Recently, higher oil prices led to a slight change in expectations around interest rates. However, as tensions ease, lower oil prices are expected. By the end of the year, the forecast includes a 47 basis point cut from the Fed, with a 99% chance of no change at the next meeting. The ECB is likely to reduce rates by 19 basis points, also with a 95% probability of no change. The BoE might cut by 48 basis points, with a 90% chance of holding steady, while the BoC may reduce by 24 basis points, with a 78% probability of maintaining rates. For the RBA, a cut of 74 basis points is expected, with a 73% chance of a rate cut at the next meeting. The RBNZ may cut by 27 basis points, facing an 82% probability of no change. The SNB is projected to lower rates by 45 basis points, with a 75% probability of a cut and a smaller chance of a 50 basis point cut. In contrast, the BoJ anticipates a 17 basis point increase by year-end, with complete certainty of no change at the next meeting. This article highlights current market expectations around central bank interest rate decisions for the remainder of the year, taking into account recent data and geopolitical changes. While global oil price shifts have influenced expectations, many in the market believe stability is on the horizon. Most major central banks are expected to either lower rates slightly or hold them steady, except for Tokyo’s policymakers, who are expected to move in the opposite direction. Higher energy prices can quickly raise inflation expectations, making central banks cautious about rate cuts. However, the belief is that recent price spikes won’t last. If pressure eases, particularly with reduced geopolitical risks, markets predict a response in monetary policy—but not too quickly or dramatically. Current probabilities show most central banks are likely to keep rates steady at their next decisions, but anticipated cuts toward the end of the year suggest an easing of inflation pressures in the medium term. Powell’s committee seems to be in a wait-and-see mode, with markets expecting them to hold rates steady at the next meeting. Still, they are expected to lower rates by about two standard quarter-points before the year ends. This reflects confidence that inflation in the U.S. will remain under control without causing further tightening. Lagarde’s group is also expected to be cautious and cut rates less aggressively. This slower adjustment is due to stronger inflation data and a robust labor market in her region. Investors feel that this does not require rate hikes—just a bit of patience. Bailey’s team might ease more than the European bloc, given weaker consumption and stagnant real wage growth putting the economy at risk of stagnation. Nevertheless, the high probability of no change in the next meeting indicates their reluctance to act unless inflation clearly moves back to target. Macklem and his team are in a similar situation but seem to be responding more cautiously. Their decision to hold rates now, with room to ease later, shows the market thinks inflation is cooling but not decisively. Meanwhile, Lowe’s team is expected to cut more significantly, as domestic data shows weaker consumer activity, stable labor conditions, and lower prices for goods. Orr’s group is holding steady for now but has less room to maneuver than their neighbors. A smaller projected cut and slightly firmer meeting expectations reflect ongoing caution about inflation readings that are around target but not compelling enough for quick action. Jordan’s committee appears to have already priced in almost a full cut, with some room for further easing suggested. This may be driven by a stronger currency affecting export margins, prompting policymakers to take action. Ueda’s team stands out as an exception. Their approach indicates a much slower and gentler path to reducing accommodation. The market’s confidence in holding rates steady at the next decision highlights the careful observation of domestic inflation, which is just starting to shift, though slightly. From our perspective, the differences in rate expectations across various regions signal clear opportunities for directional and relative value trades. The significant gap between anticipated actions and the certainty of near-term holds provides useful indicators for short-dated volatility strategies. For those engaged in curve spread positions, differing speeds and magnitudes of anticipated easing present entry and exit possibilities with real data surprises. The certainty around upcoming meetings, compared to the relatively small anticipated moves by year-end, indicates asymmetric risks: significant price adjustments may only happen with major surprises. So, it’s essential to closely monitor central bank speeches and inflation reports, especially in areas where implied moves are shallow but asymmetric. We think it’s wise to selectively adjust exposure now, particularly where markets have overestimated central bank caution or undervalued disinflation trends. Short-end bets, based on differences in forward pricing rather than pure direction, could provide the best entry points in the coming weeks. Low summer liquidity, combined with significant upcoming data, is likely to keep volatility high between meetings.

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