If the three major central banks raise interest rates simultaneously, is it an inauspicious omen of a global storm?

The last time the U.S., Japanese, and European central banks all raised rates together was in 2006. Shortly thereafter, a ferocious financial crisis swept across the globe, wiping out trillions of dollars in assets! The European Central Bank (ECB) has already taken the lead in raising rates; this week, the probability of a Federal Reserve rate hike has reached 90%, while the Bank of Japan’s (BOJ) likelihood of hiking stands near 100%. In other words, this week the Federal Reserve, the Bank of Japan, and the European Central Bank—the core central banks of the three major advanced economies—are highly likely to formally enter a synchronized tightening cycle—effectively shutting off the global liquidity tap. After a brief warming, the U.S. dollar liquidity cycle is turning cold again—and its ‘temperature’ may plunge to a 20-year low. For the past two decades, regardless of how tightly the U.S. and Europe tightened monetary policy, Japan remained the world’s ‘reservoir’ of liquidity: cheap yen flowed continuously into markets worldwide. Yet with the BOJ adopting a hawkish stance—and under joint pressure from both U.S. and Japanese governments—this once inexhaustible ‘tap of funds’ is gradually closing. The sound of icy tides receding is already faintly audible—on September 15, the 10-year U.S. Treasury yield surged past 5%, while the 30-year yield approached 5.4%, reaching the highest levels in nearly two decades! Industry insiders worry that, squeezed by both energy shocks and persistent inflation, synchronized rate hikes by the U.S., Japanese, and European central banks could push the entire G10 group—and even central banks globally—into a tightening mode. The Reserve Bank of Australia, the Reserve Bank of New Zealand, and Norges Bank have already entered tightening cycles; markets expect the Bank of England, the Bank of Canada, and the Riksbank to begin hiking rates before year-end! As liquidity drains at an unprecedented pace in 20 years… AI bubbles, margin debt, yen-circulation reversal, and emerging-market collapses—all these risks are stacking up, pushing global financial markets to the brink of crisis! AI bubble: A massive debt time bomb has long been planted! Professor Gordon of the Ross School of Business at the University of Michigan warned explicitly in Business Insider: The next crash will resemble a ‘love child’ of the dot-com bust and the 2008 financial crisis. Trillions of dollars in debt related to computing infrastructure have piled up; many data center projects rely on off-balance-sheet lease liabilities, and asset valuations hinge entirely on optimistic forecasts of future computing demand—mirroring the logic of subprime mortgage lending during the 2008 crisis, which relied on rising home prices. Once capital inflows stop and debt chains snap, risks will transmit through private credit and banking channels to pension funds and insurance companies, triggering cross-market financial tremors—ordinary investors won’t be spared either. U.S. stock market margin debt: Diffuse leverage is worsening dramatically! Hong Academy points out that record-breaking leverage is sweeping the entire financial system—from retail ETF investors and hedge funds to banks and money market funds—leaving no one untouched. Moreover, the risks of this unprecedented leverage feast are penetrating deeply into the broader financial system via bank balance sheets. Once deleveraging begins, the risk of cascading margin calls and forced liquidations far exceeds what is visible on the surface. Margin refers to funds borrowed from brokers by investors to short-sell or buy securities, for which interest must be paid. In short, this is the ‘leverage’ U.S. stock market investors use when buying stocks or ETFs. The total amount of margin debt held by brokers serves as a rough gauge of investors’ willingness to assume risk—and also functions as an indicator reflecting the severity of pervasive leverage.

The EU raises rates; Japan and the U.S. are highly likely to follow: a global wave of rate hikes in September, with China unlikely to cut rates this year.

Please remember to like and share! If you haven’t followed yet, please subscribe to the ‘Sanlang Macroeconomics’ account—thank you! Summary: On September 10, the European Central Bank raised rates by 25 basis points; rate hikes by the Bank of Japan and the Federal Reserve in September are now virtually certain. An unexpectedly severe spillover from the Iran war has reignited global inflation, triggering a synchronized global wave of rate hikes. Despite five years of ultra-loose monetary policy and aggressive fiscal stimulus, domestic economic data continue weakening, fueling strong demand for rate cuts—but facing capital outflows and exchange-rate pressures, China’s central bank is unlikely to cut rates before year-end. I. On Thursday, the ECB raised rates by 0.25 percentage points to 2.5%. On September 10, the European Central Bank announced simultaneous 25-basis-point hikes to its three key policy rates: the deposit facility rate rose from 2.25% to 2.50%; the main refinancing rate increased to 2.65%; and the marginal lending facility rate climbed to 2.90%. These new rates take effect on September 16—marking the ECB’s second tightening move this year. The ECB’s core rationale for this hike remains resurgent inflationary pressure. The ECB stated that the Middle East conflict continues driving up energy prices, keeping inflation above its 2% target for an extended period. Its latest forecast projects eurozone headline inflation at 3.0% in 2026 and 2.5% in 2027—both above the desired 2% target. This implies that although the European economy shows no clear signs of overheating, rising energy prices are already reshaping the central bank’s policy calculus. Higher crude oil and natural gas prices not only directly inflate household energy bills but also transmit upward price pressures broadly—through transportation, manufacturing, and service costs. Thus, this renewed global monetary tightening is not the traditional ‘overheating-driven’ hike, but rather reflects a response to energy- and supply-side shocks. The problem lies in the fact that if energy price increases persist longer than expected, central banks will find it difficult to pivot swiftly back to easing—even amid weak growth. By taking this step first, the ECB has clearly shifted the global monetary policy environment in September. II. The Bank of Japan is highly likely to raise its policy rate to 1.25% in September. The Bank of Japan will hold its monetary policy meeting on September 17–18. Its current policy rate stands at 1.0%; markets widely anticipate a further 25-basis-point hike at this meeting, lifting the policy rate to 1.25%. The BOJ has officially confirmed the meeting dates. If implemented, this would mark a significant step since the BOJ ended its negative-interest-rate policy and launched monetary normalization in March 2024—and suggest that Japan’s pace of policy normalization may accelerate further. A key driver behind the BOJ’s continued tightening is mounting domestic price pressure, increasingly transmitted through corporate cost channels. According to BOJ data released on September 11, Japan’s corporate goods price index rose 7.6% year-on-year in August—remaining above 7% for the third consecutive month. Notable price increases occurred in oil & coal, chemicals, non-ferrous metals, and information & communications equipment.

Central Banks Signal New Global Rate-Hike Cycle Amid Inflation Fears

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Major central banks including the Fed, ECB, and BOJ are signaling further interest rate hikes to combat inflation driven by rising oil and gas costs due to Middle East conflicts. Analysts warn that sustained high energy prices could dampen GDP growth and household incomes through autumn.

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