Central Banks Take Cautious Path Amid Energy Price Uncertainty

Central banks around the world are taking a cautious approach to interest rate hikes amid uncertainty over the impact of higher energy prices and the rapid advancement of AI technology. The Federal Reserve's decision to leave rates unchanged, despite pledging an unwavering commitment to bring down inflation, has triggered heavy selling in longer-dated bonds.

The Bank of England also held rates steady on Thursday, but only three out of nine rate-setters voted for a hike. Meanwhile, the Bank of Japan faces its own dilemma on Friday as it weighs the need to combat rising inflation against the risks of further weakening the yen.

Among G10 countries, Australia has raised interest rates the most this year, with a 4.35% policy rate that is expected to hold steady for now. Norway's Norges Bank, which also hiked rates in May, is likely to pause its tightening cycle after core inflation slowed in June.

The European Central Bank, led by President Christine Lagarde, has held the door open to a rate increase in September and again by year-end, despite the euro zone's economy growing faster than expected last quarter. The Bank of Canada and Sweden's Riksbank are also on hold for now, while the Swiss National Bank's key rate remains at 0%, the lowest among developed markets.

The Fed's decision to leave rates unchanged has been met with caution by investors, who worry that policymakers may not be doing enough to rein in inflation. President Donald Trump has made no secret of his desire for rate cuts in the past, which could add further uncertainty to the market.