Global Rate-Hike Cycle Gains Momentum Amid Ongoing Iran War

The global interest rate-tightening cycle is gaining momentum as central banks around the world raise rates to combat inflation fueled by the ongoing Iran war. The Bank of Japan, Federal Reserve, and European Central Bank have all hiked rates in recent days, with some signaling further increases may be needed.

According to the source, key rates are already higher than they were during the last rate-hike cycle that began in 2022. However, central bankers face pressure from markets to show they're prepared to raise rates even more to tame inflation expectations and rein in long-term bond yields at multi-decade highs.

BOJ Governor Kazuo Ueda noted that 'our policy phase has changed' as the bank signaled it's ready to continue pushing up borrowing costs. The European Central Bank Vice President Boris Vujcic warned that if inflation remains high through autumn, it could impact GDP and affect household incomes and consumer behavior.

The current rate-hike cycle is expected to be more muted compared to the last one, mainly because inflation isn't rising as sharply. Fed projections show even the most hawkish US central bankers expect a 4.25% - 4.50% policy rate range by the end of 2027, only half a percentage point higher than now.