Back to blog

The US Fed is at the top of the cycle, ECB rates are still rising. What can we expect next?

The US Federal Reserve's benchmark interest rates are its highest since 2006. European Central Bank rates are even the highest in its history. Will European and US monetary policy continue to tighten in the upcoming months, or are we at the peak of the interest rate cycle? What could be impact the situation? Data on inflation and economic activity in both the US and the euro area might provide the answer.

The US Fed is at the top of the cycle, ECB rates are still rising. What can we expect next?

September brought further monetary-policy decisions at the world's two most important central banks – the US Fed and the ECB. In both cases, the outcome was more or less in line with market expectations. The US Federal Reserve (the Federal Open Market Committee - FOMC, to be more exact) decided to keep its key interest rates from 5.25 to 5.5 per cent. The European Central Bank, whose Executive Board met a week before the US Fed's FOMC, decided to increase base rates by a quarter of a percentage point. The ECB's deposit rate rose to four per cent and the main refinancing rate grew to 4.5 per cent.

Both major banks - the Fed and the ECB are at or near the peak of the interest rate hike cycle. By the decision, the Fed indicated it would keep rates unchanged or proceed to further hikes only if there was an unexpected inflationary impulse. However, this seems unlikely in the near future given the current circumstances. After the latest monetary policy, the ECB also indicated its decision that it could have been the last "hike" in this monetary policy cycle [1].

In addition, it should be pointed out that the monetary policy of both central banks is the tightest in many years. The Fed's rates are the highest they have been since 2006, and the ECB has never before sent its basic interest rates so high.

This is quite significant signal both for stock and bond markets. The central banks are signaling that inflation is almost defeated and that interest rates could drop (although we do not know exactly when yet). On the other hand, they are still keeping a policy in case another inflationary impulse came in the near future.

Attention should be paid to macroeconomic developments and various indicators mapping economic activity, gross domestic product and labor market developments in the US and Europe, especially in Germany. The tight labor market may be a certain worrying factor. Both the United States and the euro area are experiencing lower unemployment than before the outbreak of the covid-19 pandemic and the lowest unemployment rate in many years.

Nominal wage growth could be risky. Employees should step up their inflation demands in their wage negotiations for next year. It is important that nominal wages fully compensate for recent inflation. We used to see higher inflation rates two or three years ago both in the US and in the euro area. Such rates are likely to increase in the long term. In such case, it would be possible that both central banks would step in again and raise rates even more. A similar scenario would only come into play at the end of next year, or possibly in 2025, and then only if inflation stalls on its downward trajectory towards the two per cent target at, for example, around five per cent per annum[2].

Developments on the global energy market will play an important role, but also the situation in Ukraine. If the military conflict ended in the near future, ideally with Russia's defeat, it would be excellent news for the global economy. We could also see a gradual reduction in interest rates, a recovery in economic activity and, therefore, a stronger recovery on financial markets. The future is very uncertain, which is the only certainty we have today.

[1,2] Forward-looking statements represent assumptions and current expectations that may be inaccurate or based on the current economic environment, which may change. These statements are not guarantees of future performance. Forward-looking statements inherently involve risk and uncertainty because they relate to future events and circumstances that cannot be predicted and actual developments and results may differ materially from those expressed or implied by any forward-looking statements.

-------

Warning! This marketing material is not and should not be considered investment advice. Past performance is not a guarantee of future returns. Investing in foreign currency may affect returns due to fluctuations. All securities transactions may result in gains and losses. Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which may change. These statements are not guarantees of future performance. CAPITAL MARKETS, o.c.p., a.s. is an entity regulated by the National Bank of Slovakia.

 

Read more

SK Hynix Hits New High as It Builds South Korea’s Largest Data Center

SK Hynix Hits New High as It Builds South Korea’s Largest Data Center

For SK Hynix, a manufacturer of state-of-the-art semiconductors from Korea, 2025 has so far been as successful as the previous one. This proves that last year's 30% rise in share price was not accidental and the company is doing everything it can to maintain the momentum.* The latest is the plan to build the largest data center in cooperation with Amazon, which has the potential to strengthen the 50% increase in the value of shares since April, even further.

Apple and the Foldable iPhone: Could It Set New Sales Records?

Apple and the Foldable iPhone: Could It Set New Sales Records?

The first news about the possibility of starting production of a foldable iPhone bypassed technology enthusiasts at the end of last year, but unfortunately at that time it was only preliminary information, without a broader basis. We are currently in the middle of 2025 and analyst Ming-Chi Kuo of TF International Securities, a renowned expert on the Asian supply chain, commented on the situation. According to him, production of the foldable iPhone is likely to begin as early as 2026. Investors should not miss it, as this novelty would potentially have a chance to push stagnant sales.

Meta and Scale AI: What Will Zuckerberg Gain From the $14 Billion Bet?

Meta and Scale AI: What Will Zuckerberg Gain From the $14 Billion Bet?

At the beginning of last week, the first speculations appeared on the market about one of Meta's largest investments, namely the acquisition of a minority stake in the startup Scale AI founded by Alexander Wang. Preliminary information was subsequently confirmed on Friday, which also led investors to think about the possible impacts. Will Meta be able to reach the very top of AI innovation thanks to the new collaboration, or are the expectations too high? Will we see a new absolute high for Meta's share price soon?

Looking to Diversify Beyond U.S. Equities? M2C Is Going Public!

Looking to Diversify Beyond U.S. Equities? M2C Is Going Public!

When in 1992 a group of students decided to establish a company with the aim of providing services, probably none of them knew that three decades later, the company would stand on the threshold of the Prague Stock Exchange and head to America. Mark2 Corporation, M2C, has moved from a simple Facility Management (FM) to a high-tech ecosystem of services, which today operates in 13 countries in Europe, is expanding to the Middle East and the United States, and is preparing for an initial public offering (IPO) that you will soon be able to use.