Ahead of the U.S. midterms

The week was dominated by central bank decisions and a resurgence of volatility in the stock markets, as investors simultaneously reassessed both the inflation outlook and the profitability of investments in artificial intelligence.

Status quo at the Fed

In the United States, the Fed kept its target federal funds rate in a range of 3.75% to 4.00%. The Committee highlighted the strength of economic activity, the resilience of domestic spending, and the robustness of investment, but believes that inflation remains too high to ease monetary policy. U.S. GDP grew by 3.4% in the third quarter, compared with 2.2% in the second quarter and the expected 3.2%. Orders for durable goods also rose by 1.8% in September, while the Conference Board’s consumer confidence index reached 91.7 in October, well above expectations of 81. Weekly jobless claims remained low at 194,000. These indicators point to an economy that remains solid. The main concern remains inflation. The PCE index rose 3.6% year-over-year in September, compared with 3.4% in August. Its core component stood at 3.1%. On a month-over-month basis, prices rose 0.5%, or 0.3% excluding food and energy. These persistent inflationary pressures, combined with stronger-than-expected growth, are reducing the Fed’s room to maneuver and increasing the risk that interest rates will remain high for an extended period.

Lagarde steps down from the ECB

In the eurozone, the ECB also left its rates unchanged, keeping the deposit rate at 2.50%. The decision comes amid rising energy prices, which are heightening inflationary risks while weighing on the growth outlook. Inflation in the eurozone reached 3.8% in September, up from 3.2% in August, while core inflation stood at 2.3%. Christine Lagarde indicated that the Governing Council had discussed a rate hike but ultimately decided to wait for further data. This has strengthened the prospect of a rate hike in December. Eurozone GDP grew by 0.4% in the third quarter, down from 0.6% in the previous quarter. At the same time, the announcement of Christine Lagarde’s early departure on February 7, 2027, introduced new institutional uncertainty.

In the equity markets, the week ended with a sharp correction in technology stocks. In the United States, earnings reports from Alphabet, Intel, and Amazon reignited questions about the scale of spending on AI and its future profitability. The Nasdaq fell 5.3% in October, while the Russell 2000 gained 1.3%: the rotation toward small-cap stocks and those less exposed to AI is continuing.

This week, all eyes will be on the United States, where the midterm elections for the U.S. Congress will take place. As a reminder, the House of Representatives will be completely renewed, while one-third of the Senate is up for (re)election. Finally, Apple and AMD will report their earnings.