Central banks: A pause while waiting for more information

As expected, the Fed, the ECB, and the BoJ left their rates unchanged this week. This pause, however, does not mark the end of the cycle. The ECB’s tone is becoming more balanced, weighing inflationary risks against tightening financial conditions, but one final rate hike in December remains our base case. Across the Atlantic, Kevin Warsh describes an environment conducive to further tightening, while remaining cautious about the risk of a credit shock. In Japan, the lasting exit from the deflationary cycle is taking shape, and monetary policy adjustment is expected to continue gradually. We anticipate two rate hikes by the Fed by January and four by the BoJ by the second half of 2028.

Eurozone: A more balanced tone, but the course remains unchanged

The ECB’s statement marks a shift from September. It now explicitly acknowledges both upside risks to inflation (the magnitude and persistence of the energy shock) and downside pressures (tightening financial conditions). The statement that inflation would remain “well above target for an extended period” no longer appears. In essence, however, there is little change. A rate hike in December remains our base case scenario, widely anticipated and implicitly signaled by Christine Lagarde during the Q&A (“If the current situation is not called into question by the next set of economic data, the path is clear”). Lagarde presented the rise in sovereign yields as a global phenomenon that is tightening financial conditions; regarding the TPI, she stuck to the usual stance: the ECB will intervene if monetary policy transmission were to be hampered “by disorderly movements not justified by fundamentals”. By December, the indirect and second-round effects of the energy shock will be closely scrutinised. From our perspective, September’s producer prices offer clearer signals, but the increase remains limited to a few sectors: energy, electricity-intensive industries and electrical equipment, driven by IA[1]. For now, companies in the Eurozone, particularly in the services sector, appear to be absorbing the shock. The European Commission’s survey released this Thursday indicates a rise in the sales price index in October, which remains in line with recent months.

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