Rate markets are pricing hikes from three major central banks this month. Fed futures put the odds of a rate hike at 61.2%, and swaps give the Bank of Japan 97%.

The European Central Bank (ECB) decides on Thursday in Berlin. The BOJ meets on September 18, with the Fed in between. All three are weighing the same energy shock from the war in Iran.

Energy Shock Turns Europe and Japan Hawkish

The ECB is expected to lift its deposit rate by a quarter point to 2.5% from 2.25%. All but one analyst in a Bloomberg poll forecasts the move.

Furthermore, all 65 economists surveyed by Reuters between August 31 and September 3 expect a quarter-point hike next week. This outlook has strengthened since August, with 83% backing a hike in August and 72% ahead of the July meeting, when the ECB held rates steady.

The last time the central bank raised rates was in June. Euro area inflation climbed above 3% last month, reaching its highest level in nearly three years. Price pressures are also unlikely to ease significantly in the near term.

A hike would make the ECB the most hawkish central bank among the Group of Seven.

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In Japan, Board member Kazuyuki Masu said the BOJ will keep raising its policy rate. Swap contracts show roughly 97% odds of an increase from 1% on September 18.

“If inflation accelerates here, there is a risk that the Bank might inevitably need to implement a rapid policy interest rate hike,” Masu said.

A quarter-point move would take the rate to 1.25%. The BOJ estimates the neutral level sits between 1.1% and 2.5%.

Masu tied higher fuel and chemical prices from the Iran war to broader goods inflation. Shipping fees and fertilizer costs are feeding into food prices, he said.

“There are concerns that the price hikes in these goods may not be temporary shocks but rather represent more enduring trends that risk pushing up overall prices,” Masu added.

The Fed’s Case Comes Down to Friday

The Fed carries the widest range of outcomes. CME FedWatch shows a 61.2% probability of a move to 375-400 basis points from the current 350-375. A hold registers 38.8%, and futures assign no probability to a cut.

That marks a full reversal from January, when most economists still forecast at least one cut this year. The Federal Open Market Committee held on July 29, but three officials dissented in favor of a quarter-point increase.

Inflation is cooling, but not fast enough. Headline CPI eased to 3.4% in July from 3.5% in June, still well above the 2% target. 

The jobs market gave the Fed room to focus on prices. Employers added 162,000 jobs in August against forecasts near 53,000, and unemployment held at 4.1%. 

August CPI lands Friday, September 11, five days before the decision. A hotter print would strengthen the hike case. A cooler one gives the committee room to wait.

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Source: BeInCrypto