Central banks brace for hawkish September as energy shock fuels inflation

Major central banks are heading into a pivotal September policy cycle with a hawkish tilt, as energy price shocks from the Middle East conflict complicate efforts to bring inflation back to target. The European Central Bank is widely expected to raise rates, the Federal Reserve faces growing pressure to hike, and the Bank of Korea has already moved with a second consecutive increase.

ECB Poised for September Rate Hike

The ECB is expected to raise its deposit rate by 25 basis points to 2.50% at its September 10 meeting, according to a Reuters poll in which 83% of respondents forecast the move. The decision would mark the central bank's second hike since June, when it raised rates for the first time since 2023 in response to inflation driven by the U.S.-Israeli war on Iran.CNBC+1

ECB President Christine Lagarde said in July that "the full effect of the energy shock" had not yet been felt, while some governing council members pushed for an immediate hike at that meeting. Eurozone inflation rose to 2.9% in July, up from 2% a year earlier, according to preliminary Eurostat data. German 10-year Bund yields rose to 3.27% on Friday, their highest in over a decade, as bond markets priced in a firmer rate path.turkiyetoday+2

Fed Faces Mounting Pressure

The Federal Reserve held rates at 3.5% to 3.75% in July in a divided 9-3 vote, with three dissenting members favoring a hike. J.P. Morgan Wealth Management strategists now expect a 25-basis-point increase at the September 15-16 meeting, citing continued supply-chain disruptions and investor doubts about the Fed's willingness to contain inflation. Markets are pricing in roughly a 63% probability the Fed holds, though expectations for at least one hike by year-end remain strong.chase+2

Federal Reserve Chair Kevin Warsh is scheduled to deliver his first speech at the Jackson Hole Economic Policy Symposium on Friday, with investors looking for signals on the policy path ahead.economictimes

Bank of Korea Delivers Back-to-Back Hike

The Bank of Korea raised its base rate by 25 basis points to 3.00% on August 27, its second consecutive increase and the first back-to-back hikes since early 2023. The decision reflected persistent inflation, with consumer prices rising 2.8% year-on-year in July, alongside an unprecedented semiconductor boom that pushed Q2 gross domestic income up 15.6% year-on-year — its strongest growth in more than 38 years.reuters+1

The Bank of Japan is set to announce its next decision on September 18 after raising rates to 1% in June, with markets expecting another 25-basis-point increase. The Bank of Canada is expected to hold at 2.25%, while the Bank of England is also seen standing pat as inflation pressures from the Middle East conflict weigh on the outlook.turkiyetoday