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What’s going on here?

Data out on Wednesday showed that US inflation hit a two-year low.

What does this mean?

Last week’s jobs data hinted that the savvy maneuverings of the Federal Reserve (the Fed) were starting to bear fruit, and the latest inflation data has gone and confirmed it. See, US consumer price growth fell to 3% in June, marking the slowest rate of inflation in over two years. And sure, that slowdown was partly down to the fact we’re comparing prices to June 2022, when the war in Ukraine led to some eye-watering energy prices. But let’s not downplay this: after all, inflation’s edging toward the Fed’s 2% target, a goal that seemed like a fairy tale when inflation was peaking at over 9% last year.

Why should I care?

For markets: The core of the issue.

There was one little caveat to this good news: core inflation. The metric, which strips out volatile food and energy prices, is proving a little sticky – coming in below expectations, granted, but posting a 4.8% yearly rise. And investors will be praying especially hard for that figure to keep dipping. See, while the Fed is still likely to hike interest rates later this month, the latest data’s spurring hopes that the aggressive hiking cycle is nearing its end. And US markets are already rallying on the strength of that prospect – so let’s just hope core inflation plays ball.

The bigger picture: Getting schooled.

This inflation news might trigger a sigh of relief, but consumers should brace themselves for a blow from a different quarter: the government’s set to hit the play button on the federal student loan payments it paused back when Covid struck. And that’s no small potatoes: the resumption of payments on a hefty chunk of the $1.6 trillion in student debt could whip up a serious economic storm later this year.

What’s going on here?

The Bank of England (BoE) just released its stress test results, and they showed UK banks could cope with a serious beating.

What does this mean?

Hot on the heels of the Federal Reserve’s stress tests, the BoE has put the UK’s eight biggest lenders under the microscope. These financial powerhouses, responsible for about three-quarters of the economy’s lending, were tested against some pretty grim scenarios – including a housing market crash, ballooning unemployment, and interest rates hitting a hefty 6%. The silver lining: all banks passed, showing they’re ready to weather some tough storms and support households and businesses if hard times do strike.

Why should I care?

Zooming in: A rendezvous with refinancing.

Despite the positive results, the reality is that many UK households might soon need a financial lifeline: after all, the BoE has warned that around 4 million households could see their mortgage payments jump by nearly £3,000 ($3,879) annually when they’re forced to refinance. This comes as the average mortgage rate for fixed two-year home loans has hit a devilish high of 6.66%, the highest since 2008. Households, then, are gearing up for a rough ride, and here’s the kicker: a separate forecast out on Wednesday suggested that Britain’s cost-of-living crisis won’t be letting up for another year.

The bigger picture: The fuse is lit, and we’re waiting for the bang.

The UK economy has been holding its own so far, but interest rate hikes haven’t percolated through every layer of the country yet – and that means the real challenge is just around the corner. With a third of UK consumers reportedly already tightening their belts when it comes to non-essentials, more cutbacks will only make matters worse. So while the UK has dodged the recession bullet so far, fears of economic shrinkage are still in the air, and things could easily go south this year.