Conditions & Week-Ahead Outlook

With ETF inflows firm, Bitcoin dominance elevated, and a likely Fed cut in view, crypto begins the week on a solid footing. Our base case for BTC is sideways-to-higher, with $118K–$120K as the pivotal topside zone and $109K–$110K as the first line of defense. A retest of $107K would likely require a hawkish macro surprise.

Flows & market structure. U.S. spot BTC ETFs recorded roughly $642M of net inflows on Sept 12, the fifth straight positive day, lifting cumulative net inflows to about $56.8B and AUM to roughly $153B (≈6.6% of BTC market cap). The total crypto market cap stands near $4.17T, with Bitcoin’s share around 55%.

Macro calendar. It’s a central-bank-heavy stretch: U.S. Retail Sales (Tue) and Housing Starts plus the FOMC (Wed). The base case is a 25 bp cut with “meeting-by-meeting” guidance. The reaction of the USD and real rates remains the primary driver for digital assets—softer data and dovish messaging tend to support crypto; a hawkish surprise is a headwind.

Sentiment & breadth. Rising ETF demand provides a durable bid underneath BTC. Risk sentiment also benefits from renewed public-market interest in crypto-related firms (e.g., IPO chatter). BTC leadership remains firm (dominance >55%), though pockets of alt strength are emerging; if dominance slips, watch for a broader “alt-season” rotation.

BTC Technical Estimates (spot)

• Trend: The uptrend from the early-September trough remains intact; dips continue to be bought alongside ETF inflows.
• Resistance: $118K–$120K (key psychological band). A daily close above $120K opens $123K–$125K.
• Support: $113K–$112K (nearby shelf). A break below puts $109K–$110K in focus; loss of $109K would raise the risk of a test toward $107K.