JPMorgan: Expectations for Global Central Bank Rate Hikes Are "Unreasonable"

On March 18, with eight of the G10 central banks set to announce interest rate decisions throughout the week, the global financial market is undoubtedly ushering in a true “Super Central Bank Week.” This occurs amid the backdrop of soaring oil prices due to heightened tensions in the Middle East, prompting traders to reprice expectations for central bank monetary policy actions—decidedly in a more hawkish direction. However, JPMorgan’s equity strategy team noted in their latest research report that “such expectations may not be reasonable.” JPMorgan observed that, over the past two weeks, both US and German 10-year government bond yields have surged sharply, and the yields on 2-year US and German government bonds have increased by 35 and 40 basis points respectively. The JPMorgan rates strategy team pointed out that the unwinding of popular positions has further amplified this movement, especially in the European market.

Following the escalation of the Middle East conflict, market expectations for the European Central Bank’s policy rate in December 2026 have risen by more than 55 basis points, while traders have also significantly scaled back their expectations for Federal Reserve rate cuts. Since the beginning of this month, cumulative expectations for rate cuts have shrunk by 40 basis points. However, the JPMorgan team led by Matejka believes that regardless of future geopolitical developments, this trend in the bond market is unlikely to be sustainable. JPMorgan pointed out that it’s important to note that if the conflict continues and high energy prices persist, economic growth will be suppressed, which could force central banks to overlook surging inflation. If the conflict eventually leads to an economic recession, the likelihood of central banks hiking rates is very slim; conversely, if the situation eases, a short-term spike in inflation is unlikely to justify a rate hike from central banks.