Central Banks Face Inflation Pressure as Second Half of 2026 Begins

As we enter the second half of 2026, central banks worldwide are facing pressure from inflation. The US Federal Reserve has kept its target range unchanged at 3.50-3.75% since the start of the year, but internal divisions have deepened among members. Despite market expectations of a 25bp hike, the Fed is likely to stand pat this year, given stable inflation and rising real rates.

The European Central Bank has begun precautionary rate hikes in response to rebounding energy prices. The headline euro area HICP rose from 2.8% year-on-year in June to 2.9% in July, driven by accelerating energy prices. The ECB is expected to have at most one more 25bp hike before year-end.

The Bank of England has been acting cautiously due to the new government's expansionary fiscal policy. Despite concerns about a renewed Middle East conflict sending energy and commodity prices soaring, the BOE has kept the Bank Rate unchanged at 3.75% for a fifth consecutive time.