Miao Yanliang: Will Oil Price Shocks Lead to a Central Bank Rate Hike Wave?

Iran situation escalates, and the expectations of interest rate cuts by Western central banks have completely reversed to expectations of rate hikes

Recently, the situation in Iran has further escalated, causing crude oil prices to rise again and concerns about stagflation in the US and European economies to intensify. Last week was a “Super Central Bank Week,” during which the Federal Reserve, European Central Bank, and Bank of England all issued hawkish signals, leading investors to significantly raise their expectations for monetary policy paths. The futures market’s implied timing for the Federal Reserve’s rate cuts has been pushed back to the second half of 2027, with some expectations of rate hikes even in 2026. Expectations for rate cuts by the ECB and Bank of England have also reversed to expectations of rate hikes (see Chart 1).

Chart 1: Futures market expectations for policy moves by the US and European central banks rapidly shifted from rate cuts to rate hikes in 2026

Recommend accessing Caixin’s database for real-time macroeconomic data, stocks, bonds, corporate profiles, and financial information.