Interest rates are back in focus. The UK is seeing its borrowing costs surge, as Martin Gamble explains in this week’s news section, and this has its own domestic causes, even if it also reflects similar moves in other sovereign debt.

The latest US jobs figures strongly hint that the Federal Reserve may hit pause on rate cuts for the time being.

The influential non-farm payrolls reading was notably higher than anticipated – a 256,000 rise comparing with the 164,000 that had been forecast, leading Bank of America’s US economics team to claim the Fed is done entirely with rate cuts for this cycle.

Describing the latest data as ‘the straw that broke the camel’s back’ they argue: ‘Inflation is stuck above target: in the December SEP [Summary of Economic Projections], the Fed not only marked up its base case for 2025 significantly, but also indicated that inflation risks were skewed to the upside. Economic activity is robust. We see little reason for additional easing.’

This feels significant. Most people have probably accepted we weren’t going back to a world of near-zero rates but to stay above 4% indefinitely would require an adjustment in most people’s thinking.

In fact, BoA have gone further and suggested there is even a scenario where the Fed might start rates higher again. ‘We think the risks for the next move are skewed toward a hike. Markets are still pricing 30-35 basis points of cuts this year. We see this mostly as risk premium, in case the economy weakens substantially.

‘In our view, the salient issue going forward will be the threshold for hikes. The bar is high since the Fed still thinks rates are restrictive. But hikes will likely be in play if year-on-year core PCE inflation exceeds 3% and/or long-term inflation expectations become unanchored.’

We may have a clearer sense of whether this is right when the Fed has its first meeting of 2025 at the end of this month.

As I guided we would in this column last week, we have devoted a good chunk of this week’s magazine to the Saba-saga in the investment trusts space, with the US hedge fund targeting several names and meetings to determine their destiny looming.

Trusts matter to us – we spend a lot of time writing about them because we think they can be really useful vehicles for investors. A key takeaway if you hold any of the relevant names is you really should participate in the votes on their future, whichever way you land. Otherwise, Saba’s takeover by stealth will essentially be waved through and you will have surrendered the opportunity to have a say. Read James Crux’s excellent piece for a full rundown on the background.

Peel Hunt notes Saba has declared positions in some 24 trusts, so this story won’t start and end with the seven which are already in its crosshairs. The broker comments: ‘If Saba is successful in one or more of its current activist strategies, this is likely to provide further firepower for it to build dominant shareholdings in other trusts for similar activist campaigns – which could result in the closure or merging away of strategies at an inopportune moment.’

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