Monetary Policy

With no end in sight to the US-Israeli war with Iran, and tensions escalating once again over the weekend, investors are bracing for more volatility. Inflation fears have ramped up significantly, reflected clearly in government bond markets where rising yields show rate cuts being priced out and rate hikes increasingly being priced in.

Recent developments involving Federal Reserve (Fed) Chair Jerome Powell have raised fresh questions around central bank independence, the politicisation of monetary policy, and the future of Fed leadership, particularly with his term as Chair due to expire in May 2026.

For global bond investors, predictable central bank activities are an important component of long-term strategy. But the Trump administration’s unprecedented pressure on the Fed, including a criminal probe of Chair Jerome Powell, is driving investor fears about the independence of the world’s most important central bank and the reliability of monetary policy.

After solid stress test results from UK insurers last week, on Tuesday it was the banks’ turn as the Bank of England (BoE) published its 2025 stress test results along with December’s Financial Stability Report.

The wait is over. UK Chancellor Rachel Reeves delivered her much anticipated November Budget on Wednesday, ending weeks of rumours and leaks that had created a general feeling that all measures were on the table – now investors, businesses and taxpayers alike can fill in the empty cells on their spreadsheets and calculate what’s left.

In 2017, when the Federal Reserve (Fed) was preparing to shrink its balance sheet, then-chair Janet Yellen famously described the process of quantitative tightening (QT) as being "like watching paint dry."

Jerome Powell and his Federal Reserve (Fed) colleagues decided to cut the Fed Funds rate by 25bp to 3.75-4% at last week’s policy meeting, marking 150bp of cuts since the cycle began in September 2024.

Amidst an economic data blackout caused by the US government shutdown, markets received a bit of positive news on Friday with the release of the US CPI report which showed consumer prices in September increased at a slower pace than expected.

The Federal Reserve (Fed) cut interest rates by 25 basis points (bp) on Wednesday, exactly as markets had anticipated, marking its first rate reduction since December 2024.