The Week Ahead - A Double Header of Hikes

PodcastThe Week AheadEiichi MamiyaSep 18

The discussion weighs a hawkish outlook for monetary policy against risks from persistent inflation and supply shocks, with forecasts spanning the Fed, Bank of England, BOJ, and several other central banks. It also considers how potential AI data center restrictions could affect physical investment, while markets respond to the Fed’s tone, yen weakness, oil above $100 per barrel, and a chipmaker sell-off.

Monetary Policy Interest Rates Inflation Energy Markets Currencies Semiconductors

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Key Takeaways

The guest expects the Fed’s hawkish stance to persist, forecasting one more hike in December and none in 2027; she also warns that inflation may not moderate as expected and that further supply shocks remain possible. The Fed’s hawkish tone has pushed the dollar higher, and Nomura says it is cautious about fading that strength near term.

The BOJ’s widely expected 25-basis-point hike was accompanied by a 7–2 vote that the analyst viewed as the most dovish anticipated outcome, and the yen weakened above 157. The analyst moved the baseline for further hikes to December and March, citing higher crude prices and the Fed’s stance; if crude does not fall as futures imply, a midyear hike taking the terminal rate to 2.0% is a risk scenario.

The guest’s Bank of England outlook remains for no rate change this year despite market pricing of about 38 basis points of hikes, conditional on energy prices falling and second-round effects staying limited; a prolonged Iran war is bringing the MPC closer to considering a hike. She also expects Norway to hold rates this month but hike in November because inflation remains sticky, while its energy exports and consumer protections leave it relatively shielded from a global energy shock.

GEO-POLITICS

German Elections — The AfD is polling strongly ahead of two German state elections, while the CDU could fall below the 5% threshold in one state. The guest says the results could increase pressure on Chancellor Merz after his recent drop in popularity, though his stepping aside is only a possibility.

“And the AFD is expected to or is polling to do well in these two state elections coming up this weekend too…”—

ECONOMY

Fed Rate Outlook — The guest says the Fed chair cited a strengthening economy, no improvement in trend inflation, and geopolitical risks as reasons for the rate hike. She expects those factors to persist in the near term, one more hike in December, and no hikes in 2027. She says risks to the monetary-policy outlook are tilted hawkish.

“Which were a strengthening of the economy, no improvement in the trend inflation and the geopolitical risks. So none of those are unlikely to, you know, the…”—

Inflation Risks — The guest warns that inflation may not moderate as expected in 2027 and that additional supply shocks cannot be ruled out. She says risks to the monetary-policy outlook remain tilted hawkish.

“So the, you know, you know, inflation, you know, might not, you know, modulate as we expect in in 2027 next year…”—

AI Model Limits — The guest argues that potential limits on AI model development could impose some restrictions but might have little effect on economic activity, especially physical investment.

“So the... Basically, the potential regulations on AI development are more related with the r and d investment from the macroeconomist on the point…”—

MARKETS

Dollar Strength — The Fed’s hawkish tone pushed the US dollar higher. Nomura says it is cautious about betting against the dollar’s strength in the near term.

“That tone pushed the US dollar higher and our house view is that we are cautious in fading this US dollar trend in the near term.”—

Yen Weakness — The BOJ raised rates by 25 basis points, as widely expected, but its non-hawkish tone was followed by yen weakness. The currency traded above 157.

“The BOJ also hiked by 25 basis points as widely expected, but the tone was not hawkish causing the yen to weaken back to above 157 as we speak.”—

Dollar, Yen, And Oil

The host reviews a volatile week: the Fed’s hawkish hike strengthened the dollar, the BOJ’s less-hawkish move weakened the yen, oil stayed above $100, and chipmakers sold off.

Fed Hike Outlook

The guest says the Fed’s decision contained several hawkish surprises and maintains a forecast for another hike in December, while persistent inflation and supply shocks tilt risks toward further tightening.

AI Data Center Investment

The guest distinguishes possible AI model-development rules from restrictions on data-center construction, arguing that local limits on facilities pose the greater risk to physical investment and GDP.

Bank Of England Hold

The guest expects the Bank of England to keep rates unchanged this year, despite pressure to hike, provided energy prices ease and second-round inflation effects remain limited.

Swiss And Nordic Rates

The guest expects Switzerland, Sweden, and Norway to hold rates at their upcoming decisions, while noting FX-language shifts in Switzerland and a possible Norwegian hike later in the year.

German Election Risks

The guest says strong polling for Germany’s AfD could intensify pressure on Chancellor Merz and raise discussion of a leadership change, though a swap remains uncertain.

BOJ Rate Path

The BOJ’s expected hike came with a dovish-leaning vote and little new guidance; the guest brings forward expected hikes to December and March, with further tightening possible if oil keeps inflation elevated.

Asia-Pacific Data Watch

The host expects Bank Indonesia to hold rates, Singapore core inflation to rise ahead of an anticipated MAS tightening, and Australian employment data to show a rebound with unemployment steady.