Fed Raises Rates, Signals Further Tightening Ahead

Markets Steady Despite Hawkish Fed And AI Concerns

All eyes were firmly on the Federal Reserve (Fed) last week as policymakers gathered for one of the most closely watched meetings of the year. As widely expected, the Fed raised interest rates by 25 basis points, taking its target range to 3.75%-4.00%. More notably, the decision was unanimously supported by voting members, highlighting the degree of concern surrounding the inflation outlook. Updated projections also indicated that policymakers expect at least one further rate increase before the end of the year. The primary driver remains inflation, with higher energy prices linked to the conflict with Iran continuing to feed through into fuel costs and broader price pressures. Against this backdrop, the Fed has maintained a firmly hawkish stance despite increasingly vocal calls from the Trump administration for lower interest rates, reinforcing the central bank's independence and its commitment to returning inflation towards target.

Financial markets reacted relatively calmly. US Treasury yields moved modestly higher, with the closely watched 10-year Treasury yield rising four basis points to 5.0% as investors adjusted to the prospect of tighter monetary policy for longer. Equities were more resilient, with the S&P 500 ending the week broadly unchanged (in dollar terms). Market sentiment was initially weighed down by calls from several leading artificial intelligence (AI) companies, including Anthropic¹, OpenAI and xAI, for a slower pace of AI development amid ongoing safety concerns. However, those fears faded as the week progressed, helped in part by comments from NVIDIA Chief Executive Jensen Huang, who pushed back against the need for significant restrictions on AI progress². As a result, weakness across many AI-related stocks early in the week was largely reversed by Friday, leaving the broader US market little changed.

Elsewhere, European equities lost ground as inflation concerns continued to weigh on sentiment. The MSCI Europe ex UK Index declined 0.8% (in euro terms), with the early-week pressure generated by rising oil prices ultimately proving too great to overcome, despite some easing in energy markets towards the end of the week. Losses were broadly spread across the region, with German, French and Italian equities all finishing the week in negative territory. In the UK, the FTSE 100 was little changed, while the more domestically focused FTSE 250 advanced 1.0%, benefiting from improved sentiment towards parts of the UK economy. In Asia, performance was more encouraging. The Nikkei 225 gained 1.6% (in yen terms), with the majority of the advance coming during the latter part of the week as AI-related stocks recovered from earlier weakness. Sentiment was further supported by softer oil prices and a depreciation of the yen against the US dollar, both of which provided a more favourable backdrop for Japanese equities. Meanwhile, Chinese stocks also moved higher, with the Shanghai Composite adding 0.6% (in renminbi terms). Mainland-listed shares generally outperformed their Hong Kong-listed counterparts, supported by a modest improvement in sentiment towards domestic growth and technology-related sectors.

¹ Dario Amodei – “We Must Pace the Frontier”, September 2026
² T. Rowe Price – Global Markets Weekly Update, 18/09/2026

Macro Data

Country	Indicator	Period	Actual	Forecast	Previous
UK	Average Wages YoY	July	3.90%	3.90%	4.10%
	Bank of England Monetary Policy Committee	September	-	-	-
	Consumer Price Index Inflation YoY	August	3.10%	3.10%	2.90%
	Producer Price Index Inflation YoY	August	3.70%	3.30%	3.10%
	Retail Sales YoY	August	2.40%	1.90%	1.60%
	Unemployment Rate	July	4.90%	5.00%	4.90%
US	Building Permits Seasonally Adjusted Annual Units	August	1.390m	1.400m	1.430m
	Federal Reserve Monetary Policy Meeting	September	-	-	-
	Housing Starts Seasonally Adjusted Annual Units	August	1.280m	1.320m	1.310m
	Retail Sales YoY	August	6.00%	-	5.00%
Europe	Industrial Production YoY	July	-0.10%	-0.10%	0.10%
Japan	Bank of Japan Monetary Policy Meeting	September	-	-	-
Japan	Nationwide Core Consumer Price Index Inflation YoY	August	1.70%	1.80%	1.80%
China	Industrial Production YoY	August	5.20%	4.80%	4.50%
	Retail Sales YoY	August	0.40%	0.80%	0.60%
	Urban Unemployment Rate	August	5.30%	-	5.20%

Continuing the central bank theme from the opening comments, the Bank of England opted to leave Bank Rate unchanged at 3.75% despite growing concerns around the inflation outlook³. The Monetary Policy Committee voted 6-3 in favour of no change, with three members again calling for an immediate rate increase to 4.0%. Policymakers nevertheless reiterated that risks to the inflation outlook remain skewed to the upside and, with energy prices continuing to exert pressure on the economy, market participants increasingly expect the base rate to rise before the end of the year.

The decision came against a backdrop of firmer inflation data. UK CPI inflation rose to +3.1% in August from +2.9% in July, with higher motor fuel prices accounting for much of the increase. Encouragingly, core inflation remained unchanged, suggesting underlying price pressures have not accelerated materially yet. Meanwhile, labour market conditions remained relatively soft, with the unemployment rate at 4.9% and private-sector wage growth easing to +2.9% year-on-year. Taken together, the data continue to present a mixed picture for policymakers, with cooling wage pressures offset by renewed energy-driven inflation concerns.

³ Bank of England - Monetary Policy Summary, September 2026

While the Fed dominated headlines last week, there were still several notable economic releases beneath the surface. The housing market remained under pressure, with building permits falling to an annualised rate of 1.39 million units⁴ and housing starts declining to 1.28 million units⁵. The figures suggest that elevated mortgage rates and affordability challenges continue to weigh on residential construction activity, despite the broader resilience of the US economy. Consumer spending data, however, painted a much stronger picture. Retail sales were +6.0% higher year-on-year in August⁶, highlighting the continued strength of household demand despite higher borrowing costs and renewed inflation concerns.

⁴ Census Bureau – Building Permits, August 2026
⁵ Census Bureau – Housing Starts, August 2026
⁶ Census Bureau – Advance Monthly Sales For Retail and Food Services, August 2026

Eurozone industrial production edged -0.1% lower in July compared with June, extending the modest decline seen in the previous month and highlighting the region's still-fragile manufacturing backdrop⁷. On an annual basis, output was unchanged from July 2025, suggesting industrial activity has broadly stabilised after a prolonged period of weakness. Beneath the headline number, higher production of energy, capital goods and intermediate goods was offset by declines in consumer goods production, particularly non-durable items.

⁷ Eurostat – Industrial Production, July 2026

Rounding out a busy week for the central banks, the Bank of Japan (BoJ) delivered a widely anticipated 25 basis point interest rate increase, lifting its policy rate to 1.25%, the highest level since 1995 and a 31-year high⁸. The decision was approved by a 7-2 vote, with policymakers citing concerns that inflation could move above its +2.0% target over the coming quarters. That said, last week’s core CPI print offered some evidence of easing price pressures. Nationwide core CPI, which excludes fresh food, slowed to+ 1.7% year-onyear in August from +1.8% in July⁹. While remaining below the BOJ’s target, the reading continues to sit at levels that would have been considered elevated by Japanese standards only a few years ago.

⁸ Bank of Japan - Change in the Guideline for Money Market Operations, 18/09/2026
⁹ Statistics Bureau of Japan – Nationwide Core Consumer Price Index Inflation, August 2026

Rounding off with China, last week was a busy one for data releases which continued to paint a mixed picture of the economy. On the positive side, industrial production increased by +5.2% year-on-year, accelerating from July and comfortably exceeding expectations. The picture was less encouraging for the consumer. Retail sales increased by just +0.4% year-on-year, a slowdown from the previous month and indicative of still-muted domestic demand. Meanwhile, the urban unemployment rate edged up to 5.2% from 5.1%, pointing to a labour market that remains under some pressure.

Day	Country	Measure	Period	Forecast	Previous
Monday	UK	Rightmove House Price Index YoY	September	-	-1.00%
Tuesday	N/A	-	-	-	-
Wednesday	Europe	Flash Composite Purchasing Manager Index	September	51.50	52.00
Wednesday	UK	Flash Composite Purchasing Manager Index	September	-	52.50
Thursday	N/A	-	-	-	-
Friday	US	Durable Goods Orders MoM	August	-0.50%	1.00%

SJP Approved: 21/09/2026

Past performance is not indicative of future performance.

The value of an investment with Rowan Dartington may fall as well as rise. You may get back less than the amount invested.

The value of investments may fall as well as rise purely on account of exchange rate fluctuations.

The information contained does not constitute investment advice.

Full advice should be taken to evaluate the risks, consequences, and suitability of any prospective investment. Opinions provided are subject to change in the future as they may be influenced by changes in regulation or market conditions. Where the opinions of third parties are offered, these may not necessarily reflect those of Rowan Dartington.

FTSE Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE Russell®” is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.

MSCI Source: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed, or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Rowan Dartington is a trading name of St. James’s Place Investment Management Limited which is part of St. James’s Place PLC. St. James’s Place Investment Management Limited is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales No. 02752304 at St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP, United Kingdom.