Markets had a mixed week, with the UK and Europe finishing broadly flat. In the US, indices pulled back slightly from record highs as investors digested fresh economic data.
Inflation back in focus
The main news came from the US, where we received another update on inflation. The core Personal Consumption Expenditure (PCE) index, the Federal Reserve’s preferred gauge, rose to 2.7% in August, up from 2.6% the month before.
While the increase was modest and in line with forecasts, it underlined how sticky inflation remains. Market reaction was muted, with investors already expecting the figure.
The Fed’s balancing act
Federal Reserve chair Jerome Powell struck a cautious tone in a speech on Tuesday. He warned that risks to inflation are still tilted upwards, with tariffs and supply factors keeping price pressures elevated.
At the same time, Powell pointed to signs of a cooling labour market. He described the recent interest rate cut as a risk management decision, rather than the start of a full easing cycle. He also stressed that future moves will depend on incoming data.
Stronger growth in the US
Economic growth also surprised on the upside. US GDP for the second quarter was revised up to 2.8%, helped by resilient consumer spending. That makes it the fastest quarterly pace in two years.
Jobs data reinforced the picture, with weekly jobless claims coming in lower than expected. Together, the figures suggest that while inflation remains a challenge, the economy is holding up better than many had feared.
Europe and the UK steady
In Europe, manufacturing data from Germany, France and the UK came in broadly in line with forecasts. Markets showed little reaction, with equities finishing the week largely unchanged.
What this means for investors
Inflation, interest rates and growth remain the key drivers for markets. While recent data has painted a mixed picture, the bigger story is that markets continue to balance resilience in growth with lingering inflation risks.
For long-term investors, the message is the same: short-term moves in markets are normal, but it’s the steady, disciplined approach that delivers over time. Tools like InvestEngine’s Savings Plans can help smooth out volatility by investing regularly, regardless of market swings.
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