Take Two: Fed minutes signal caution; Eurozone inflation holds steady

What do you need to know?

The Federal Reserve (Fed) warned of “considerable uncertainty” over the economic impact of US tariffs and their consequences for inflation, the minutes of its latest policy meeting showed. Some participants felt they may need to lower borrowing costs even before the full impact on inflation becomes clear, saying it may not be “feasible or appropriate to wait”. There could be “difficult tradeoffs” if elevated inflation proved to be more persistent while the labour market outlook weakened, the Fed said. The bank kept rates on hold at 4.25%-4.5% at July’s meeting, though the vote was split, with two governors dissenting on a rate decision for the first time since 1993.

Around the world

Eurozone annual inflation was confirmed at 2.0% in July, matching June’s reading. Core inflation – which excludes energy, food, alcohol and tobacco – also remained unchanged at 2.3%, its lowest level since January 2022. Separately, European Central Bank President Christine Lagarde said that “while the United States is – and will remain – an important trading partner, Europe should also aim to deepen its trade ties with other jurisdictions”. In Japan, both annual headline and core inflation eased to 3.1% in July, each down from 3.3% in June. Elsewhere, UK inflation rose by more than expected to 3.8% in July, from 3.6%, on the back of increased food prices and air fares.

Figure in focus: 51.1

Eurozone business activity continued to expand in August, with new orders increasing for the first time in 15 months. The flash composite Purchasing Managers’ Index (PMI), which includes both services and manufacturing data, rose to 51.1 from 50.9 in July - a reading above 50 indicates expansion. This marks the sharpest increase since May 2024, with the manufacturing index at a 38-month high. Elsewhere, Japan’s composite PMI edged up to 51.9 from 51.6, the fifth consecutive month of expansion, while the US composite PMI also rose for the 31st successive month, increasing to 55.4 from 55.1.

Words of wisdom:

Humanoid robots: Robots that resemble humans and mimic their behaviour are becoming increasingly integrated into various industries as technology advances. This month, China hosted the first ever World Humanoid Robot Games with around 500 robots from 16 countries competing in a wide range of events including athletics and football. Athletes need not worry that they will be outpaced yet at least; the 1,500m race was won in six minutes and 29 seconds, compared to the human record of three minutes and 26 seconds. The event also saw robots carry out tasks including cleaning and sorting medicines, helping developers gather data for practical applications.

What’s coming up?

On Monday, Germany’s closely watched Ifo Business Climate Index is published; July’s reading rose to 88.6 - its highest since May 2024 - up from 88.4 in June. On Thursday, the US reports the second estimate for second quarter (Q2) GDP growth - the preliminary estimate showed a better-than-expected 3% expansion. Also on Thursday, several Eurozone indicators are issued, including the latest Industrial and Economic sentiment surveys. Attention shifts to inflation on Friday, with updates from France and Germany, while Canada reports its Q2 GDP growth rate.