Amid rising inflation, geopolitical conflicts, and oil prices surpassing $100, the G7 central banks face a crucial interest rate week.

Written by: Zhang Yaqi, Wall Street Insights

Global monetary policy stands at a new turning point. Against the backdrop of sustained inflationary pressures, escalating tensions in the Middle East, and oil prices returning above $100 per barrel, the major central banks of the G7 are set to make interest rate decisions within the same week, potentially reshaping the global monetary policy landscape.

The Federal Reserve will kick off the week on Wednesday. Following last Friday's core inflation data that exceeded expectations, market bets on Fed Chair Waller leading a rate hike have surged—this move could directly contradict President Trump's wishes. Bloomberg economists Anna Wong, Andrew Sacher, and Eliza Winger bluntly stated:

“The market signals are clear: Investors want and expect the Federal Open Market Committee to raise rates. If it does not, Waller will lose credibility in the eyes of market participants.”

Over the following two days, the Bank of England and the Bank of Japan will announce their decisions. The Bank of Japan is widely expected to raise rates on Friday, bringing the policy rate to 1.25%, the highest level since 1995. The European Central Bank had already tightened ahead of this, marking its second rate hike since the outbreak of the Iran conflict. A picture of synchronizing hawkish positions among G7 central banks is gradually becoming clear to investors.

Waller's Pivotal Moment: Inflation Data Limits "Staying Put" Space

This Federal Reserve decision is highly anticipated, with the immediate catalyst being last Friday's higher-than-expected core inflation reading. Waller stated last month that if the Fed cannot “convincingly determine that core inflation is moving toward target at a sufficient pace,” there will be “work to do.” The latest data shows this confidence has not materialized. Investors and economists currently view a rate hike by the Federal Reserve as nearly certain, which would be the first increase in the benchmark rate by the U.S. central bank in three years.

Support for a rate hike has built up within the Fed. At the July meeting, three officials already expressed dissent against keeping rates unchanged, leaning instead toward a hike. On Wednesday, the Fed will also release updated forecasts for economic growth, inflation, and interest rate paths, providing the market with more forward-looking signals.

Meanwhile, this week features a busy schedule of U.S. economic data, including retail sales data expected to rebound in August, and new housing starts and industrial output data.

Bank of Japan: Rate Hike Support from Three Decades of Wage Growth

The Bank of Japan is expected to become another focus this week. A series of supportive data provides a solid basis for this rate hike, including the largest wage growth in nearly three decades. If a rate rise occurs on Friday as scheduled, it will be the second hike this year, bringing the policy rate to 1.25%.

On the same day, the Japanese government will release August's national consumer price data, with year-on-year inflation expected to rise by 2%. Analysts believe that a rate hike could also provide further support for the recently rebounding yen.

Bank of England: Holding Steady, but Hawkish Signs Hard to Ignore

The Bank of England's decision on Thursday is not expected to involve a rate hike, but the meeting's outcome will still be closely monitored. At the end of July, three officials explicitly supported a rate increase; meanwhile, inflationary pressures in the UK continue to brew—August's overall inflation rate is expected to rise to 3.1%, a five-month high. This makes the possibility of a rate shift as early as November hard to overlook.

Employment data released on Tuesday is expected to show wage growth remaining relatively stable. Aside from the interest rate decision itself, the market will also focus on the Bank of England’s annual announcement regarding the rhythm of bondholdings reduction.

ECB and Canada: The Hawkish Puzzle is Becoming Complete

The European Central Bank completed an important piece of the current interest rate puzzle last Thursday. This was the second tightening since the outbreak of the Iran conflict, with ECB Chief Economist Philip Lane attending a two-day research meeting this week, while President Lagarde and colleagues will hold informal meetings with EU finance ministers in Dublin.

In Canada, earlier this month, the central bank maintained interest rates but emphasized inflation risks in its statement. The meeting minutes set to be released on Wednesday are expected to further reveal its policy balance. Against a backdrop of escalating tariff battles with the U.S., Canada's August inflation data will also be released on Monday, providing new references for assessing economic trends.

Asia and Emerging Markets: China Data and Brazilian Rate Cuts

In terms of Chinese data, on September 15, reports on August’s industrial value added above designated size, retail sales, national real estate development investment, and housing prices in 70 cities will be released. CICC anticipates that retail sales growth is likely to rebound, with industrial value added’s year-on-year growth expected at 4.6%.

India's August inflation data is set to be released on Monday, with the market focusing on whether pricing pressures further spread to evaluate the Reserve Bank of India's interest rate hike timeline.

In Latin America, Brazil's central bank is expected to announce a fifth consecutive 25-basis-point cut to the benchmark rate on Wednesday, bringing the Selic rate down to 13.75%. Nevertheless, inflation above target and stubborn inflation expectations will still make it challenging for the bank to commit to a more accommodative policy.