Central Banks Tighten as Energy Price Shock Hits Global Economy

Major central banks around the world are tightening their monetary policies in response to the current energy price shock. The Federal Reserve, for instance, is recalibrating its policy to a more restrictive stance after raising interest rates on Wednesday. Meanwhile, traders are pricing in a more aggressive policy response than what's projected in the US central bank's dot plot.

The Reserve Bank of Australia has hiked interest rates three times this year to 4.35%, undoing last year's cuts entirely. The central bank's deputy governor noted that policymakers will debate the case for another hike at their meeting later this month, with markets broadly expecting a rate increase then.

The European Central Bank raised rates for the second time this year earlier this month and struck a hawkish tone as energy prices rise. Markets price in at least one further hike by year-end and a deposit rate above 3% in 2027, but some economists expect the energy shock to weigh on economic growth and help curb inflationary pressures into next year.