Our latest views on the major central banks
The desk anticipates that the Federal Reserve will proceed with one 25bp rate hike in December, despite current market projections suggesting a more aggressive tightening path. Per the full note , recent comments from Fed officials indicate a more patient approach in adjusting rates. This is supported by signs that inflation, while elevated, may be adequately tempered by tighter financial conditions, including rising Treasury yields and a stronger dollar, without significant immediate economic detriment.
What the desk is arguing
The desk believes that the Federal Reserve will implement a key rate hike at the December meeting, as inflation persists and labor markets remain tight. Per the full note , current projections from FOMC members indicate a consensus leaning toward at least one more increase in policy rates this year despite recent assertions from Fed officials advocating for a more cautious approach.
The FOMC's recent forecast suggests that only 2 members expect no further hikes while 12 forecast at least one more. The potential tightening from rising Treasury yields creates a nuanced backdrop that could stifle growth, aligning with broader market sentiments that see the Fed’s next move as possibly final for 2026.
Where it sits in our coverage
Our consensus target for USD performance against the Euro is 1.075, with a range of projections from major firms such as: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view is consistent with the positions of jpmorgan, considering potential tightening moves by the Fed. However, the desk's call is at the higher end of the range with concerns about a broader economic slowdown potentially slowing the Fed down in its tightening schedule.
How other firms see it
Firms aligned with our view, such as jpmorgan, expect a rate hike trajectory consistent with a stronger dollar, while bofa takes a contrary position, notably more cautious in their outlook. They expect pressure on the dollar as the economic outlook appears less supportive.
The USD/EUR trajectory will be significantly influenced by upcoming ECB decisions in December and how closely the Fed’s strategy aligns with the inflation dynamics in the Eurozone. Watch key inflation indicators that will steer sentiment for both the EUR/USD and similarly influenced pairs such as USD/JPY.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Fed likely to raise rates by 25bps in December amid persistent inflation.
- 02Market sentiment indicates one hike, with broader economic factors weighing on growth.
- 03Current USD/EUR consensus remains at 1.075, with expectations for volatility around ECB and Fed actions.
- 04Expect continued scrutiny of inflation prints as crucial for monetary policy direction.
Market implications
Watch for USD/EUR to test levels at 1.075 ahead of the anticipated December Fed meeting, providing critical insights into trading dynamics as monetary policies align. Positioning signals in the derivatives market may help gauge trader perspectives ahead of major central bank decisions.
Risks to this view
Should inflation show signs of stabilizing or decline unexpectedly, alongside a weaker labor market, there could be downward revisions of Fed rate increase expectations, invalidating the current hawkish stance and leading to a bearish sentiment on the dollar.
Articles Our latest views on the major central banks Published 10:03 Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Our take on what could be next for the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan over the coming months James Knightley , Carsten Brzeski , James Smith and Chris Turner Federal Reserve When the Federal Reserve raised the policy rate 25bp at its September meeting, only two FOMC members expected no further hikes, while four of 18 thought they would need to raise rates at both the October and December meetings. The other 12 all expected one further rate rise this year. Senior Fed officials have since suggested that they can take their time on rate hikes with no need for moves at consecutive meetings, which means October’s FOMC meeting is widely expected to see policy left unchanged.
We, like the market, expect a 25bp rate hike at the December meeting given inflation remains elevated and unemployment is low. Nonetheless, the move higher in Treasury yields and the stronger dollar are contributing to tighter monetary conditions, which will weigh on growth. Given our inflation and jobs projections, we do not expect additional policy tightening in 2027, despite the market pricing in a further 50bp of hikes.
European Central Bank A resilient eurozone economy and increasing headline inflation remain strong arguments for yet another ECB rate hike. Not necessarily at the October meeting, as the ECB prefers having the quarterly staff projections in its briefing notes when deciding on interest rates, but definitely at the December meeting. However, given that we still see hardly any pass-through from higher energy prices to the rest of the economy, there are also very few reasons for the ECB to become overly hawkish.
While the macro picture doesn't provide any new arguments for changing the monetary policy stance at the October meeting, the surge in bond yields and the fiscal situation in France will be top of mind at the ECB. Not so much because of any consideration of intervention. For that, the French government would first have to implement austerity measures before the ECB would ever consider starting any bond purchases.
However, beyond the question of restarting bond purchases, the rise in bond yields has already impacted eurozone growth and inflation. In fact, the surge in German bond yields since the September meeting has already had roughly the same impact on growth and inflation as an additional 25bp rate hike. For France, it's closer to a 50bp hike.
With bond markets doing the ECB's job, some central bank officials might be less keen to continue hiking than they were at the September meeting. Bank of England We now expect two rate hikes from the Bank of England – in November and February. Until now, the Bank has cast its decision not to cut rates, as implicitly planned before the Iran War, as de facto tightening.
But recent comments suggest it increasingly feels it needs to act. The Bank’s November inflation forecasts are likely to show CPI briefly above 4%, and that is likely to be the catalyst for a hike, citing previous research that inflation at these levels is historically more likely to trigger second-round effects. But the case for hikes is still not compelling.
With the jobs market still relatively cool, we’re sceptical that wage growth is likely to react to higher energy prices anywhere near as much as it did four years ago. Interest rates are also more evidently restrictive than they are in the eurozone or the US. That still points to rate cuts from late 2027 and into 2028.
Bank of Japan The market prices in very low chances of a back-to-back BoJ hike on 30 October following its 25bp hike to 1.25% last month. That move saw two dissenters, and the BoJ typically takes time to assess the impact of policy changes before further adjustments. Nonetheless, the central bank continues to see upside risks to inflation and seems intent on a terminal policy rate somewhere in the 1.75-2.00% area next year.
Most in the market are expecting the next hike to come in December, seeing the BoJ switching to a quarterly cycle from a six-monthly cycle of tightening policy. That faster pace of tightening would seemingly be in accord with Washington's desire for BoJ monetary policy to provide some credible macro support to July's joint US-Japan intervention in the yen. We see risks that the next hike could be pushed back into January, however.
This allows the BoJ a little more time to monitor the economy. Prime Minister Sanae Takaichi's government remains set on a domestic demand push, and we have a slight preference that the next two hikes are backloaded into January and April, right before the consumption tax rate on food is cut to 1% from 8%. Central banks Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors James Knightley Chief International Economist, US James Knightley is the Chief International Economist in New York. He joined the firm in 1998 in London and has been covering G7 and Western European economies.
He studied economics at Durham… Carsten Brzeski Global Head of Macro Carsten Brzeski is the Global Head of Macro for ING Research. Previously, he worked at ABN Amro, the Dutch Ministry of Finance and the European Commission. He is a 2019 JFK Memorial Policy Fellow… James Smith Developed Markets Economist, UK James is a developed market economist, responsible for ING's view on the UK economy and Bank of England.
He graduated from the University of Bath with a degree in economics and joined ING in 2015. Chris Turner Global Head of Markets and Regional Head of Research for UK & CEE Chris is Global Head of Markets and Regional Head of Research for UK & CEE. Together with his team, he provides short and medium-term FX recommendations for ING's corporate and… In this article Federal Reserve European Central Bank Bank of England Bank of Japan
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