UBS On-Air: Market Moves UBS On-Air: Paul Donovan Daily Audio 'Weaker employment > stronger inflation'
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Sep 18, 2025 A quarter-point rate cut from the Federal Reserve raises eyebrows as a weakening labor market takes priority over rising inflation. Policymakers face challenges with unreliable labor data, impacting future rate confidence. The Bank of England may pause its rate adjustments, while the European Central Bank appears to be finished for now. Key upcoming US job data could offer more insights into economic direction, setting the stage for further Fed moves.
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Fed Chooses Jobs Over Near-Term Inflation
- The Fed cut rates and signalled more cuts are coming, prioritising a weakening labour market over rising inflation.
- This implies policy will ease even as some inflation components continue to climb into 2026.
Goods Inflation To Peak In Early 2026
- Goods price inflation likely peaks in late Q1 or early Q2 2026 due to inventory hoarding and transport lags.
- That timing means inflation pressures can rise even as the Fed moves to cut rates.
Labour Data Becoming Less Trustworthy
- Current labour data series are increasingly unreliable because of post-pandemic shifts and falling response rates.
- Jobless claims, especially continuing claims, should offer more dependable signals for policy.