Central Banks Gear Up for Year-End Rate Hikes Amid Energy Price Concerns

Central banks are expected to raise interest rates one more time before the end of the year, according to ING. The Federal Reserve and European Central Bank (ECB) are likely to hike rates in December, with the Fed potentially leading the way at its meeting on 9th December.

The ECB is expected to follow suit, despite some uncertainty around energy prices above $100 per barrel. The central bank's staff projections show headline inflation only dropping below 2% in Q4 2027, while core inflation is expected to increase slightly.

ING notes that the US and eurozone economies have shown resilience, but there are concerns about the impact of higher energy prices on inflation. The risk of broader cost increases if left unchecked has led to a more hawkish stance from both central banks.

The Fed's FOMC members are divided on the need for two hikes this year, with only 4 out of 18 anticipating this scenario. However, 8 members expect a second hike next year, contingent on the energy story.