Will the US Federal Reserve (Fed) lower key interest rates in September, yes or no? Over the course of the month, investors became more confident that an interest rate cut would take place. However, the Fed was also in the spotlight due to the dismissal of Governor Lisa Cook.
The markets got off to a rather bumpy start in August. The reason for this was that the US labor market report for July was much weaker than expected. Investors feared that the labor market might struggle to hold up after Liberation Day (April 2, 2025). In fact, the number of new jobs created for May and June was revised downwards significantly, meaning that employment growth was only just positive.
Markets then began to recover, especially as investors became increasingly confident that the US Federal Reserve (Fed) would cut its key interest rates in September. These expectations increased following the release of the US Consumer Price Index for July, which was broadly in line with expectations at 2.7% year-on-year and showed no major impact from tariffs. Towards the end of the month, Fed Chairman Jerome Powell then struck a cautious tone in Jackson Hole, stating that the labor market was "not particularly tight and faces increasing downside risks".
The Fed was also in the spotlight as President Donald Trump wanted to remove Fed Governor Lisa Cook from the Board of Governors. This again called into question the Fed's independence and investors priced in higher inflation and a steeper yield curve. Overall, however, yields on US government bonds fell. At 4.23%, the yield on 10-year US bonds was 15 basis points lower than in the previous month. One beneficiary of the uncertainty was the price of gold, which rose by 4.80% to USD 3,4476.95 in August.
In Europe, the markets followed developments in Ukraine, as speculation about a possible ceasefire or even a peace agreement emerged in the middle of the month. This was triggered by a meeting between US President Trump and Russian President Vladimir Putin in Alaska, which was followed by a meeting between Trump and various European heads of state and government. No agreement was ultimately reached, but the markets reacted to the possibility of a ceasefire with volatility, particularly in oil and European defense stocks.
Finally, fiscal policy in Europe came back into focus: French Prime Minister Bayrou scheduled a vote of confidence for September 8 in response to criticism of his government's austerity measures. This led to renewed fears regarding the development of French debt (France's national debt will amount to 114% of GDP in the first quarter of 2025, compared to 62% in Germany). Accordingly, the spread between French and German 10-year bonds widened by +13 basis points in August. At 2.72%, 10-year German government bonds yielded 3 basis points higher than in the previous month.
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