According to Sedaye Sama News Agency, citing Bloomberg, the central banks of most Group of Seven (G7) countries are facing a critical and decisive week. At a time when inflationary risks continue to increase, the war against Iran has resumed, and oil prices have once again risen above $100 per barrel, the Federal Reserve, the Bank of England, and the Bank of Japan will announce their respective interest-rate decisions. These decisions could reshape the outlook for global monetary policy.

Federal Reserve: First Rate Hike in Three Years Appears Almost Certain

The Federal Reserve will be the first of these three central banks to announce its decision on Wednesday. U.S. core inflation data released last week came in above expectations, showing a 0.3% monthly increase in the core Consumer Price Index. This has strengthened market bets on an interest-rate hike by the Federal Reserve under the leadership of Kevin Warsh, a move that could run counter to the wishes of U.S. President Donald Trump.

Anna Wong, Andrew Sacher and Elisa Winger of Bloomberg Economics said: “The market signals are explicit and clear: investors want and expect the Federal Open Market Committee (FOMC) to raise interest rates. If it does not do so, Warsh will lose credibility in the eyes of market participants.”

Support for a rate hike within the Federal Reserve had already emerged. At the July meeting, three officials opposed keeping interest rates at their current level and called for an increase. On Wednesday, the Federal Reserve will also release its latest projections for economic growth, inflation and the path of interest rates.

Bank of Japan: Rate Expected to Rise to 1.25%, Highest Level in 30 Years

The Bank of Japan is expected to raise interest rates on Friday, taking them from 1.0% to 1.25%, which would be the highest level since 1995. Data supporting the decision include the largest wage increase in nearly three decades, with nominal cash earnings rising 4.7% in July from the same month a year earlier.

If the rate hike takes place as expected, it would be the Bank of Japan’s second rate increase this calendar year and could provide further support for the yen, which has recently recovered to some extent.

Bank of England: Rates to Remain Unchanged, but Hawkish Signals Have Emerged

The Bank of England is not expected to raise interest rates at its decision on Thursday, but the outcome will nevertheless be closely watched. At its late-July meeting, three officials explicitly supported a rate increase. Meanwhile, the overall inflation rate in the UK is expected to reach 3.1% in August, its highest level in five months. Therefore, the possibility of a shift toward a rate hike in November cannot be ruled out.

In addition, the Bank of England will publish its annual announcement on the pace of its reduction of bond holdings.

European Central Bank Has Moved One Step Ahead; G7 Hawkish Stance Is Coming Into Alignment

The European Central Bank completed its latest round of interest-rate increases last Thursday, marking the second round of tightening since the outbreak of the conflict with Iran. By the end of the week, investors may have a clearer picture: the hawkish policy stance of G7 central banks is gradually coming into alignment.

In conclusion, Bloomberg Economics believes: “If interest rates are not raised, Warsh will lose the markets’ confidence.” / Tasnim