Key facts
- Surging inflation and rising oil prices are putting pressure on central banks in the US, Japan, and the UK to consider interest rate hikes.
- US inflation has been above the Fed's 2% target for over five years, with annual inflation unchanged at 3.4% in the latest data.
- Oil prices surged past $100 a barrel due to intensified US-Iran conflict and threats to oil supplies.
- Markets are betting on four UK rate rises in the next 12 months.
- A quarter-point increase in the Bank of Japan's policy rate would take it to 1.25%, a level not seen in over 30 years.
Central bankers in the US, Japan, and the UK are set to convene this week with a renewed focus on interest rates amid a surge in inflation. The conflict in the Middle East has driven oil prices above $100 a barrel, exacerbating existing inflationary pressures. In the US, Federal Reserve chair Kevin Warsh faces demands from President Donald Trump for rate cuts, but the rising cost of energy may push the Fed towards a rate hike. US inflation remains above the Fed's 2% target, standing at 3.4% annually.
The Bank of England is expected to hold its key interest rate at 3.75% on Thursday, despite some members voting for a rise in July. Stronger-than-expected economic growth data could further fuel inflation concerns, with markets anticipating four rate increases over the next year. Chief economist at RSM, Thomas Pugh, predicted a 'hawkish hold,' suggesting the Bank will keep rates steady but signal future hikes.
In Japan, the Bank of Japan is widely anticipated to raise its policy rate by a quarter point to 1.25% on Friday, a move not seen in over three decades. This potential increase follows recent interventions in foreign exchange markets by both the US Treasury and Japanese authorities to support the yen. The European Central Bank recently raised its rates, with President Christine Lagarde noting that the Middle East conflict is contributing to sustained inflation pressures.