What happened

The Federal Open Market Committee voted unanimously, 12 to 0, to raise the target range for the federal funds rate by a quarter point to 3.75% to 4%, its first increase since 2023. The Fed said inflation remained elevated and that the move would support a timelier return to its 2% goal, adding: "The Committee will deliver price stability."

The Bank of England held Bank Rate at 3.75% by a 6 to 3 majority, with three members favouring a rise to 4%. The Monetary Policy Committee voted unanimously to run down its stock of gilt purchases to zero by the end of 2034, at an annual average pace of £46bn, ending sales of long-dated gilts and relying more on maturing bonds and £20bn of annual sales.

The US House of Representatives passed a bipartisan Russia sanctions bill by 262 to 159, sending it to President Donald Trump's desk. The measure, named after the late Republican senator Lindsey Graham, lets the president impose tariffs of up to 100% on countries importing Russian energy, and sanctions Russian officials, banks and a shadow fleet of tankers.

Prime Minister Mark Carney told the European Parliament in Strasbourg that Canada and Europe were "not fair-weather allies" (translated from context, quote in English) and called for an "alliance of the future", after European Commission President Ursula von der Leyen proposed making Canada the bloc's first "associate member". Trump had called the idea "laughable" and threatened the EU with "very serious tariffs".

French fishermen blocked access to ports including Nice and oil depots along the Mediterranean coast for a third day, protesting over high fuel costs. Prime Minister Sebastien Lecornu extended emergency fuel subsidies for agriculture, fishing and construction until the end of the year.

The context

Both the Fed and the Bank of England are responding to a common energy supply shock. The MPC cited a 36% rise in Brent crude and a 78% rise in UK wholesale gas since its July report, driven by conflict in the Middle East and the war in Ukraine, with Brent at $106 per barrel on 14 September. UK CPI inflation reached 3.1% in August and is expected to climb to around 3.75% in the fourth quarter.

The sanctions bill is the first legislation supporting Ukraine that Congress has passed in more than two years. House Democratic leader Hakeem Jeffries opposed it, warning of "loopholes" and of new tariff powers that could be used against US allies, since the bill does not require the president to impose sanctions.

Carney's overture to Brussels comes amid Canada's trade war with the United States. Canada was the first non-European country to join Security Action for Europe, which provides €150bn in defence loans, and Carney proposed joining the Erasmus+ and Horizon programmes.

Why it matters

The Fed and Bank of England divergence, tightening in Washington, holding in London, shows how differently the two economies are absorbing higher energy prices. Coordinated moves in short-term rates across the US, UK and euro area reflect the global nature of the shock, with UK two-year fixed mortgage rates around 95 basis points above pre-conflict levels.

The sanctions bill hands the White House a powerful economic lever aimed at China and India, the main buyers of Russian energy, potentially reshaping global trade flows if the tariff authority is used. Trump is expected to sign it into law.

France's fiscal position is fragile: borrowing costs have hit their highest since 2008, and the government has conceded it will miss this year's deficit target. With the Socialists refusing support, the 2027 budget's fate may rest with Marine Le Pen's National Rally, which has threatened to vote against it.

What to watch

Trump's signature on the Russia sanctions bill, and whether he chooses to activate the 100% tariff powers against Russian energy buyers.

The French government's 2027 budget, due to be presented at the end of the month, and Macron's Friday meeting of party chiefs on energy markets and the Middle East.

The Bank of England's next rate decision on 5 November 2026, and Ofgem's energy price cap, set to rise to £1,723 for October to December with a further increase expected in the first quarter of 2027.

Progress on the Canada-EU partnership, and whether Trump follows through on his tariff threat against the bloc.