Central banks take a breather, though more hikes are to come

Major central banks paused interest rate hikes this week, yet they remain committed to further adjustments, driven by persistent inflation and geopolitical tensions. The Federal Reserve and European Central Bank maintained rates at their current levels, signaling ongoing adjustments are necessary. The Bank of Japan mirrored this stance, but upcoming meetings are anticipated to witness rate increases, including the Bank of England, which has not yet raised its rates this year.

The Reserve Bank of Australia has already raised rates four times this year and is expected to hike again in November, following a hot inflation report and comments from Governor Michele Bullock. Norges Bank also convenes next week, after recently hiking rates in May and September, while keeping the door open for further rate hikes.

The Federal Reserve delayed rate changes ahead of U.S. midterm elections, pending more inflation data, with traders pricing an 80% chance of a December hike. The Bank of England has not yet increased rates but is expected to do so next week, with markets pricing a hike based on high energy prices and rising wage growth. The Reserve Bank of New Zealand surprised by holding steady at 2.75%, with an 80% probability of a December hike.

The European Central Bank delivered a hawkish stance, leaving rates unchanged but expressing rising inflation risks, in the wake of France's debt premium surge. The Bank of Canada lifted its key rate for the first time since 2023 but maintained slightly accommodative policy, as the BoC raises its 2027 inflation forecast. Sweden's Riksbank is poised for a rate hike, with an 80% chance priced in, as the economy outperforms expectations.

The Bank of Japan maintained steady rates, signaling vigilance against inflation, and revised up its inflation forecast. The Swiss National Bank is expected to keep rates at 0% for now, with policymakers confident in maintaining inflation within target ranges amid geopolitical tensions.