CAPITAL ECONOMICS: Fed Policy May Diverge From ECB and BoE by 2027

Capital Economics economist Neil Shearing said in a report that, although markets are pricing in a little more than 50 basis points of rate hikes from the Federal Reserve, the Bank of England, and the European Central Bank by mid-2027, policy paths could diverge as soon as next year. According to Jin10, Shearing said that if the Iran war ends, energy prices will fall and domestic economic fundamentals will become the main driver of monetary policy, while underlying inflation pressures in the U.K. and the euro area are weaker. He added that U.S. conditions are different because fiscal policy remains relatively loose, and that it is becoming harder to justify the market’s tightening expectations for the ECB and BoE, although the Fed may resume tightening soon.