SGH Macro Advisors produces concise, forward-looking proprietary reports on the major central banks and on key economic and policy developments that drive global bond, equity, and currency markets.
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Highlights
We expect the Fed’s reaction function will shift considerably more hawkish compared to June. We project the median 2026 dot will be for two rate hikes, with the overall distribution moving higher. This change in policy is fundamentally about providing a minimally credible policy outlook given the economic outlook and persistently high inflation. Essentially it is a correction for the June SEP which implied a considerably more dovish reaction function given participants raised their economic but not policy outlooks.
Financial Review 9/16/26
Washington | The Federal Reserve raised interest rates and flagged further increases in borrowing costs in coming months, with new US central bank chief Kevin Warsh joining a unanimous decision that effectively acknowledges the Trump administration’s inability so far to control inflation.
New policy projections showed 16 of 18 policymakers anticipate at least one more quarter-percentage-point hike by the end of this year, with only two of them seeing rates remaining stable from here. Warsh apparently again did not submit a rate projection.
Another Step Toward Being Backed Into a Hike
While the outcome of the September FOMC meeting still hinges on Friday’s CPI number, today’s PPI number may help Fed Chair Kevin Warsh lead a reluctant FOMC to hike rates into a fresh oil shock with Fed Governor Chris Waller, ironically, providing the key guidance that helps secure a hike.
Wall Street Journal — WASHINGTON 9/16/26
The Federal Reserve raised interest rates Wednesday for the first time in three years, a sharp reversal that began taking back cuts it made last year and implicitly undercut the White House’s insistence that inflation isn’t a concern.
The increase, approved unanimously, will raise the benchmark federal-funds rate range by a quarter point to between 3.75% and 4%. The vast majority of officials penciled in one more hike this year in interest-rate projections released after their meeting.
The collapse of US-Canada trade talks late last week will dominate Bank of Canada (BOC) concerns about growth risk, reinforcing that rates are likely to stay at 2.25% through year end, though the Bank will likely now ramp up hawkish talk to combat renewed inflation risk as a weaker Canadian dollar and Ottawa’s own retaliatory tariffs add a new upside risk to price stability.
Bloomberg Economics 9/2/26
The Bank of Canada’s rate hold Wednesday was widely expected, but the hawkish tone of the statement reflecting a new assessment of risks amid the trade war with the US. The central bank is comfortable remaining accommodative for now, with the standoff creating a new tariff shock that could add to labor-market volatility.
- The Governing Council held the overnight rate target at 2.25% for a seventh straight meeting.
- The statement noted that “with the Middle East conflict still ongoing and little progress reopening the Strait of Hormuz, upside risks to the Bank’s inflation forecast have increased.” That’s a material change from the July statement, with the central bank now explicitly questioning when energy prices will normalize.
The Reserve Bank of Australia (RBA) will hold rates at 4.35% this month, and its next move remains more likely a cut than a hike, the same call we made two months ago, when the prevailing debate was still whether the RBA would need to hike again before year-end.
We do not think the Bank will need to hike again this year. That doesn’t mean we expect a cut to be imminent. The Bank may be able to hold for some months yet, but it does mean that whenever it moves off 4.35%, that move is most likely down.
Dow Jones – SYDNEY 8/11/26
The Reserve Bank of Australia left interest rates unchanged on Tuesday but continued to warn that inflation remains too high, especially against the backdrop of war in the Middle East.
The RBA left the official cash rate on hold at 4.35%, in line with economists’ expectations. It raised the OCR three times earlier this year, with the impact of those decisions still flowing through to the economy.
The RBA’s nine-member policy-setting board voted unanimously to keep interest rates on hold.
“The board remains focused on ensuring that high inflation does not become embedded,” the board said in a statement.
As of today, we identify three main presidential candidates. These are Bundesbank president Joachim Nagel, former president of the Netherlands Bank Klaas Knot, and former Bank of Spain governor and current chair of the Bank for International Settlements (BIS) Pablo Hernandez de Cos.
Nagel is a member of the center-left SPD party and was nominated to his current role by the previous SPD-led German coalition. Merz himself leads a grand coalition with the SPD, and his vice-chancellor and minister of finance, Lars Klingbeil, is a leading member of that party.
Bloomberg 8/6/26
Germany’s government is weighing whether to
nominate Joachim Nagel for the European Central Bank presidency,
according to people familiar with the matter.
Finance Minister Lars Klingbeil supports Nagel, who hails
from the same Social Democrat stable as he does, the people
said, adding that Conservative Chancellor Friedrich Merz has yet
to express a view. Given that the Bundesbank president is the
country’s leading ECB contender, a failure to endorse him may
essentially rule out a German bid.
Bloomberg 8/6/26
The Netherlands endorsed Klaas Knot to lead
the European Central Bank, as the race to succeed Christine
Lagarde nears a decisive phase.
The former Dutch central-bank governor has now received
official backing from his government, according to a Finance
Ministry spokesperson. He’d also be highly qualified for other
top positions opening up in the months ahead, the spokesperson
said, without specifying which positions.
Knot is seen as a frontrunner for the ECB post, along with
Spain’s Pablo Hernandez de Cos, who’s already won the support of
his government.
The yen’s slide is forcing the question of how hard the BOJ will keep signaling additional hikes. If that signaling builds through the autumn meetings, September may be live.
Bloomberg 7/31/26
* Ueda’s somewhat hawkish comments spurred traders to boost
their rate hike bets. Chances of a September increase have risen
to about 40% versus 21% the day before, overnight index swaps
show. Japan’s Topix index closed 1.3% higher, while Japanese
bond futures were little changed.
We also still see the September 17-18 meeting as the set up meeting for an (forecast round) October 29-30 move but the BOJ could be compelled by unrelenting weakness in the yen to pull forward a move to September.
Bloomberg 7/31/26
The Bank of Japan held its policy rate
steady and signaled the possibility of a move in September after
government officials took the rare step of wading back into the
curren
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.