We changed our fed and ecb call

Key arguments

• Both central banks face the same dilemma: an energy-driven supply shock with limited knock-on effects so far, set against memories of the delayed 2022 response.
• The Fed is increasingly focused on accelerating inflation convergence to 2%, worried Middle East conflict keeps energy components elevated.
• Unless September jobs and inflation data are very hot, the Fed likely waits until 9 December rather than 28 October, given proximity to the 3 November midterms.
• The ECB's subdued hawkishness, with headline inflation below 2% only in Q4 2027, pushes it toward a pre-year-end insurance hike.

Corresponding source evidence

1. We now also expect the US 10-year yield to end the year above 5% Fed Chair Kevin Warsh and ECB President Christine Lagarde.
2. Wednesday's Fed meeting and last week's ECB meeting have shown us that both central banks are not likely to follow the very dovish path we anticipated.
3. The much longer-lasting war in the Middle East has not only pushed energy prices to new highs, but also increased the risk that inflation could spread more broadly in the economy.