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The Federal Reserve’s preferred measure of inflation held steady at 2.5 per cent in the year to July, according to data released on Friday that paves the way for the US central bank to start cutting interest rates next month.

The personal consumption expenditures index compared with economists’ expectations of a 2.6 per cent rise and June’s figure of 2.5 per cent. The Fed’s target for headline PCE index is 2 per cent a year.

“Core” PCE — which strips out volatile food and energy costs — remained at 2.6 per cent, below the forecast 2.7 per cent.

The figures from the commerce department come after Fed chair Jay Powell said last week that the “time has come” to begin cutting rates as inflation eases and the labour market slows.

Powell’s comments at the annual Jackson Hole conference made it all but certain that the central bank will lower its main rate from its current range of between 5.25 and 5.5 per cent at its next meeting in September.

Much of the debate among Fed watchers has now shifted to whether the central bank will cut by 0.25 or 0.5 percentage points in September, and how steep the reductions will be for the rest of the year.

US government bond prices were little changed following the publication of the data. The yield on the two-year Treasury note, which rises when prices fall, was up 0.03 percentage points on the day, at 3.93 per cent.

Stock futures suggested the S&P 500 was set to rise 0.5 per cent compared with immediately before the release.

This is a developing story

Many things have changed since I began as a fund manager in 1995. My bosses flew Concorde and we could smoke at our desks after 6pm as we pondered what to buy with our car allowance.

But so much more has stayed the same. When it comes to investing, US companies still trump all comers. Europe muddles along, as ever. And of course a new century dominated by emerging nations is due any second now.

When I say “just around the next corner” my children immediately assume the pub is miles away. So how anyone has managed to keep a straight face selling emerging market equities is one of the mysteries of finance.

Aside from a seven-year stretch beginning in 2002, developed market stocks have trounced them pretty much my whole career. So relentlessly dire have relative returns been, especially post-financial crisis, that when the word “emerging” is spoken, all I hear is a gurgling noise.

My ears have unblocked recently, however. First, because I’m conscious that beyond Asia and India my portfolio doesn’t have a penny in another emerging market (as defined by MSCI).

No Latin America, Africa, nor all those places in central Europe you backpacked through after the Berlin Wall came down because they were basically free. That’s 15 per cent of the world’s 70,000 public companies, according to my Capital IQ database.

Second, I’m a contrarian. Global inflows into emerging market funds since January are 30 per cent down on this point last year, according to LSEG Lipper estimates, which in turn were two-thirds lower than 2021.

Then on Monday along comes Ruchir Sharma, chair of Rockefeller International, who wrote in this newspaper that “a major comeback is under way” and investors have “yet to respond”. He was persuasive.

To summarise, emerging economies are outpacing developed-world ones on an output per capita basis and no longer just because of China. Earnings are expanding faster, too — as are margins. All positive stuff, he said.

I remember reading such arguments back when I was wearing pinstripe suits (no belt, obviously) and Hermès ties. The buy-pitch never seems to change

Sharma also reminded us that many western countries are heavily debt dependent, with expensive stocks to boot. Emerging economies in aggregate are less stretched. Likewise, their stock markets trade at deep discounts to developed equities.

And yet and yet. The problem for me is that I remember reading such arguments back when I was wearing pinstripe suits (no belt, obviously) and Hermès ties. The buy-pitch never seems to change. 

Emerging nations have young and fast-growing populations! They want to buy more things! Companies are cheap and less reliant on dollar funding! Governments are reforming! The west’s apogee has passed!

So why haven’t these obvious facts — as true as when you could fly from London to New York in 3.5 hours as they are today — translated into emerging stocks outperforming old-world bourses?

They still might. But I fear the likes of Sharma misread the runes. Take the statistic that from next year more than 80 per cent of emerging nations will have output per capita growth exceeding that of the US — up from about half in the period between 2020 and 2024.

Sounds good apart from the fact this level was also reached in the first 15 years of this millennium, when emerging markets only outperformed their developed cousins for less than half the period. That’s also a quarter century of no relative progress.

Meanwhile, median US household real income fell from $67,650 in 1999 to $63,350 in 2012 and real wages did nothing but move sideways. Over these years, however, the S&P 500 rose a fifth, a period which includes the dotcom bust and financial crisis.

Clearly there is more to equity prices than money in pockets — a point I have made often in this column. The mistake is equating volumes and value. Top line growth does not guarantee superior shareholder returns.

It doesn’t even guarantee rising profits. Think of what happens when demand surges for a product or service in Nigeria or Brazil (or anywhere for that matter). Capital flows in, competition increases, returns moderate.

And even that assumes all companies are trying to maximise their returns on capital. Often, bosses are more interested in empire building, market share, or paying themselves more. In many emerging markets, holders of equity are far down any priority list.

Another big mistake I think believers in emerging markets often make is also ubiquitous, but they make it with bells and sparkles on. And that is to forget that current prices discount the future many years and decades out.

My pet crocodile knows that power, influence and wealth are shifting south and eastward — as my colleague Janan Ganesh reiterated in his column on Tuesday. The stats are clear. Demography is destiny.

Thus, the emerging world’s golden century is already reflected in prices to a large extent. Nor are valuations any more attractive just because they are at least 35 per cent lower on a forward price-to-earnings basis, say, than the developed world’s. Such claims are simplistic and mislead absolute investors, those focused on making money, as opposed to institutional investors more concerned with relative returns against a benchmark.

It’s not just that the MSCI world index, for example, is crammed full of insanely expensive technology stocks (the US now makes up 72 per cent of this index and IT a quarter), making any claim to be cheaper somewhat, er, rich.

The MSCI emerging markets index is itself skewed by a 25 per cent weighting to China which, due to an imploding real estate sector among other reasons, has a forward price/earnings ratio of nine times — flattering comparisons still further.

In other words, it is perfectly possible that the valuation discount between emerging and developing market stocks will narrow, but owners of the former still incur losses. Not good: investors such as me are not playing a relative game.

If emerging equities are a bargain relative to history and their own fundamentals, however, that’s different. I will be exploring this next week.

The author is a former portfolio manager. Email: stuart.kirk@ft.com; Twitter: @stuartkirk__

The U.S. Army said an employee at Arlington National Cemetery who tried to “ensure adherence” to rules that prohibit political activities at the cemetery “was abruptly pushed aside,” but that the employee decided not to press charges against the Trump campaign staffers who allegedly pushed her.

The statement Thursday comes in response to NPR’s reporting on former President Donald Trump’s visit to Arlington and an altercation his staff had with a cemetery employee.

“Participants in the August 26th ceremony and the subsequent Section 60 visit were made aware of federal laws, Army regulations and DoD policies, which clearly prohibit political activities on cemetery grounds,” the statement said. “An ANC employee who attempted to ensure adherence to these rules was abruptly pushed aside. Consistent with the decorum expected at ANC, this employee acted with professionalism and avoided further disruption. The incident was reported to the JBM-HH police department, but the employee subsequently decided not to press charges. Therefore, the Army considers this matter closed.”

The Army, in its statement, called the incident “unfortunate,” adding: “it is also unfortunate that the ANC employee and her professionalism has been unfairly attacked.”

Because federal law prohibits Army employees from being involved with any political campaign, the staff at the cemetery did not deal directly with the Trump campaign about his visit there. A source familiar with the event said the cemetery staff worked with the staff of Republican Congressman Brian Mast of Florida, who joined Trump at Arlington.

Arlington Cemetery staff dealt directly with Mast’s chief of staff, James Langenderfer, briefing him extensively on the rules, which include no campaign events at the cemetery. They also reiterated that only an official Arlington National Cemetery photographer — and no campaign photographer — could be used at Section 60, the location of the recent American war dead. The source said Langenderfer told them the Trump campaign agreed to these rules.

NPR reached out to Mast’s staff and asked if Langenderfer was briefed and relayed that information to the Trump campaign. They did not address the questions but instead released a statement.

In the statement to NPR, Mast said: “President Trump conducted no politics at Arlington National Cemetery.”

The statement comes a day after Trump shared a TikTok video including footage from Arlington National Cemetery that likely violates a federal law against using military cemeteries for campaigning purposes.

NPR reported that Trump campaign staffers had a physical altercation with an Arlington National Cemetery staffer on Monday over the restriction.

It’s not the first time Trump has been accused of politicizing the military, but the campaign is seeking to downplay what happened in the aftermath.

Trump was at Arlington on Monday to commemorate the third anniversary of an attack in Afghanistan that killed 13 U.S. service members amid the disastrous withdrawal of troops. Trump and other Republicans have blamed President Biden and Vice President Harris for the chaos and loss of life.

The 21-second video posted on Trump’s TikTok account shows the former president laying a wreath at the Tomb of the Unknown Soldier and several snippets of Trump joining Gold Star family members at gravesites of their loved ones in a part of the cemetery known as Section 60.

“We lost 13 great, great people — what a horrible day it was,” Trump says over somber music. “We didn’t lose one person in 18 months, and then they took over the disaster, the leaving of Afghanistan.”

Trump has been making this claim about 18 months without military casualties during his administration for years, and it’s not true. The 18-month period from February 2020 to August 2021 saw no combat-related deaths in Afghanistan, with part of that when Biden was in office.

The Trump campaign was not authorized to film or photograph in Section 60, federal law prohibits the use of military cemeteries for campaign events, and two campaign staffers got in a physical and verbal altercation with the Arlington staffer who tried to prevent the filming.

In a statement after NPR’s original story, family members present Monday said they invited Trump and gave approval for his photographer and videographer to document an emotional moment of remembrance.

Some of those family members also spoke at the Republican National Convention, bashing Biden and vocally endorsing Trump.

“Joe Biden may have forgotten that our children died, but we have not forgotten — Donald Trump has not forgotten,” said Cheryl Juels in Milwaukee at the RNC in July. Juels is the aunt of Sgt. Nicole Gee, one of the 13 U.S. service members killed at Abbey Gate in Afghanistan in 2021.

“Joe Biden owes the men and women that served in Afghanistan a debt of gratitude and an apology. Donald Trump loves this country and will never forget the sacrifice and bravery of our service members,” she added. “Join us in putting him back in the White House.”

Though the loved ones said they were OK with the cameras present, the families do not have the power to suspend the rules.

The family of Master Sgt. Andrew Marckesano, a Green Beret who died by suicide after serving multiple combat tours and who is buried in Section 60, said according to their conversations with the cemetery, “the Trump campaign staffers did not adhere to the rules that were set in place for this visit.”

“We hope that those visiting this sacred site understand that there were real people who sacrificed for our freedom and that they are honored and respected and treated accordingly,” they said in a statement.

The Trump campaign responds

In the aftermath of the visit to Arlington, the Trump campaign’s response has taken on a tone of nastiness. One spokesman said the cemetery staffer was “clearly suffering from a mental health episode” and promised to release footage of the encounter but has so far declined to do so.

On the campaign trail in Pennsylvania on Wednesday, the Republican vice presidential nominee, Sen. JD Vance of Ohio, said Harris could “go to hell” over the Afghanistan withdrawal and blamed reporters for the campaign’s controversy, which he called a “disagreement.”

“You guys in the media, you’re acting like Donald Trump filmed a TV commercial at a grave site,” Vance said. “He was there providing emotional support to a lot of brave Americans who lost loved ones they never should have lost. And there happened to be a camera there, and somebody gave him permission to have that camera there.”

Trump echoed that argument Thursday, doubling down on attacks against Harris and Biden in a clip posted to his campaign’s Trump Social account from a campaign event in Michigan.

“She does not respect you, ask the families of the 13 incredible servicemember heroes who died during the surrender of Afghanistan — which was surrendered by Kamala and ‘Sleepy Joe’ — whether or not Kamala Harris cares about our young people and our military,” Trump said.

Meanwhile, Utah Gov. Spencer Cox, who attended the Arlington events with Trump, apologized in a social media post for sending a campaign fundraising email with a photo of him and the former president in Section 60 with the family of Staff Sgt. Darin Taylor Hoover.

Cox’s official gubernatorial X account posted a photo from the restricted area, and the post is still online.

This is not the first time Trump has been accused of politicizing the military for his personal gain. He has allegedly called dead soldiers “suckers” and “losers,” insulted the late Sen. John McCain for being a prisoner of war and recently stoked controversy for saying civilian Presidential Medal of Freedom recipients are much better than those who received the Medal of Honor — the highest military award in the country, often given posthumously.