Worldwide Financial Planning

Central bankers have naturally spent this week trying to calm expectations that the next move is a step down and most have been sticking to the higher-for-longer scenario. The tension between these two positions means markets remain uncertain and continue to be driven by each day’s news flow.

Don’t get discouraged when the values are not going up. If the markets aren’t rising, you shouldn’t really expect to make returns during that period. There are doldrums, and you must sit them out. You can’t pop into a money market fund in cash and hop back into the market when: ‘it’s ready’.

In the UK inflation is coming down slower than hoped for and in the US economic growth is stronger than expected. Both banks are waiting for the impact of previous rate hikes to take effect and are happy to sit on their hands for now.

With inflation eroding investments, it’s easy to become uneasy and to look for a quick snap fix to what a perceived problem is, and headlines are a lure.

An end to the interest rate hiking cycle would be welcomed by US consumers, who have seen new US mortgage rates spend four weeks above 7% for just the third time this century. Despite this, new home loan applications increased by 2.3% in the week ending August 25.

While the market is easily fooled by headlines so too, unfortunately, are central banks. The true state of the economy won’t be clear for months so policy makers have to make do with the data they have, while the impact of today’s decisions won’t be apparent for another year.