The Davy Digest - 22nd September 2025

The Federal Reserve resumed interest rate cuts this week for the first time in 2025, decreasing rates by 25 basis points and signaling further reductions ahead. They point to a weakening labour market, whilst maintaining that inflationary pressures will prove transitory. US equities reacted positively and posted new highs on Thursday. Industrial production data in the US rose by 0.1% in August driven by a rise in motor vehicle production. Meanwhile, industrial production in the Eurozone rose 0.3% in July, month-on-month, while the ZEW Economic Sentiment index for September showed an increase in optimism for the Eurozone economic outlook. In contrast, UK inflation remains elevated, with August’s year-on-year figure remaining at 3.8%. The Bank of England chose to keep interest rates at 4% as expected, while tapering their quantitative tightening stance from £100 to £70 billion. Consumer confidence for the UK also weakened against a backdrop of mounting economic worries. Elsewhere, the Bank of Japan kept interest rates steady at 0.5% and inflation dropped to 2.7% in August year-on-year compared to 3.1% in July. In China, retail sales figures came in at 3.4% year-on-year for August which fell short of analyst expectations.

Last week's highlights

	Industrial Production (16/09) – Rose by 0.1% in August vs -0.1% expected driven by a rise in motor vehicle production. Federal Reserve Meeting (17/09) – Cut rates by 0.25%, pointing to additional rate cuts by year end as the labour market weakens.
	Industrial Production (16/09) – Rose 0.3% in July from the previous month, and up by 1.8% on an annual basis. ZEW Economic Expectations Survey (16/09) – Up to 26.1 in September vs previous 25.1.
	August Inflation (17/09) – Holds steady at 3.8% year-on-year in August. Bank of England Meeting (18/09) – Kept rates at 4% amid sticky inflation. Consumer Confidence (19/09) – Fell by 2 points in September as economic outlook weakens.
	China Retail Sales (15/09) – Rose 3.4% year-on-year in August, falling short of analyst expectations.  Japan Inflation (19/09) – Dropped to 2.7% in August, vs 3.1% in July. Bank of Japan Meeting (19/09) – Kept rates at 0.5%, in line with expectations.

Looking ahead, investors will receive PMI flash data in the US, Eurozone and the UK. A reading on the US Core Personal Consumption Expenditures Price Index will come out on Thursday, along with initial jobless claims on Wednesday. Consumer confidence in the Eurozone will be released on Monday. Finally, Tokyo will see a consumer price index reading on Friday.

What's on the radar

	S&P Global Composite PMI Flash (23/09) Initial Jobless Claims (25/09) Core PCE (26/09)
	Consumer Confidence (22/09) HCOB Manufacturing PMI Flash (23/09) HCOB Services PMI Flash (23/09)
	S&P Global Manufacturing PMI Flash (23/09) S&P Global Services PMI Flash (23/09)
	Tokyo Inflation (26/09)

Chart of the moment - Santa's coming early

Source: IRS Filing Season Statistics, JP Morgan Estimates as of 25/08/2025.

• The “One Big Beautiful Bill Act” (OBBBA) will result in large personal income tax refunds in the US early in 2026. These refunds will increase consumer demand and provide a boost to growth.
• The Congressional Budget Office (CBO) estimate that the bill will increase the US deficit to 7% of GDP by 2026, compared to a current law projected level of 5.5%.
• Despite the projected increase in fiscal spending, the Fed is expected to cut two more times before year end, amid labour market weakness and pressure from the Trump Administration to lower rates. 

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