Central bankers around the world are looking more hawkish

A large group of hawks all flying together is called a kettle or a cast. That could also describe a whole bunch of central bankers right now.

The Federal Open Market Committee meets Tuesday, Sept. 15 and Wednesday, Sept. 16. Futures markets put the likelihood of a quarter-percent rate hike from Chairman Kevin Warsh and his Fed governors at more than 90%.

Last week, the European Central Bank got the jump on the Fed, hiking the benchmark rate for a second time in the current cycle to an 18-month high. Later this week, the Bank of Japan is expected to follow suit with another rate hike. The Bank of England might be the outlier, as it’s likely to hold rates steady when it meets this week — though it may still be headed for a rate hike later this year.

It’s a hawkish moment — or maybe “movement” is the better word — for inflation-fighting through higher interest rates.

“Almost everyone leaning towards some kind of hawkishness,” said economist Jennifer Lee at BMO Capital Markets.

It amounts to a kind-of regime change for the international economy, said Joe Brusuelas at consulting firm RSM.

“That means that long period of low inflation and low interest rates has come to an end. And that central banks are going to have to address the risks around inflation with higher interest rates,” he said.

Luis Alvarado at the Wells Fargo Investment Institute said central bankers in the Americas, Europe and Asia are “broadly being exposed to the same risks: the Middle East war, the price of energy, and then you have the threat of inflation just being more sticky.”

Inflation pressures also differ from one economy to another.

Europe and Asia are more dependent than the U.S. on imported oil and natural gas from the Middle East. So energy-driven inflation can be a more potent threat to consumers and businesses there.

Europe also has major elections next year in France, Italy, Spain, Poland, and Germany. Jacob Kirkegaard at the Peterson Institute for International Economics said central bankers face political pressure because voters do not like inflation.

“So the ECB, looking at this calendar, is very focused on avoiding an upside risk to inflation,” he said.

In the U.S., with midterm elections in November, the Fed may pause rate hikes until its December meeting. But it can’t delay too long, said RSM’s Joe Brusuelas:

“We’ve been above the inflation target of 2% for over five years now, we’re well into our sixth year. The longer we wait to rip off the Band-Aid,” he said, the more painful the adjustment to long-term higher rates is going to be.