Tightening bias

After more than 230 rate cuts over 2 years by global central banks, now it’s the turn to hike. Or at least to think about hiking. If you look a the charts below, the top one shows the expected path for official interest rates in the U.S. at the beggining of 2026 (orange) and today (blue) using Fed Fund Futures. If there was going to be 2-3 cuts this year, right now, that expection is basically gone. The bottom chart shows the same conclusion for global central banks, with the orange line representing current central bank expectations for their respective local rates. With the exception of Turkey, Russia and Brazil, all the rest have turned more hawkish. And most of them are expected to hike this year. The U.S. is at a crossroads right now, because inflation might pick up due to the oil shock thanks to the closure of Hormuz, and therefore the Fed will be inclined to hold rates (perhaps even hike). But the labor market is weakening, the credit sector is suffering and te a president wants rates at least at 1%. Powell may not do anything until he steps down in May, and it’s not clear that Warsh, the new Fed chair, will lower them, at least that much. He is see as hawkish, and will probably use the Fed Balance sheet more than rates. Unless there is a crisis, global rates are going up.

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