RIKSBANK: Seim Is Confident In Household Consumption Impulse
Sep-29 07:39
Riksbank September minutes here
Seim appears confident that the proposed food VAT tax cut, alongside other policies such as the easing of mortgage-based macro-prudential measures, will stimulate household consumption going forward. This is the main rationale for her dissenting vote, alongside the risk that potential output has been lowered by developments in the globalisation/tariff backdrop. It’s worth noting that she still believes “It is very difficult to assess the current situation and it is possible that the cut of 0.25 percentage points advocated by a majority of the Executive Board is well balanced”.
Some highlights from Seim:
- “One reason for this is that the budget for 2026 is more expansionary than normal and that the reduction in VAT on food to be implemented in April 2026 will have both direct and indirect effects on inflation and economic activity.”…“ The budget now being presented is explicitly aimed at stimulating household consumption and my assessment is that it will have the intended effect.”
- “The easing of the mortgage-based macro-prudential measures that is proposed to be introduced in April next year will probably also reduce amortisation and thus saving ratios, which will strengthen households’ cash flows. If they in addition affect price-setting on the housing market, they can also have wealth effects and in this way further stimulate consumption.”
- “The tendency towards increased protectionism, changes in trade flows and the risk of shortages of intermediate goods in the wake of the trade conflict could potentially break value chains and decimate production capacity. If this is the case, the GDP gaps in our analysis may be underestimated and combined with an increasingly strong domestic demand it could give rise to inflationary pressures”.
- “. The development I see as more probable is closer to that described in the alternative scenario with higher inflation”
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RATINGS: S&P Upgrades Portugal To A+ From A
Aug-29 20:28
S&P has upgraded Portugal's long-term credit rating to A+ from A, with a stable outlook (had been positive).
- This is the 7th S&P upgrade for Portugal, from a low of BB in 2012-15. Only four ratings are higher (AA-, AA, AA+, AAA). This is the same rating as Slovakia, and just above Spain (A) per S&P.
- Per Bloomberg: "*S&PGR UPGRADES PORTUGAL TO 'A+' ON LOWER DEBT; OUTLOOK STABLE"
STIR: Still Eyeing September And December Cuts
Aug-29 20:16
With few market-moving data points this week, implied Fed rate cuts essentially held onto their post-Jackson Hole upward repricing, adding a couple of basis points of easing for good measure heading into the Labor day weekend.
- Indeed, the lack of movement is somewhat remarkable given this week's extraordinary "firing" of Fed Governor Cook, which is currently being fought out in the courts. In all it probably added to the dovish tone on the near-term rate outlook post-Jackson Hole but not substantially so, at least so far.
- The current path sees a September rate cut priced with nearly 90% implied probability, with 56bp of cuts through end-year (a cumulatively priced second cut in December) and 83bp through March 2026 (3+ cuts).
MACRO ANALYSIS: MNI US Macro Weekly: One Week, Two Labor Days
Aug-29 20:10
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- A busy pre-holiday week for data brought mixed economic signals and little net change in Fed easing expectations, putting next week’s labor day – Friday with its nonfarm payrolls report, of course, with apologies to Monday’s federal holiday – in focus for the FOMC and market participants alike.
- Second-quarter GDP was revised up by more than expected in the second reading, to 3.3% Q/Q SAAR, driven by better-than-previously estimated domestic demand but still leaving 1st half growth in slightly weaker territory vs last year. That said, the Atlanta Fed's Q3 GDPNow estimate jumped to 3.47% (though the implied contribution from net exports in the quarter looks somewhat dubious, as we explain).
- The other major release of the week was July's Personal Income and Outlays report, which showed a modest uptick in income and spending on the month. However, the broader trends remain mixed at best, as real disposable income growth remains soft and services consumption is failing to regain traction.
- Core PCE inflation was close to expectations in July as the Y/Y accelerated to 2.9% for its fastest since February as it moves further away from recent lows of 2.6% having stalled above the 2% target. Recent trend rates are a little hotter but the median FOMC member will still need to see a further acceleration to meet their 4Q25 forecasts from June.
- Labor data were mixed. Latest jobless claims were in line to slightly better than expected, with initial claims trending a little higher but still impressively low whilst continuing claims are broadly plateauing after sharper increases in 1H25. But within the Conference Board consumer survey, the labor differential edged lower again, suggesting a continued upward trend in the unemployment rate.
- Elsewhere: regional Fed activity surveys were individually mixed, but combined generally showed an improvement in both manufacturing and services activity albeit with continued upside price pressures.
- Consumer sentiment (UMichigan and Conference Board surveys) and housing activity remained soft.
- Apart from Gov Waller again making the case from rate cuts, other FOMC colleagues who commented this week were a little more guarded when it came to the need for easing, to our ear.
