Tightening

Several major central banks appear to be pivoting toward or initiating a new rate hiking cycle, driven primarily by persistent or resurgent inflation pressures exacerbated by geopolitical tensions, particularly the Iran conflict’s impact on energy prices. Yesterday, Iranian authorities announced the closure of the Strait of Hormuz again, which signals the fragility of the negotiations, and points to a sustained energy supply disruption. The European Central Bank raised its key deposit rate by 25 basis points to 2.25% on June 11, 2026, the first hike in nearly three years, citing headline and core inflation above its 2% target amid rising expectations and energy-driven upside risks (with 2026 headline inflation projected around 3.0%).  The Bank of Japan is forecasted to deliver a similar 25 bp hike soon, with upward revisions to core inflation forecasts (to 2.8% for 2026), while the Czech National Bank already implemented its first hike in four years (25 bp to 3.75%).  In the US, the Federal Reserve held the federal funds rate at 3.50%–3.75% in June but saw its dot plot median for end-2026 rise to 3.8%, with nine of 18 participants now anticipating at least one hike this year amid resilient growth and inflation concerns. Markets are pricing in potential further tightening across developed economies, marking the end of the prior cutting cycle for some and a shift to normalization or tightening. The worst part is that the market appears to think that inflation is only due to surging energy costs, and not a broad based phenomenon. Take a look at the chart below. Even software, which is thought to be deflationary, is going up in prices. Paraphrasing Mr Warsh, inflation is a choice, and it seems we have chosen to have it.

Want to know more? You can register for free at Fund@mental.

#iamfundamental #soyfundamental #wealthmanagement #familyoffice #financialadvisor #financialplanning #policymistake #ratecut #stagflation