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Highlights
Bottom line: The BOE will likely hold at 3.75% this month, with Governor Andrew Bailey inclined to sit through both the political transition and the run-up to October’s combined budget rather than commit to a path before Healey’s fiscal picture is set. Mann and Lombardelli are the dissent risks to watch, both still weighing whether the energy shock proves temporary or feeds into persistent inflation. That judgment, not UK politics, is what could move the vote, a fresh spike in oil prices or clearer evidence of second-round effects would force Bailey’s hand well before October does.
Bloomberg 7/30/26
UK government bonds rallied after Bank of England Governor Andrew Bailey sought to dampen speculation that the central bank was preparing to raise interest rates soon.
- The yield on two-year gilts fell 10bps to 4.34%, the biggest daily fall since June 12
- Traders have trimmed bets for rate rises with markets pricing 32 bps of hikes through year-end, down from 38bps earlier in the day
- “Please do not leave this room thinking that the Bank of England is edging toward a hike because there is nothing in what I said or any of us have said along those lines,” Bailey told reporters after the BOE kept rates steady
Bottom Line: The BOE will likely hold at 3.75% on July 30, with the vote count carrying more signal than the decision itself. A 6-3 split, with Catherine Mann joining Pill and Greene, is most likely though a 5-4 outcome tied to Clare Lombardelli would pull September 17 into play as a live hike window. Andy Burnham’s unresolved chancellor pick remains the clearest risk to the hold surviving beyond the summer.
Bloomberg 7/30/26
The Bank of England kept interest rates steady at 3.75%, as UK officials sought to balance the threat from resurgent US-Iran tensions against signs that domestic price pressures are easing more quickly than predicted.
The Monetary Policy Committee voted six-three in favor of leaving rates unchanged, with Chief Economist Huw Pill and external members Megan Greene and Catherine Mann voting for a quarter-point increase, minutes from its meeting showed on Thursday. Only Pill and Greene had supported immediate action in June.
The Fed has moved to the edge of recalibration rate hikes, but the soft June inflation numbers will lead it to hold rates steady at the July FOMC meeting. Rate hikes later this year, however, are not off the table. The clear message from Fed officials is that one month does not make a trend, and the Fed will need to see clear evidence of disinflation “soon” or it will be compelled to hike rates. We place the odds of a September rate hike at 60-70% on the expectation of firmer inflation over the next two months. Altogether, there will likely be one and up to three dissents against a decision to hold rates steady with our order of likelihood being Hammack, Logan, and Minneapolis Fed President Neel Kashkari.
Politico US 7/29/26
The Federal Reserve voted Wednesday to keep interest rates steady in a fractured decision that showed growing support within the central bank for a rate hike to fight elevated inflation.
Three officials — Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan — dissented from the move, arguing that the central bank should have raised borrowing costs instead by a quarter of a percentage point.
Bottom Line: Progress in the negotiations between the US and Iran and the re-opening of the Strait of Hormuz have lowered pressure on the ECB to hike in July. Lagarde has also pointed out the lack of second-round effects do not require a forceful policy response. However, core and services inflation rose in May above the levels the June projections expect them to average this quarter. Most officials stress the shock’s impact is broadening, while the re-opening of Hormuz does not immediately resolve price pressures. Our baseline, therefore, continues to be that after holding in July the ECB will hike in September.
Bloomberg 7/23/26
European Central Bank officials are prepared to raise borrowing costs in September unless the euro-zone inflation outlook improves markedly, people familiar with the situation said.
Based on today’s information and data, in particular on the Middle East conflict and its economic fallout, it’s likely that another quarter-point increase will be needed to contain consumer-price pressures, said the people, asking not to be identified because discussions on the matter are private.
They stressed that nothing has been decided and the situation can change quickly, especially if there’s progress toward a peace deal or a more severe economic downturn materializes, a stance in line with the institution’s “meeting-by-meeting” approach.
We expect the BOC to cite a mixed-to-firmer trend in data since its June 10 meeting and cite it as the basis for another hold in rates at its July 15 meeting
Bloomberg 7/15/26
The Bank of Canada held interest rates steady for a sixth consecutive meeting as policymakers see the economy rebounding and oil price-driven inflation fading.
Officials led by Governor Tiff Macklem kept the policy rate at 2.25% on Wednesday, matching expectations of economists in a Bloomberg survey and traders in overnight swap markets.
“After a year of weakness, Canada’s economy is showing signs of improvement,” the bank said in its monetary policy report. “Growth is expected to pick up, and inflation eases gradually from its recent peak. Uncertainty is still high.”
We see roughly equal odds of a July hike based on the data and Warsh’s comment. Still, while Warsh has promised a family fight, we haven’t yet seen that Fed hawks are up for it. That may change this week.
Bloomberg 7/13/26
Money market pricing on Monday suggests traders boosted their wagers for a July quarter-point rate increase after a spate of fresh US strikes on Iran. The pricing reflected a 50% possibility of a hike, from less than 40% earlier in the session, as Fed Governor Christopher Waller said policymakers may need to raise rates if underlying inflation continues to signal broad price pressures.
Thoughts for the Weekend: Don’t Expect Price Stability Anytime Soon
Bottom Line: Warsh has promised regime change and a recommitment to price stability, although as commentators have noted he has not given any guidance on the tactics needed to establish price stability, including the time horizon. What little guidance Fed speakers are providing suggests the July outcome is dependent upon upcoming inflation data. That suggests no regime change, the status quo still holds. Next up is Waller on Monday. His comments this week ran contrary to the trend and suggest he will break the pattern. Either way, a Fed that continues to tolerate above target inflation is one that is supportive of nominal asset prices, and even bending the curve will leave a long period of above target inflation ahead. From what we see now, the Fed has no intention of putting inflation back on a path to 2%. The magic number appears to be 2.9%, which the Fed may be able to achieve with a little pressure on the BEA to update its methodol
Wall Street Journal 7/13/26
Federal Reserve governor Christopher Waller said Monday an interest-rate hike should be on the table if this week’s inflation data show price pressures remaining firm, his clearest signal yet that he could back a rate increase this summer.
Waller cited the rise in “core” inflation, which excludes volatile food and energy prices, and, notably, said the rise predated the spike in energy prices this March from the Iran war. He said he was “determined to avoid repeating” the Fed’s 2021 mistake of responding too late to rising prices. “If we get another hot reading on core inflation this week, then the [Fed] will need to consider tightening monetary policy in the near term,” he said.
Bottom line: June 18 is likely a hold — tighter financial conditions are already doing the BOE’s work, and Bailey will not move rates in a constitutional vacuum. July 30, a full BOE projection round, is the first live decision point. The tail risk is a left-leaning successor who loosens fiscal conditions and forces the MPC’s hand. Watch financial conditions not political noise.
Bloomberg 6/18/26
The Bank of England held interest rates at
3.75% as it said the recent fall in oil prices was
“encouraging,” even while two policymakers voted for an
immediate quarter-point hike over concerns of persistent
inflation.
The committee left its guidance unchanged and lowered its
estimate of peak inflation to 3.25% in the fourth quarter of
this year, below the 3.6% it had projected in April.
Bottom Line: The SNB will maintain its policy rate at 0% at least through the rest of the year unless there is a meaningful deviation from the current macroeconomic environment. Inflation is on target, growth is accelerating, and the latest projections have headline inflation on target through 2028 at the current policy rate. The SNB retains space to intervene in the FX market if the franc’s strength threatened to lower inflation below the target again. In this environment the next move is more likely to be a rate hike than a cut. However, we do not expect this to happen in 2026.
Bloomberg 6/18/26
The Swiss National Bank warned investors that a Middle East peace deal hasn’t altered its state of readiness to sell the franc if such a stance is required.
Policymakers led by President Martin Schlegel kept the interest rate at zero and restated their willingness to intervene in the currency. They added a proviso about doing so “if necessary,” evolving wording used repeatedly by officials since the Iran war broke out.
The decision suggests officials remain fearful of renewed pressure on the franc but are adapting to changed circumstances.