Take Two: Fed leaves rates unchanged; Eurozone economic growth slows

What do you need to know?

The Federal Reserve (Fed) held interest rates at 4.25% - 4.50% at its July meeting, though policymakers were divided, with two voting for a cut, the first time two governors have dissented on a rate decision for more than 30 years. Fed Chair Jerome Powell said that the impact of higher trade tariffs was starting to show, but their overall effects “remain to be seen”. Meanwhile, the US economy grew faster than expected in the second quarter (Q2), expanding by 3.0% after Q1’s 0.5% contraction. Growth was boosted by a sharp drop in imports, reflecting increased tariffs.

Around the world

Eurozone economic growth slowed to 0.1% on a quarterly basis in Q2, down from 0.6% in the previous quarter, according to an official flash estimate. Even so, growth was better than the zero expansion the market had been expecting, although the Q1 reading had been inflated by US import frontloading ahead of tariffs. In addition, Eurozone annual inflation held steady at the European Central Bank’s target of 2.0% in July, though markets had been anticipating a slight fall. Core inflation, excluding energy, food, alcohol and tobacco, was also unchanged at 2.3%.

Figure in Focus: 3.0%

The International Monetary Fund (IMF) upgraded its global economic outlook to 3.0% growth in 2025, rising to 3.1% in 2026. Both are below last year’s 3.3% but up from its April projections of 2.8% and 3.0% respectively. The raised forecasts reflect the US government scaling back on some of its previous tariff announcements, stronger-than-expected frontloading in anticipation of higher tariffs and an improvement in financial conditions, including a weaker US dollar. The IMF cautioned, however, that risks are tilted to the downside due to the current trade environment, elevated uncertainty and geopolitical tensions. Notably late last week, President Donald Trump announced a wave of new tariffs hours before his 1 August deadline to make trade deals.

Words of wisdom:

The Gini coefficient: Developed by Italian statistician Corrado Gini, in 1912, to measure inequality, it is commonly used to assess a nation’s income disparity. It has a coefficient of zero indicating perfect equality, and one meaning absolute inequality. The World Bank provides an income inequality estimate based on the Gini methodology on a scale of 0-100. Its most recent data shows 41.8 for the US, while countries with a higher measure (greater inequality) include South Africa (63.0) and Brazil (51.6). Those with lower measures (better equality) include the UK (32.4) and France (31.2). The US government’s tax and spending bill is widely expected to accentuate income inequality across the country.

What's coming up?

On Tuesday, several composite Purchasing Managers’ Indices are issued, including data for the Eurozone, US, China and Japan. The Bank of Japan also publishes the minutes from its latest monetary policy meeting, having chosen to hold rates steady in July. China publishes its import and export data on Thursday, when the Bank of England meets to decide on interest rates - officials voted to leave rates unchanged at 4.25% at their June meeting. On Friday, Canada releases its latest unemployment figures.