Fed, BoE and BoJ weigh rate hikes as oil pushed past $100

Trump demands Fed cuts despite inflation above target

The US Federal Reserve, the Bank of England and the Bank of Japan prepare to set interest rates in the coming days, with each central bank weighing whether to raise rates against a backdrop of resurgent oil prices and turbulent global bond markets. The decisions come even as President Donald Trump continues to demand the Federal Reserve cut rates.

The cost of a barrel of crude surged past $100 last week for the first time since July, as the Strait of Hormuz remained all but closed to tanker traffic and Houthi rebels advanced along the Red Sea coast, threatening to choke off Saudi oil supplies. Oil prices eased slightly on Friday amid hopes of fresh talks to reopen the waterway but remained well above summer levels, when Middle East hostilities temporarily abated.

Higher energy costs are expected to feed a fresh rise in US inflation, which has been above the Fed’s 2% target for more than five years. Data published on Friday showed annual US inflation unchanged at 3.4%.

Investors will watch closely to see whether Kevin Warsh, the new chair of the US Federal Reserve, can face down Trump’s demands for rate cuts and instead persuade Fed governors to raise rates when the Federal Open Market Committee convenes on Wednesday. Warsh was handpicked by the US president, who has repeatedly demanded lower interest rates. In a Truth Social post this month, Trump claimed the US should have the “LOWEST RATE of any country in the World” and urged the Fed Board to “BE PATRIOTS for a change.”

In a speech this month, Warsh said that without continued progress toward the inflation target, Fed policymakers would have “work to do.”

In London, Bank of England Governor Andrew Bailey has struck a calm note about above-target inflation in the UK, saying rising mortgage rates have done some of the work of a rate rise without the Bank taking action. Markets and economists are predicting the Bank will hold rates at 3.75% on Thursday. Three of the nine members of the Bank’s Monetary Policy Committee voted for a rate rise in July, and data published on Friday showing stronger-than-expected economic growth could amplify fears about inflation.

Thomas Pugh, the chief economist at the consultancy RSM, said the latest rise in energy prices had “materially increased the chance that the MPC will eventually follow other major central banks and raise rates.” He predicted a “hawkish hold” from the Bank when the MPC convenes on Thursday — a decision to leave rates unchanged but with the published minutes pointing to potential future rises. Financial markets are now betting on four UK rate rises over the next 12 months, up from three before the latest oil-price surge.

In Tokyo, Bank of Japan policymakers will announce their decision on Friday and are widely expected to raise interest rates, validating the recent recovery of the yen on foreign exchanges. A quarter-point increase in the BoJ’s policy rate, to 1.25%, would take it to levels not seen for more than 30 years, since Japan first began fighting an extended battle against deflation, or falling prices.

The US Treasury joined Japanese authorities in intervening in foreign exchange markets to support the yen in July. Treasury Secretary Scott Bessent, speaking at Southern Methodist University in Texas on Tuesday, said: “When we intervene with the Japanese yen, I have pretty good insight into what the Bank of Japan is going to do, what Japanese policymakers are going to do. I have asymmetric information. I am the house now. You can bet against me if you want.”

The European Central Bank raised interest rates on Thursday. ECB President Christine Lagarde said: “The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period.”