All Eyes on Waller: Will the G7 Rate Hike Wave Arrive Next Week During the 'Central Bank Super Week'?

Amid rising inflation, geopolitical conflicts, and oil prices exceeding $100, the G7 central banks are entering a crucial week of monetary policy decisions.

Written by: Zhang Yaqi, Wall Street Watch

Global monetary policy is at a new turning point. With inflationary pressures continuing to rise, the situation in the Middle East escalating, and oil prices returning above $100 per barrel, the major G7 central banks are set to make interest rate decisions in the same week, potentially reshaping the global monetary policy landscape.

The Federal Reserve will take the lead on Wednesday. Following last Friday's unexpectedly high core inflation data in the U.S., market bets on interest rate hikes led by Fed Chair Waller have surged—this move may directly contradict President Trump's wishes. Bloomberg economists Anna Wong, Andrew Sacher, and Eliza Winger stated:

"The market signals are clear: investors hope and expect the Federal Open Market Committee to raise rates. If they don’t, Waller will lose credibility in the eyes of market participants."

In 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 last Thursday, marking the second rate hike since the outbreak of the Iran conflict. A picture of synchronized hawkish stances among the G7 central banks is gradually becoming clear to investors.

Waller's Critical Moment: Inflation Data Blocks 'Inaction' Space

The Federal Reserve's decision is highly anticipated, with the immediate trigger being last Friday's higher-than-expected core inflation reading. Waller had stated last month that if the Fed could not "confidently ascertain that core inflation is moving towards the target at a sufficiently fast pace," there would be "work to do." The latest data shows that this confidence has not materialized. Investors and economists currently view a Fed rate hike as nearly certain, marking the first increase in the benchmark interest rate by the U.S. central bank in three years.

Support for a rate hike has been building within the Fed. At the July meeting, three officials had already expressed dissent against keeping rates unchanged, leaning towards a hike. On Wednesday, the Fed will also release its latest forecasts for economic growth, inflation, and interest rate paths, providing more forward guidance to the market.

Meanwhile, this week’s U.S. economic data schedule is packed, including retail sales data expected to rebound in August, as well as new housing starts and industrial production data.

Bank of Japan: The Rate Hike Backing Behind Thirty Years of Wage Growth

The Bank of Japan is expected to be another focal point this week. A series of supportive data provides a solid basis for this rate hike, including the largest wage increase in nearly thirty years. If the rate hike occurs as expected on Friday, it will be the second this year, raising the policy rate to 1.25%.

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

Bank of England: Inaction, but Hawkish Signs Cannot Be Ignored

The Bank of England's decision on Thursday is not expected to be a rate hike, but the meeting results will still be closely monitored. At the end of July's meeting, three officials had clearly supported a rate hike; meanwhile, inflationary pressures in the UK continue to brew—August's overall inflation rate is expected to rise to 3.1%, the highest in five months. This makes the possibility of a rate hike as early as November hard to ignore.

Employment data released on Tuesday is expected to show wage growth remaining roughly stable. Besides the interest rate decision itself, the market will also pay attention to the Bank of England's annual announcement regarding the pace of bond portfolio reduction.

ECB and Canada: The Hawkish Puzzle is Becoming Complete

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

In Canada, although the central bank maintained its interest rate earlier this month, it emphasized inflation risks in its statement. The minutes to be released on Wednesday are expected to further reveal the tilt of its policy balance. Against the backdrop of escalating trade tensions 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: Chinese Data and Brazil's Rate Cuts

Regarding Chinese data, on September 15, economic data including industrial value added above designated size, retail sales, national real estate development investment, and housing prices in 70 cities will be released. CICC Macro forecasts that retail sales growth is expected to rebound, with year-on-year industrial value added growth possibly at 4.6%.

India's August inflation data will be released on Monday, with the market watching whether price pressures will further spread, to gauge the Reserve Bank of India's rate hike timeline.

In Latin America, the Brazilian central bank is expected to announce a 25 basis point cut in the benchmark rate for the fifth consecutive time on Wednesday, lowering the Selic rate to 13.75%. Nevertheless, inflation above target and stubborn inflation expectations will still make it difficult for the bank to provide a more accommodative policy commitment.