The Fed raised its interest rates by 25 basis points (bps) to 3.75–4.00% on a unanimous vote, framing the move as insurance against energy prices bleeding into core inflation, while the Bank of England held its rates at 3.75% despite a more hawkish tilt in its minutes.

Equities wobbled early on surging oil prices and long-term yields before rebounding as both retreated, with the Nasdaq 100 the lone bright spot at +0.9%. The USD firmed on the hawkish dot plot and gold pushed ahead to USD 4,380 per ounce.

Macroeconomics

If patience is a virtue, the US Federal Reserve (Fed) is less virtuous these days, but it has reinforced its credibility. On 16 September, the FOMC voted unanimously to raise its policy rate by a quarter of a percentage point to 3.75–4.00%, arguing that it was ‘removing a dose of accommodation’ (from a policy stance that seemed not restrictive enough). Inflation remains well above the 2% target, and the Middle East conflict is nowhere near an end. Together, these points explain part of Fed Chair Warsh’s reaction function: the pass-through of commodity prices to inflation in a resilient economy.

This is illustrated by August’s retail sales: they rose by 1.2%, and the ‘control group’, which strips out cars, petrol and building materials, jumped by 1.4%. Households kept spending in nearly every category despite pricier fuel. At the very least, such robust data make the Fed’s choice less uncomfortable. Looking ahead the direction of travel is clear: the dot plot points to one more rate rise by December. Next year’s story is less certain and contingent on the path of energy prices, which pushes any easing back to 2028.

The Bank of England (BoE), by contrast, is keeping its virtue for now. Its Monetary Policy Committee (MPC) voted 6:3 to hold its base rate at 3.75%, with three members wanting a rise, warning that a prolonged conflict in the Middle East raises the risk of energy costs seeping into prices and wages. Two facts buy the doves some time: total pay growth slowed from 4.2% to 3.9% in the three months to July, and August’s consumer price index (CPI) data coming in at 3.1%, driven by fuel prices, remains a supply shock. Nevertheless, the BoE’s patience will be tested on 5 November and 17 December with the probability of a rate hike increasing at each meeting.

This week’s flash Purchasing Managers’ Indexes (PMIs) will give an early read on September activity in the US and the eurozone. On Thursday, the Swiss National Bank (SNB) is expected to hold its rates at 0%, and Donald Trump is hosting Xi Jinping in Washington to discuss trade, artificial intelligence (AI) and national security.

Equities

Global equities were little changed (MSCI ACWI total return -0.5%) despite a turbulent week dominated by interest rates and central banks.

Markets initially sold off over the first half of the week before staging a late-week rebound as oil prices and long-term yields retreated. While most sectors and regions ended the week down, the Nasdaq 100 closed up +0.9%, underscoring investors’ continued preference for the technology sector amid the many ongoing macro crosscurrents (e.g. geopolitics, energy prices, inflation risks).

Last week again tested the two triggers our September House View flagged as potential catalysts for a near-term pullback in global equities: an overshoot in oil prices and long-term yields. The swift recovery observed at the end of the week is consistent with our expectation that such volatility will prove to be short-lived against a still-constructive global economic backdrop, as well as with our view that the Fed and US Treasury would act to contain a disorderly move at the long end.

In the week ahead, with central banks’ diaries clearing, the direction of oil and long-term yields remains the key swing factor for sentiment and the path of equity markets. The former remains an important variable in assessing upside inflation risk while the latter remains a determining factor in equity market valuations.

Amid a volatile week, the Nasdaq 100 ended positively (+0.9%), showing that investors still favour the technology sector despite macro uncertainty.

Fixed income

Three central bank decisions in four days left 10-year yields close to where they started, with Treasuries 3 bps higher at 5.00%, Bunds up 2 bps at 3.52% and gilts 5 bps lower at 5.30%. The front end continued the previous week’s move, with 2-year yields adding between 3 bps and 12 bps after the 25–28 bps the week before. In dollars, Treasuries returned -0.2% on the week, investment grade (IG) -0.1%, high yield (HY) -0.3%, additional tier 1 bonds (AT1s) flat and emerging markets (EM) -0.2%.

On Wednesday the Fed raised rates 25 bps to 3.75–4.00% on a unanimous 12:0 vote, marking its first rate increase since July 2023. The hike was fully priced in after Fed Chair Warsh’s pivot at Jackson Hole and a month of rates grinding higher (mostly on energy costs). The statement was short, citing solid growth, robust capital expenditure (capex) and strong productivity, and said the move supports a timelier return to 2.0% inflation. The dot plot showed that 16 of the 18 officials see at least one more hike this year, and four seeing two more, with the median moving to 4.1% for 2027 from 3.6%, and 3.9% for 2028 from 3.4%. Warsh framed the rate hike as insurance against energy inflation broadening into core inflation on the basis that the Fed cannot control oil but can stop it reaching wages, and attributed higher long yields to growth, competition for capital, and commodity prices rather than to the Fed. He framed the rate hike as removing accommodation, refused to call the policy restrictive, gave no timings, and twice declined to answer questions about his conversations with President Trump. As we wrote last week, he looked cornered into hiking rates to protect the Fed’s credibility, and the unanimity, the timelier-return language and the absence of any dovish sweetener all point that way.

With no guidance to absorb surprises, every inflation print now carries more weight, and so does every move in oil prices. 10-year yields touched 5% on Monday as the postponed Iran-GCC summit and Saudi pipeline closures reversed the previous Friday’s decline, before reaching 5.04% on Tuesday, the highest since July 2007. Wednesday’s hike brought them back by only 2 bps, against a 3.2% fall in oil output on reports that Saudi Arabia could restore half its east-west pipeline within days, and Thursday brought a 9-bp rally. WTI fell below USD 100/bbl over the weekend and yields opened this morning at 4.97%. The detail here is meant to show that oil prices look to be the main driver of short-term moves on rates.

The BoE held its rates at 3.75% on a 6:3 vote, the sixth consecutive hold and the same split as July, though the minutes were more hawkish than the vote, with inflation risks judged to be tilted further to the upside and the MPC saying that if the conflict in the Middle East persists, as appears to be the case, it may have to tighten its policy. More consequential was the operational change: the MPC voted unanimously to wind its monetary policy gilt holdings down to zero by 2034, slowing the annual unwind to GBP 46 billion from GBP 70 billion. Gilts maturing before 2035 are left to redeem and GBP 120 billion of the longest-dated holdings is being moved across to backing banknote issuance, leaving only GBP 20 billion a year of actual selling, all in the 2035–2049 period. 30-year gilts rallied hardest, even if the BoE is putting quantitative tightening’s (QT) own contribution to gilt yields at only 25 bps. That follows the US Treasury’s buyback covered last week, making two official attempts to manage long-end supply.

OATs (French government bonds) sold off 14 bps on Friday, taking the spread over Bunds through 100 bps for the first time since 2012, from under 60 bps at the start of the year. This followed the French finance ministry’s estimate of the 2026 deficit at 5.4% against a 5.0% target, with the national debt at 119% and forecast to keep rising. Lecornu’s EUR 54 billion consolidation plan now has to survive a parliament that needed emergency measures and two confidence votes to pass the current budget, on top of having to do it going into the presidential elections in April 2027. We hold no positions in OATs, but the widening is worth watching, with OATs trading wider than BTPs (Italian government bonds) despite a better rating.

On market fundamentals, Q2 HY showed the strongest revenue and EBITDA growth in four years, with leverage falling for the first time in six quarters and coverage improving to a 2-year high of 4.1x, albeit still 0.26x below its long-term average. Capex grew at the fastest rate since Q4 23, led by technology.

We remain comfortable with credit risk given the strength of the economy and earnings, with meaningful positions in HY and EM, with the latter focused on frontier and local currencies, which have performed well this year. Duration remains neutral at 4 years and concentrated in the 3–7-year sector, while the conflict in the Middle East makes it hard to hold a strong view on rates. Our baseline is one further Fed rate hike by year-end, with oil prices the main risk to it.

The Fed hiked interest rates 25 bps to 3.75–4.00% on a unanimous vote, and signalled more hikes ahead as insurance against energy-driven inflation.

Forex and Commodities

Last week, the USD edged higher against most G10 currencies, reflecting the Fed’s 25-bp interest rate hike and the rise in the FOMC’s dot plot. The USD will continue to illustrate a high level of front-end carry, giving it a solid support in any risk-averse scenario. The main event over the coming week is the publication of PMI data, which should continue to show a constructive backdrop for the greenback. Overall, there is nothing to suggest that we will see large directional USD moves, but USD depreciation is unlikely in the near term.

The SNB will hold its quarterly rate setting meeting this week, and it is expected to leave rates unchanged at 0.00%. Recent inflation data have been above expectations, and markets have moved to price in 50 bps in rate hikes over the coming year. This should cap recent spread developments, which moved against CHF. The SNB will also release its latest conditional inflation forecasts, which should be slightly higher than before. Overall, there is nothing to get too excited about for CHF exchange rates in the near term.

The JPY weakened following the Bank of Japan’s (BoJ) MPC meeting, at which it raised its deposit rate by 25 bps, taking it to 1.25%. The MPC voted 7:2 to raise rates, showing the decision was not unanimous. Forthcoming personnel changes on the MPC over the coming year should limit the influence of hawkish members, reining in the possibility of a material rise in BoJ deposit rates. Rate spreads moved against the yen, opening up the possibility of a return to higher USD/JPY levels in the coming weeks.

Sweden’s Riksbank is likely to keep its interest rates on hold at 1.75% over the coming week and it should keep a mildly hawkish tone on communications, noting upside risks to inflation coming from the external situation. The SEK should struggle to rise in the near term, given higher external yields, and its still-low levels of base rates compared with other major currencies.

The Norges Bank is expected to hold its rates at 4.25% over the coming week and its MPC’s communication is likely to skew hawkish. Governor Ida Wolden Bache has explicitly left the door open to another 2026 hike at the past three MPC meetings and may edge closer to delivering it this week. Norwegian CPI inflation has remained sticky at 3.3% y/y, and month-on-month measures have not shown material signs of disinflation. The NOK should continue to trade at strong levels against the EUR and the other crosses, notably the SEK.

Gold traded higher to levels of around USD 4,380 per ounce following the Fed’s FOMC meeting and gold is continuing to decorrelate from real rate moves (US 10-year TIPS yields). In the coming week, the yellow metal is likely to trade in a tight range, though geopolitical developments in the Middle East once again show the importance of holding bullion. Overall, no significant moves are expected given the rise in front-end nominal yields.

The USD strengthened on a hawkish Fed rate hike, while gold climbed to around USD 4,380 per ounce, decoupling from real rates as geopolitical risks keep demand for the metal intact.

The opinions expressed herein are correct as at 21 September 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.