Three central banks may hike within eight days; ECB, BOJ and Fed in focus

Derivatives markets are pricing in rate increases from three of the world's biggest central banks this month. Fed funds futures imply 61.2% odds of a hike, while swaps see a 97% chance the Bank of Japan moves.

The ECB's governing council gathers in Berlin on Thursday. Japan's central bank meets on September 18, with the Fed's session falling between the two. All three institutions are assessing the same energy shock from the war in Iran.

Energy Shock Pushes Europe and Japan Toward Tightening

The deposit rate at the ECB is expected to move up a quarter point to 2.5% from 2.25%. Polling by Bloomberg shows just one analyst dissenting from that forecast.

Reuters' survey of all 65 economists, conducted between August 31 and September 3, produced unanimous expectations of a quarter-point hike next week. Momentum behind that call has built since August, when 83% backed a hike and 72% did so before the July meeting, which ended with rates unchanged.

June was the most recent month in which the central bank increased its key rates. Euro-area inflation went above 3% last month, the strongest pace in almost three years. A meaningful easing of price pressures in the near term also looks unlikely.

A rate rise would make the ECB the most hawkish member of the Group of Seven's central banks.

In Japan, Kazuyuki Masu, who sits on the BOJ's board, has said the bank will continue raising its policy rate. Swaps put the probability of an increase from 1% at roughly 97% for September 18.

“If inflation accelerates here, there is a risk that the Bank might inevitably need to implement a rapid policy interest rate hike,” Masu said.

A 25-basis-point hike would lift the policy rate to 1.25%. The BOJ's estimate of the neutral rate runs from 1.1% to 2.5%.

Masu connected higher fuel and chemical prices stemming from the war in Iran to a broader increase in goods prices. Shipping fees and fertilizer costs are showing up in food prices, according to Masu.

“There are concerns that the price hikes in these goods may not be temporary shocks but rather represent more enduring trends that risk pushing up overall prices,” Masu added.

Fed's Decision Rests on Friday's Inflation Data

The Federal Reserve has the most varied set of potential outcomes. CME FedWatch assigns a 61.2% probability to an increase to 375-400 basis points from the existing 350-375. Holding steady gets 38.8%, and futures markets give a cut no chance.

That is the reverse of January, when most economists still expected at least one cut this year. The July 29 FOMC meeting produced a hold, but three officials objected and wanted a quarter-point rise.

Consumer inflation is moderating, albeit slowly. Headline CPI was 3.4% in July, down from 3.5% in June and still far above the Fed's 2% objective.

The labor market left policymakers free to focus on prices. Payrolls grew by 162,000 in August versus forecasts near 53,000, while the unemployment rate stayed at 4.1%.

The August CPI report is due Friday, September 11, five days before the central bank's decision. A reading above expectations would reinforce the case for tightening. A softer outcome would let the committee wait.