Central Banks Face Rate Hikes Amid Rising Inflation

Global financial markets are bracing for a series of interest rate hikes as persistent inflation and rising energy prices pressure central banks. The Federal Reserve System is expected to decide on a policy shift on September 16, 2026, with markets pricing in a 70% probability of a 25 basis point increase to 4.00% following a hawkish speech by Chair Kevin Warsh.

In the euro-zone, the European Central Bank recently raised its deposit rate to 2.50%. Economists are now revising forecasts upward due to oil prices exceeding $100 a barrel, with many anticipating at least one more hike in December 2026. While some analysts expect the rate to reach 3% by March 2027, others project a single move to 2.75%. President Christine Lagarde's recent remarks and lack of forward guidance have further signaled potential tightening.

Similarly, the Bank of England is now projected by Goldman Sachs and Citigroup to raise rates later this year, reversing previous expectations of stability. Forecasts include a potential quarter-percentage-point hike in November 2026, driven by strong economic growth and Middle East hostilities affecting energy costs. Despite these outlooks, the bank rate is expected to hold at 3.75% during its September 17 meeting.

Currency markets remain volatile, with the Euro to Dollar exchange rate settling near 1.1600. While Goldman Sachs forecasts a decline to 1.12 over the next year, SEB predicts a rise to 1.23 by late 2027, noting that Scott Bessent's activist approach to Yen intervention and treasury buybacks may weaken the US Dollar.