The Two Weeks That Will Be (21st September 2025)

1. Central Banks
Consider a situation where the most recent government appointee to the central bank quickly becomes its most dovish member, voting for the biggest interest rate cuts in an attempt to drag the committee his way. His dissents take them into the unchartered territory of a three way split, forcing a second vote for the first time in its history as an independent central bank. 

No… not the Federal Reserve under the arrival of Trump appointee Stephen Miran, but the Bank of England in recent meetings following the arrival of the Labour government’s appointee Alan Taylor. 

Central banks have always been political creatures, from George Osborne’s choice of Mark Carney as BOE Governor to BOJ Governor Kuroda’s role in Abenomics, and for many decades before. And for many decades to come. 

2. The US
Fed new boy Stephen Miran makes his first proper speech on Monday with the quirky title of “Non-Monetary Forces and Appropriate Monetary Policy”. Yesterday’s man Powell speaks on Tuesday.

We already know there is significant divergence across the Fed on the direction of policy, what with the dot plot showing 9 of the 19 members seeing 50bps of cuts this year and 6 of them seeing none.

This dispersion is in line with the unusual developments in the labour market, where both supply and demand are shrinking, thanks to a combination of Trump’s policies (reducing immigration and cutting government jobs) and the overhang of the pandemic. The Fed has to calibrate policy based on which side of the labour market will shrink faster. Powell pointed out in the press conference:

• “What’s different now is you see a very different picture of the risks to the labor market. You’ve seen – you know, we were looking at 150,000 jobs a month at the time of the last meeting, and now we see the revisions and we see the new numbers. And I didn’t – I don’t want to put too much emphasis on payroll job creation, but it’s just one of the things that suggests that the labor market is really cooling off. And that tells you that it’s time to take that into account in our – you know, in our policy”. 

So it will be eyes down for the latest Payrolls report on Friday 3rd October. 

3. The UK
The latest Bank of England meeting revealed another three way split: not over rates, but over the pace of Quantitative Tightening. Whilst the majority agreed to reduce the pace of sales from £100 bn to £70bn, Catherine Mann wanted them to go further to £62bn, whilst Huw Pill wanted to maintain the £100bn pace. Pill believed this would provide “continuity and consistency” whilst Mann argued the slower pace would retain the £13bn of active sales from the prior year and “maintain equal proportions of sales across maturity buckets”. The compromise of a lower headline number actually results in a larger amount of active sales, as Ed Conway valiantly explained in his 9 minute QT primer for Sky News:

In another sign of Gilt market fragility, the Bank decided to reduce the proportion of sales that would take place in the longer end such that only 20% would be in that bucket rather than the prior years’ plan to have an even split across short, medium and long. In the exchange of letters between the Governor and the Chancellor triggered by inflation being (yet again) above target, Chancellor Reeves told Bailey “It is important that the Bank continues to liaise closely with the Debt Management Office to ensure the Bank’s operations do not impact on the government’s wider gilt issuance strategy“.  

There will be a test of appetite for the long end with a 30y Gilt auction on Tuesday.

There will be a test of appetite for the government at the Labour Party Conference which starts on Sunday. The bars of Liverpool will be replete with factional plotters who could not be more delighted to have all their potential pawns in one place. Until this year’s change to the Labour Party rule book, a motion to change leader whilst in government could only have taken place at the conference. Now, it can happen at any time, subject to 20% of Labour MPs (~80) proposing an alternative.

The conference will still provide a useful staging post. Momentum matters for any political campaign and Starmer’s enemies are massing against him. Labour Party conferences are riven with Byzantine rules on what can be debated, leading to an early skirmish whereby a motion to scrap the two-child benefit cap has been blocked from discussion by the Labour Conference Arrangements Committee. A joint statement issued by the groups putting forward the motion, which included “King of the North” Andy Burnham’s Mainstream and the left-wing Momentum, warned it was ‘yet another example of the hyper-factional style of party management causing Labour to sink in the polls and members to leave in droves. Crucial policy issues and Labour’s offer to the British people must be debated at Conference’.

The two-child benefit cap has also been mentioned by Deputy Leadership hopeful Bridget Phillipson who described it as “spiteful”. Her competitor in the race, sacked former Leader of the Commons Lucy Powell, has suggested a gambling tax could be used to raise enough money to scrap the cap. Rachel Reeves must be looking on in horror as lumps get kicked out of her Budget plans. Although she still doesn’t quite know yet what she must do as her deification of the OBR means she awaits their verdict in the first forecast release on Friday 3rd October.

4. France
The new French Prime Minister is supposed to pull his Budget together by 7th October. The country is exercised over the topic of a wealth tax, proposed by economist Gabriel Zucman to levy 2% on on those with assets above EUR 100m. Three-quarters of the public support such a move, according to a recent Ifop survey. In opposition, stands one of the world’s richest men, LVMH boss Bernard Arnault, who claimed such a tax “aims to destroy the liberal economy”. Unfortunately for Bernard, there are more French voters than just him. An exasperated MP from Macron’s party admitted: “we are radically opposed to this and think it’s utter nonsense, but we’ll have to give in. Even our voters want it”. If that isn’t enough for the Socialist Party to back the budget, Macron will be happy to let the electorate pass verdict on the wreckers by dissolving parliament and going for fresh elections. 

5. Germany
It took four months but the new German government have only just agreed on their budget for the current year. They now have to work on next year’s ahead of an approval deadline of the end of November. With Germany increasing their debt issuance in Q4 by almost 20% and next year’s draft budget signalling three times more borrowing than 2024, debt investors will be spoilt for choice. And they are unlikely to choose long dated issuance from anyone, given inflation remains sticky. Even the co-head of Germany’s debt office admitted ‘there’s actually only a very isolated, structural demand for 50-year German federal debt’. There will be steeper yield curves ahead for all major economies. 

6. Japan
The LDP leadership continues apace and we will know the victor by Saturday 4th October. Although Abe protégé Sanae Takaichi and the son of former PM Shinjiro Koizumi are the frontrunners, having placed second and third respectively last time round, the voting system favours compromise candidates. Party members and MPs each share half the votes in the first round; the top two candidates then go into a run off where MPs have a bigger share of the votes. Even after winning the election of the party, the winning candidate can only become prime minister if opposition parties do not coalesce around an alternative. That is unlikely but demonstrates the difficulty of the parliamentary arithmetic in a minority government.

In the midst of political instability, the bellwether Tankan survey will be released on Wednesday 1st October and BOJ Governor Ueda is due to make a speech to business leaders in Osaka on Friday 3rd October.