Tag Archive for: financial resilience

Navigating Turbulent Waters: China’s Labor Market Challenges and Economic Future

China Labor Market Struggles Deepen, Clouding Economic Outlook

By Bob Mason, Published September 23, 2025, 03:58 GMT

China’s labor market shows clear struggles. Beijing set a 5% GDP goal this year, but weak export demand, low prices, and rising unemployment pull the economy down. The close links among these issues make it hard for China to switch to a consumption-led model.

Rising Unemployment and Weak Demand

The latest data for August show China’s unemployment rate at 5.3%, just above July’s 5.2%. Youth unemployment now sits at 18.9%, the highest since December 2023. This high rate adds stress for new graduates and young workers who face a tight job market.
Exports from China drop as trade tensions make deals hard. Price wars in the domestic market squeeze profit margins, and companies must cut jobs to save money. Fewer jobs mean consumers spend less. Retail sales in August grew by 3.4% year-on-year, down from 3.7% in July and 4.8% in June. Smaller growth shows that workers worry about their jobs.

Impact of US Policies on China’s Labor Market

US rules now bar some Chinese workers from the American job market. President Trump raised the H-1B visa fee to $100,000 to limit visitors with skills. This change may cut demand for Chinese talent at a time when over 12 million new graduates look for work.
These shifts have led to a drop in consumer confidence. The confidence index fell to 87.9 at the end of Q1 2025, while the long-term average is 108.95. With more doubt about future jobs, private spending slows, which puts more strain on Beijing’s plans to boost domestic demand.

Challenges for Policy Makers and Market Response

Policymakers now face a loop where weak jobs lead to low spending, which then pressures company profits and lowers jobs even more. The housing market also suffers, and global change adds to worries over steady growth.
The People’s Bank of China (PBoC) kept loan rates at 3% for one-year loans and 3.5% for five-year loans. This move shows a careful balance between pushing for growth and keeping finance stable. Bank leaders seem to wait for US–China trade talks to finish before they change policies further.

After talks between President Xi Jinping and President Trump on September 19, many see a chance for trade ease before the Asia-Pacific Economic Cooperation (APEC) Summit. Trump also stopped $400 million in military aid to Taiwan. Some see this as a sign that trade talks may move ahead.

Market Reactions and Outlook

Financial markets now show mixed signs. The CSI 300 and the Shanghai Composite dropped slightly by 0.01% and 1.67% respectively this month, even though both have risen by more than 13% year-to-date. In contrast, Hong Kong’s Hang Seng Index climbed 4.3% in September.
Market experts warn that without more policy help—especially support for the housing sector and more trade break—stocks in China may drop more. Key problems stay, such as US tariffs, a weak labor market, and low export demand.

The Road Ahead: APEC Summit and Economic Prospects

The APEC Summit in South Korea from October 31 to November 1 becomes more important as both Presidents Xi and Trump plan to attend. Many hope the meeting will help ease trade problems between the US and China. Still, experts think that some tariffs will stay, and the global economy must work with them.
Alicia Garcia Herrero, Chief Economist at Natixis Asia Pacific, notes that China has two sides: progress in IT and semiconductors, and struggles in the large real estate market. She points out that limits on Chinese imports—such as the ban on some Nvidia GPUs—may change supply chains further.
Data from the private sector Purchasing Managers’ Index (PMI) in September, due next week, will help guide views on the economic future. If export and job cuts continue, market hope may fall even more. If prices steady and domestic demand picks up, some worries might fade.

Conclusion

China’s job market gets tougher as US trade issues continue, and the economic outlook grows dimmer. As more people lose jobs and worry about spending, Beijing must find strong actions that work. The coming APEC meeting and talk between the US and China will draw much attention as any progress might help bring back trust and guide China toward its growth targets.

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UK Retail Sales Surge but Yearly Growth Slows: How It Affects GBP and What’s Next for the Bank of England

UK Retail Sales Surpass Expectations Despite Year-on-Year Cooling; GBP Slides Toward $1.35

By Bob Mason | Updated: September 19, 2025, 06:34 GMT+00:00

Overview

UK retail sales beat forecasts in August. The sales grew 0.5% from the previous month. This gain marked the third month in a row. Year-on-year, growth slowed to 0.7% from July’s 0.8%. The mixed data sent signals to the market. As a result, the British pound fell against the US dollar and neared the 1.35 level. This news puts the Bank of England’s future steps under a close watch.

Retail Sales Performance

UK consumer spending stayed firm in August. Sales grew by 0.5% in one month when compared to July. This rise repeated the gain of the previous month. Economists had predicted a rise of 0.3%. Store sales and online buys maintained strong links. Sales in clothing shops, local butchers, and bakers showed clear support. Weather that month helped push these sales up.

Year-on-year, sales slowed to a 0.7% increase. This drop from July’s 0.8% hints that buyers now hold back. Inflation and unknown economic signals may press consumers to spend less.

Inflation and Wage Growth Context

Inflation steps shape how people buy and how money rules adjust. The UK’s main inflation number stayed at 3.8% in August. At the same time, core inflation went down a bit, from 3.8% to 3.6%. Both numbers stay well above the 2% target. Policymakers watch these figures with care.

Wages tell a mixed story. Over three months ending in July, average earnings went up by 4.7% from last year. This is a small rise from 4.6% in the period before. In contrast, jobs in payroll dropped in July. Many expect more cuts in August. This slow shift in hiring and pay may ease the pressure on prices in time.

Market and Policy Implications

The steady rise in monthly retail numbers meets a slowing yearly pace. Inflation stays above the set target. The labor market shows signs of easing. These facts put the BoE’s rate committee in a tough spot. The signals now cause debate on where interest rates will go next.

At the meeting on September 18, the BoE held rates at 4%. Votes for a rate drop fell from five to two members. Governor Andrew Bailey said, “We see inflation drop back to 2%, but we face more work ahead. Future rate moves will come slowly and with care.” These words show careful steps in a time of doubt over wages and growth.

James Smith, research director at the Resolution Foundation, said inflation may rise a little before it gets lower over time. He said that even with lower pay rises and a softer job market, prices stay high for the BoE.

Currency Reaction

The market sent fast moves when retail numbers came out. The GBP/USD rate dropped from $1.35455 to near $1.35202 after the report. By September 19, the pair slid another 0.25% to $1.35204. The drop of the pound makes clear that investors fear spending may peak. They see more chance for easing of policy soon.

Looking Ahead

Now, the spotlight falls on new data. The UK Services Purchasing Managers’ Index comes on September 22. Experts now see service gains slow. They expect the index to drop from 54.2 in August to 51.7 in September.

A softer service scene, slower price growth in that area, and possible job cuts may push many to see a rate drop by November. However, if services show strong growth or if hiring stays good, this view may change. Financial firm ING still believes that a cut in November is likely if upcoming inflation data turn out fine.

Conclusion

UK retail figures in August beat short-term goals. But the fall in yearly numbers and high inflation keep the future unclear. Those in the market and in policy now watch wage links, job facts, and service trends. This close watch will help in the balance of growing the market and holding down rising prices.

About the Author

Bob Mason has worked in finance for over 28 years. His work spans global rating agencies and major banks. He covers news on currencies, commodities, alternative assets, and equities. He focuses on markets in Europe and Asia.

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Disclaimer: This article is for information only and does not serve as financial advice. Readers should do their own research or speak with financial advisors before any investments.

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HOOPP CEO Calls for Strategic Investment in Canada’s Nation-Building Initiatives: A Step Towards Economic Growth

 

HOOPP CEO Sees Federal Projects as a Good Start, But More Work Is Needed

By Barbara Shecter | Published September 18, 2025

The federal government announced nation-building projects. HOOPP’s CEO, Annesley Wallace, spoke in Toronto and gave a cautious nod to the move. She sees these projects as a first step that can open up long-awaited investment options for big institutional investors.

Wallace stressed that Canada has rarely offered strong, nationally backed infrastructure chances that large pension funds or global investors find hard to ignore. She says the new projects are exciting. Yet she underlines that much work still lies ahead.

“Historically, we haven’t seen these kinds of opportunities with the national support we needed,” said Wallace. “So the recent news about the projects feels very promising.”

Pension funds naturally favor infrastructure investments because they tend to offer stable returns over long periods. Wallace added that Canada must design the projects with solid business models and the proper level of government help. Only then can the nation draw both local and global investment.

She mentioned, “There is a long way to go before we can move these projects forward. The new Major Projects Office may guide us through the next steps.” The office, launched on August 29, now works to speed up permits and join forces with provinces, territories, Indigenous groups, and private investors.

The first set of key projects, shared on September 11, includes a liquid natural gas facility in British Columbia and a nuclear power project in Ontario. These projects match the investment styles of large funds like HOOPP.

Wallace believes Canadian pension plans can boost the nation’s edge if they use strict investment rules. These rules ensure they can meet long-term pension promises. “We have funds at HOOPP that we would love to invest in Canada. This can power the economy and lift productivity,” she said. “Canada must show it is competitive to attract both local pension funds and global money.”

Wallace took charge of HOOPP in April 2025. Before that, she worked at TC Energy Corp and led infrastructure at OMERS. She also touched on global risks that affect pension investments. She noted that earlier trade tensions, especially under former President Donald Trump, complicated investment plans and raised economic worries. By late 2024, HOOPP had 27 percent of assets in U.S. markets.

She explained, “We have seen market links break and global alliances weaken. This has big economic and other effects.” To handle these changes, HOOPP now uses a clear total portfolio approach. This strategy helps the fund spot opportunities when the economy shifts.

“Looking at our whole fund sets us up for success no matter what happens,” she said. “Frequent economic cycles in the future could bring more opportunities if we are ready to act.”

As the government moves ahead with the Major Projects Office and speeds up key programs, the support from pension funds like HOOPP could help Canada reach its nation-building goals. This will work best if the projects balance clear commercial sense with effective public partnerships.

About HOOPP:
The Healthcare of Ontario Pension Plan is one of Canada’s largest pension funds. It provides retirement benefits for healthcare workers across Ontario. HOOPP is known for smart investment plans that include infrastructure, equities, and fixed income.

For more on Canada’s nation-building projects and the role of pension funds, stay tuned to Financial Post’s ongoing coverage.

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RBC’s Bold AI Gamble: Can Multibillion-Dollar Investments Transform Canada’s Banking Future?

RBC Bets Billions on AI: Will It Pay Off?

By Yvonne Lau | Published September 18, 2025

Canada’s largest company, the Royal Bank of Canada (RBC), bets billions on artificial intelligence (AI). The bank uses this bet to change its work and spark new growth. AI spreads through many fields. The financial services sector takes it in early. Yet, people now look for clear results. RBC must show that its large spending produces gains.

RBC’s Early AI Research

RBC began its AI work over ten years ago. Foteini Agrafioti started the project. She led Borealis AI Inc., the bank’s own research lab, from the start. Her love of machine learning grew during her PhD at the University of Toronto. In 2016, she launched Borealis AI. The bank let her team experiment with machine learning long before ChatGPT and similar tools appeared. She recalled, “Back then, AI was new, and we had room to learn without immediate need. The bank made a bold, early choice.”

Today, Borealis AI has about 950 data scientists and engineers. They study large sets of RBC’s financial data. Their goal is clear. They build new AI products to help the bank and improve customer service.

Ambitious Goals in a Changing Industry

The financial world uses AI fast, but doubts remain. Experts wonder if the current AI excitement will hold up. In response, RBC CEO Dave McKay sets high goals for AI work. He aims for up to $1 billion in extra revenue and cost savings by 2027. McKay stresses that RBC’s future depends on using data and AI well. The bank keeps spending around $5 billion each year on technology.

RBC: A World Leader in Bank AI

RBC’s effort shows. For the third year in a row, the bank ranks among the top three global financial firms for AI maturity. The Evident AI Index, a tool that checks innovation, research, patents, and skills in AI, confirms this. Toronto-Dominion Bank (TD) is the only other Canadian bank in the top ten worldwide. TD works closely with Toronto’s Vector Institute to build AI tools and grow talent.

Big Banks Face Hidden Hurdles

Being large does not make AI work simple. Alexandra Mousavizadeh, CEO of Evident Insights Ltd., explains that big banks have too many separate data pieces. “Big banks must move many pieces of data before AI can work smoothly,” she said. In this light, RBC’s early and steady investment in research and training at Borealis AI is key. Finance lecturer Jonathan Aikman at Queen’s University sees Borealis AI as the bridge that lets RBC turn raw data into useful insights and attract smart talent.

The Road Ahead

RBC speeds up its AI work as the industry watches. Many will note if the bank’s large spending gives it an edge and better service for customers. With Borealis AI inside and McKay’s bold money targets, RBC stands at the leading edge of banking’s digital shift. The road is not without risks. Yet the bank’s approach shows a strong belief in AI as a core part of future banking. The years ahead will show if this bet brings the rewards it promises and sets a guide for other banks in Canada and beyond.

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Navigating Euro Area Inflation: Insights on Monetary Policy and Long-term Yield Trends

Euro Area Inflation Pressures Balanced; Rising Long-term Yields Pose Concern

By Dennis Shen, CFA | Published: September 18, 2025, 17:21 GMT

The ECB stayed with the same interest rate. This move shows that the bank watches the economy closely. Inflation stays near 2%, and decision makers see little need for rate cuts now as the economy shows strength amid risks.

Balanced Inflation Environment Amid Economic Resilience

Between June 2024 and June 2025, the ECB cut rates a few times. These cuts still work in the euro area. A new trade agreement between the US and the EU helped ease price pressure. The shift of low-cost goods from China and other regions, caused by higher US tariffs, plays its part too. The euro now grows against the US dollar and other currencies, which adds to lower price trends.

Core inflation, service prices, and wage gains, though lower than before, stay above the bank target. Labor markets stay tight and push prices up. More government spending in Europe—especially in Germany for defense and infrastructure—adds to price pressure. The upcoming EU energy trading regime in 2027 may push prices higher.

Scope Ratings sees inflation near 2.1% for 2025 and 1.9% for 2026. These numbers fall from last year’s 2.4% and from 2023’s high at 5.4%.

Future Monetary Policy: Dependent on Inflation, Growth, and Exchange Rates

Scope Ratings does not see more ECB rate cuts for the rest of 2025. The bank stays ready to change policy if the facts shift. The bias later this year and into 2026 goes to easing rather than raising rates. Any change to the deposit rate, now at 2%, depends on inflation trends, US–EU trade, economic growth, and how currencies move.

The euro is about 13% stronger against the US dollar this year. If it stays past the 1.20 level against the dollar, worries about deflation and less market strength may grow. As a strong reserve currency next to the dollar, the euro rises because the US trade and fiscal plans stay uncertain and US steps try to move the dollar.

US Monetary Policy and Euro Appreciation: Potential Pressure Points

US policy now has more weight. If the US central bank cuts rates along with market pressure, the ECB faces extra work if US and euro area rates move apart. A strong euro may push prices down and force the bank to act.

[Figure 1: Official interest rates (%) with Scope Ratings projections for 2025-2026 show expected US cuts alongside the ECB’s slow hold.]

Rise in Long-term Yields: An Emerging Concern

This year shows a steady climb in long-term euro area bond yields. The baseline view had long rates high for some time. Still, the recent rise shows a new worry for managers. If US rate cuts loosen long-run inflation expectations, euro area long-term yields can climb more and the yield curve may steepen.

The bank will not use major moves in reaction for now. The increase in yields shows market concerns over price trends. These concerns come from rising government spending, more debt, and political strain in countries like France.

The bank’s Transmission Protection Instrument, meant to stop policy gaps, seems unlikely to activate unless deep political trouble in France causes sharp falls in French bonds. Still, if yields jump widely across eurozone countries, the bank might pause its schedule to reduce assets.

[Figure 2: The upward path of 30-year euro area bond yields in 2025 shows a small recent fall.]

Implications for Borrowers and Credit Markets

Rising rates put pressure on global credit. Higher rates make debt harder to pay and limit access for borrowers who need it most. A steeper yield curve makes public and private borrowers try for short-term credit. This choice brings extra rollover and interest risks and may make financial settings even tighter, which can slow economic progress.

For a full summary of economic moves, readers can check the daily economic calendar.

Dennis Shen, CFA, leads the Macro Economic Council and serves as Lead Global Economist at Scope Ratings. Based in Berlin, he brings deep study of sovereign and public sectors, financial institutions, and corporate credit.

Related Articles:

  • Federal Reserve Runs Risk of Loosening Before Inflation Is Contained
  • UK Services Inflation Softens, Raising Odds of BoE Rate Cut in Q4
  • US Dollar Gains Ground as Initial Jobless Claims Drop to 231,000

For more insights, follow us at FXEmpire.

This article gives an analysis based on current economic facts and forecasts as of September 2025. It does not serve as financial advice or recommendations.

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China’s Chip War Heats Up: Alibaba and Huawei Seize the Opportunity Amid Economic Struggles

China Escalates Chip War Amid Trade Tensions: Alibaba and Huawei Set to Dominate Domestic AI Chip Market

September 18, 2025 — China pushes its chip battle against the United States as trade talks stall. Beijing cuts ties with US tech by stopping Nvidia AI chip sales. It backs home-grown makers like Alibaba and Huawei to build a local chip system.

US-China Trade Talks Hit Roadblock in Madrid

US Treasury head Scott Bessent met China’s lead negotiator Li Chenggang in Madrid. They sat together and talked. No major deal came out of their meeting on September 16. The two sides did arrange for TikTok to shift to American control. Trade talks, however, remain stuck. US tariffs on Chinese goods continue through at least the end of 2025. Beijing sees strain on its economy as a result.

Worsening Economic Indicators Signal Headwinds

Exports in China slow sharply. Growth drops from 7.2% in July to 4.4% in August. External demand falls. Private company indexes also show strain. Firms face rising costs and must cut selling prices. Lower margins force many firms to cut jobs for the fifth month in a row. Overall unemployment ticks up from 5.2% in July to 5.3% in August. Youth unemployment for ages 16-24 reaches 18.9%, a high since December 2023. Retail sales slow too. In August, sales rose just 3.4% compared to 6.4% earlier in the year.

Beijing’s Strategic Escalation in the Chip Sector

China’s tech authority orders its biggest firms to stop buying Nvidia chips. The ban halts new orders and cancels existing ones. This step extends earlier restrictions on select Nvidia items. It shows China’s intent to build its own chip supply line for AI use. The market feels this move. Nvidia shares drop 2.62% on September 17 against the Nasdaq Composite’s slight 0.33% fall. Analysts note that this choice may take away $100 billion from Nvidia’s market value.

Alibaba and Huawei Poised to Capitalize

The chip ban turns the spotlight on local companies. Alibaba wins a key deal with China Unicom, the country’s second-biggest wireless provider, to use its own T-Head AI chips. The firm invests about 380 billion yuan ($53.5 billion) over three years to build its AI and chip system. Its stock rises over 5% on September 17 and climbs to a 98% increase for the year, far outpacing Nvidia’s 26.8% gain in the same period.

Huawei also steps up. It plans to launch the Ascend 950PR chip in the fourth quarter of 2026, with more chips to come until 2028. The company builds its reputation in home-grown AI hardware.

Market Reactions and Broader Implications

Mainland Chinese stocks gain strength in 2025. The CSI 300 and Shanghai Composite go up by 15.8% and 16.1%, just ahead of the Nasdaq Composite’s 15.3% rise. Hong Kong’s Hang Seng leads with a 34% jump for the year. Market risks still remain. Trade tensions continue, housing shows signs of weakness, and pressure on profit margins and job reductions add to worries. These factors may slow down household spending and growth further.

Outlook and Strategic Considerations

Some experts keep a hopeful view. Goldman Sachs has raised its China 2025 GDP forecast from 4.6% to 4.8%. This hope rests on a push for more fiscal support in job and housing areas. China’s growing role in AI investment and chip building now sets its path toward tech independence amid ongoing US-China rivalry. Local companies like Alibaba and Huawei now lead China’s chip scene. Their move may shift the global balance in semiconductor production.

This report will be updated as developments in US-China ties and China’s semiconductor scene continue to change.

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Unlocking Economic Potential: How OSFI’s Relaxation of Lending Rules Could Propel Canadian Banks to Lend $1 Trillion

Canada’s Banking Regulator Explores Measures to Boost Business Lending Amid U.S. Trade War

By Barbara Shecter | Financial Post | September 17, 2025

Canada’s federal banking regulator, OSFI, considers new rules. OSFI wants Canada’s biggest banks to lend more to businesses. Canada faces economic challenges. A trade war with the U.S. makes change urgent.

Banks Could Potentially Lend an Additional $1 Trillion

Peter Routledge, OSFI’s head, spoke at a recent event. He noted that major banks built strong capital buffers during hard times. They earned these buffers during COVID-19 and after the 2023 Silicon Valley Bank collapse. Banks keep these buffers so they can lend more money. Routledge said banks could offer nearly $1 trillion in new loans. They would still meet capital rules. Compared to Canada’s $3-trillion economy, this sum is large. Routledge sees a chance to fund the country’s economic shift.

Potential Focus on Public-Private Infrastructure Projects

OSFI has not set final rules. One idea eases capital requirements on many business loans. These loans would support public-private projects. OSFI has taken similar steps before. In July, it lowered capital rules for life insurers investing in infrastructure. This idea fits a broader push to back key projects.

Leveraging System Resilience as a Catalyst for Growth

Routledge stressed the strength of Canada’s banking system. He pointed out that the system grew resilient after the 2008 crisis. The banks’ strong buffers can do more than protect. They can help fuel growth. Routledge asked banks to share ideas that boost lending without risky moves. He sees the system’s strength as a tool for supporting businesses and households. He stressed that well-run banks help keep credit and financial services available.

Trade War and Economic Adaptation

Canada faces a long-running trade dispute with the U.S. The Canada-U.S.-Mexico Agreement is up for review in July 2026. The U.S. Trade Representative has already started looking at the deal. Some expect the U.S. to press Canada for major changes. Despite these issues, Routledge stayed cautiously hopeful. He said the system’s strength might soften a tough trade outcome. He hoped for “maximum benefits and minimal costs” in negotiations. He added that Canada’s banks are ready to adjust when needed.

Canada’s Robust Financial System

Routledge pointed out that Canada’s financial system is more resilient than many others. He compared it to the U.S. system, where bank failures happen more often. He felt relief that shocks like the Silicon Valley Bank collapse in 2023 hurt the system only slightly. He admitted that future shocks are possible. OSFI works to keep the system both stable and flexible.

Government and Industry Outlook

Federal efforts are also in play. Ottawa launched a $5-billion fund to help businesses face trade war shifts. Together, government action and OSFI’s possible new rules form a two-pronged plan. This plan aims to boost resilience and get more business investments. As OSFI reviews its ideas, banks, businesses, and policymakers will watch closely. They want capital rules that balance risk with the need for more lending.

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Major Banks Lower Prime Rate to 4.70%: What It Means for Canadians Following Central Bank’s Cut

Canadian Banks Lower Prime Rate to 4.70%, Following Bank of Canada Rate Cut

September 17, 2025 – The Bank of Canada cuts its main rate. In response, Canadian banks lower their prime rate. They set it at 4.70% starting September 18. This rate drops 25 basis points from 4.95%. The change follows a quarter-point cut by the central bank to 2.5%.
• Banks act after the Bank of Canada signals a softer monetary plan.
• Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Montreal, Desjardins Group, National Bank of Canada, Laurentian Bank of Canada, Equitable Bank, and Bank of Nova Scotia agree with the move.

Impact of the Rate Cut

The prime rate guides many loans across Canada. It affects mortgage rates, personal loans, credit cards, and other variable-interest deals. Lowering the rate to 4.70% should ease borrowing costs. Consumers and businesses with variable loans may find relief in tighter conditions.
Analysts view this change as a quick fix for slowing inflation and steady economic growth. Banks and the central bank work together to boost spending and investments.

What Borrowers Should Know

Variable-rate borrowers will see lower charges soon. Homeowners with variable mortgages might pay less each month if their lender passes on the cut.
New borrowers may soon get better loan terms. Experts advise that borrowers watch future monetary moves. Banks may change rates again if economic data shifts.

Conclusion

Canada’s major banks now lower the prime rate. Their decision follows the Bank of Canada’s rate cut. This step shows a clear link between central bank actions and commercial lending. The goal is to ease credit and support the economy amid current challenges.

For more in-depth coverage and analysis, readers are encouraged to subscribe to the Financial Post, which provides ongoing updates on economic policy, market trends, and financial news across Canada.

Photo credit: Wikimedia Commons – Bank buildings in Toronto’s Financial District

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Will the Fed Cut Rates Too Soon? An In-Depth Look at Inflation Risks and Market Pressures

Federal Reserve Runs Risk of Loosening Before Inflation Is Contained

By Dennis Shen, Updated September 17, 2025, 16:43 GMT+00:00

The Federal Reserve gets set to announce new interest rates. Many experts fear the bank may ease rules too soon while inflation still runs high.

Current Economic Context

Headline inflation in the United States stands at 2.9%. The economy grows at about 2%. Some signs show a small dip in the labor market, yet the overall scene stays strong. Uncertainties from higher tariffs make the outlook less clear. Most expect the Fed to cut rates by 25 basis points in its next meeting.

Market Expectations and Political Pressures

Financial markets mostly assume a rate cut is on the way. Some investors even guess a 50bps cut will come. This view comes from market mood and political push. The U.S. administration asks the Fed to ease fast to boost growth. Cutting rules too early might let inflation come back strong.

Risks of Premature Easing

Cutting rates before inflation is well checked brings back memories of last September. Then, a 50bps cut was made under market and political weight after short-lived labor worries. Today, lower immigration means the job market may need fewer workers to stay balanced. This factor could lower the need for large cuts.

Chairman Powell might point to signs of stress in the job market. Weak payroll numbers in August, small rises in the unemployment rate, and more claims for jobless benefits add to this view. A drop in producer prices and a slow rise in core price levels may further back the case for a cut.

Gauging the Magnitude of Rate Cuts

Some discuss a 50bps cut, but even many FOMC members are not set on a 25bps move. Capital markets now show a taste for small steps. A large cut might seem like a sign that the Fed waited too long, a view that fuels critics who say Powell acted “too late.”

The key issue goes beyond September. Whether the Fed makes more cuts later depends on new economic data, price trends, and shifts in market and political views. Powell is expected to show he welcomes more cuts while warning that inflation stays above the target. In the services sector, inflation now holds at 3.8%.

Inflation Outlook and Economic Challenges

Inflation may come down next year, but several risks remain. Higher tariffs, a strong economy, and loose fiscal plans add pressure. Core inflation stays high at 3.1% year-over-year, marking a multi-month peak. These factors make more rate cuts a clouded option.

Political Influences on Fed Independence

Market watchers see rising political pressure on the Fed. President Donald Trump has asked for a swift 300bps reduction in rates. A Trump supporter, Stephen Miran, now helps guide the Fed board. Moves to remove key governors make some worry about the bank’s freedom.

This political push might steer monetary policy toward a softer side. A softer policy could hurt long-run price and money stability. It might also weaken the U.S. dollar, a change that could speed up the switch away from the dollar.

Conclusion

The Federal Reserve stands at a clear fork: acting fast risks a return of high inflation, while waiting might slow growth amid job market worries. Stakeholders will watch closely for the Fed’s hints in the coming days and months as it tries to keep the balance between growth support and price control.

About the Author:
Dennis Shen, CFA, is the Chair of the Macroeconomic Council and Lead Global Economist at Scope Ratings, Berlin, Germany.

For ongoing updates about economic events, visit our economic calendar.

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UK Services Inflation Eases: Implications for BoE Rate Cuts and GBP/USD Trends

UK Services Inflation Softens, Increasing Chances of Bank of England Rate Cut in Q4; GBP/USD Dips

By Bob Mason | Published: September 17, 2025, 06:16 GMT

UK inflation data now shows that prices in the services sector fall. This drop may push the Bank of England to cut rates. The British pound moves oddly against the US dollar as markets watch the BoE’s next step.

UK Inflation Data Highlights

In August 2025, UK services inflation moves down to 4.7% from 5.0% in July. This drop points to easing price rises in a sector that holds over 70% of the country’s GDP. Core inflation, which leaves out energy, food, alcohol, and tobacco, falls from 3.8% in July to 3.6% in August. At the same time, the yearly headline Consumer Price Index (CPI) stays at 3.8%.

Data from the Office for National Statistics shows the CPI for owner-occupiers’ housing costs (CPIH) rises 4.1% over the past year to August. This is slightly lower than the 4.2% rise in July. Air fares pull the rate lower, while restaurant, hotel, and motor fuel prices push it up. Core CPIH also drops a bit from 4.2% to 4.0% in August.

Implications for Bank of England Policy

The fall in services inflation, and especially in core prices, may shape the BoE’s next choices. Past fears of high services inflation kept rate cuts at bay. New numbers now might show a different path.

Yet, the economy shows mixed signs. Early September data show wages rise at a faster pace. Average earnings, including bonuses, climb to 4.7% in the three months to July, up from 4.6% in June. The unemployment rate stays at 4.2%, a sign of a tight job market that keeps demand and prices near their levels.

Economists see a split in the upcoming BoE meeting on September 18. Two votes stand ready to lower rates while seven votes hold at 4%. Market scouts watch these numbers. More votes for a cut could push up the chance for a move in November. A clear rate cut will depend on a faster drop in inflation and wage gains in the September reports.

ING Economics notes: "Private sector jobs fell more in August. This may push wage growth below 4% by year-end. That route may allow a BoE cut, though our call for a November drop still hangs in question."

GBP/USD Reaction

After the new inflation numbers came out, the GBP/USD pair shows soft moves. It drops to 1.36369 before the news, then rises briefly to 1.36589 early Wednesday. When the numbers come out, the pair edges to 1.36526 and settles near 1.36419. By mid-morning on September 17, the pair sits close to 1.36456. This calm shows market care amid mixed signals.

Economic Data to Watch and Market Outlook

Investors now watch the BoE decision on September 18 very closely. Soon, UK retail sales will appear on September 19 while the Services Purchasing Managers’ Index (PMI) comes on September 22. These numbers will play a role in the Bank’s view and steps ahead.

UK retail sales are expected to rise by 0.4% in August after a 0.6% move in July. Good retail data may lessen the chance for easing in the fourth quarter, but weak numbers may give more room for a rate drop.

The Services PMI is seen to fall from 54.2 in August to 51.7 in September. A clear slowdown in services, along with some job cuts and lower price changes, might support a rate drop in November.

Conclusion

The drop in UK services inflation ties into important choices for the Bank of England as it finds a balance between holding down inflation and supporting growth. Wage trends stay a worry, but the softer numbers raise the chance for a rate cut in the last quarter of 2025. Traders now watch for upcoming data and clear signals from the BoE on its next steps.

Keep up with in-depth insights on BoE moves, GBP trends, and global market changes on FXEmpire.

About the Author:
Bob Mason is an experienced financial reporter with over 28 years covering currencies, commodities, and stocks across European and Asian markets. He has worked at global rating agencies and large banks, giving clear views on world market trends.

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