In October, the Fed cut the policy rate for a second consecutive meeting, by 25bp to 3.75-4%, but warned that a third cut at the December meeting is“not a forgone conclusion... far from it”. There are a group of officials who remain worried about tariffs lifting inflation further above the target amid scant evidence of a slowdown in the economy. However, there are others who are concerned that inflation fears are overdone and the focus should instead be on a rapid cooling of the jobs market, which could push inflation below target over the medium term.

A case can be made for the Fed not needing to cut rates further if looser financial conditions (lower Fed funds and Treasury yields and a weaker dollar), alongside trade clarity, stabilise confidence and gradually prompt a revival in hiring. Alternatively, if tariffs start to squeeze household spending power and corporate profits, then a turnaround in the jobs market will look less likely. Throw in an asset price correction and significant interest rate cuts would be required.

Our view is that the inflation backdrop is looking less threatening than it did in early summer, with the slow tariff pass-through allowing disinflationary pressures from lower energy costs, slowing housing rents and cooling wage growth to mitigate the effect. At the same time, the jobs outlook is more concerning. We expect a December rate cut, and while we retain a moderately upbeat outlook, we think it will take at least two more rate cuts next year and further dollar weakness to achieve the required platform for growth.

James Knightley

The ECB has now kept interest rates unchanged for three consecutive meetings and the bar to restarting rate cuts is high. In fact, the Bank currently feels very comfortable in its 'good place'. With the ECB's own growth forecasts indicating that the eurozone economy will grow by slightly more than 1% each year and inflation will settle down to 2% over the next few years, there is indeed very little reason to change its monetary policy stance.

At the same time, there are still valid dovish arguments that could force the central bank to cut again at the December meeting. Just think of the delayed adverse impact of US tariffs, the stronger euro exchange rate, French politics or a delay in Germany's fiscal stimulus. If any of these downside risks materialise, we can expect the ECB to engage in one or two more rate cuts.

In any case, even if the ECB seems to rest more comfortably on its laurels than before, the December staff projections will be crucial and could still disrupt its good place. If the 2028 inflation forecasts come in sub-1.7%, the likelihood of yet another rate cut would increase.

Carsten Brzeski

Better news on UK inflation means a December rate cut is more likely than not. It's early days, but it appears that food inflation has peaked lower than the Bank had previously feared. Service sector inflation, though volatile, is also showing more promising signs.

By December, we'll also have had the Budget. That is expected to deliver a material fiscal tightening, which in sharp contrast to the Budget 12 months ago, should add to the case for looser monetary policy.

There is also a growing recognition at the Treasury that the Budget needs to avoid measures which add to inflation in 2026, after certain policies – including a near-7% hike in the National Living Wage and payroll tax increases – have appeared to add to consumer price pressures in recent months. There's little the Treasury can do to actively bring inflation down, but avoiding measures that compound the Bank's caution on interest rates is likely to be avoided.

We expect a 25bp rate cut in December, taking the Bank Rate from 4% to 3.75%, followed by two cuts in 2026.

James Smith

The Bank of Japan held interest rates at 0.5% at its October meeting, recording a 2-7 split for the second consecutive meeting, showing there are varying perspectives among BoJ members regarding potential adjustments to the policy rate. The majority of board members expressed caution about uncertainties related to US trade policy and its impact on the Japanese economy. Additionally, the BoJ continued to deny that it is behind the curve, as underlying inflation has not yet reached its sustainable target.

However, global trade tensions have recently eased quite meaningfully, and economic indicators suggest a recovery in the current quarter. Also, inflation is likely to stay above 2% for a while due to wage growth and changing business pricing strategies. The weak JPY may add more inflationary pressure. Robust corporate earnings may indicate the possibility of continued wage growth in 2026.

The new government has also given its policy priority to tackle inflation; it is unlikely to challenge the BoJ's rate hike publicly, supporting the BoJ's independence. In our view, the Bank of Japan will likely deliver a 25bp hike in December, followed by an extended pause until October next year.

Min Joo Kang

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