H2 2026 Global Central Bank Outlook

As we move into the second half of 2026, with the shock of the U.S.–Iran conflict, central banks around the world are broadly facing inflationary pressure, and some have already moved first with rate hikes in the first half of the year. Will this put pressure on global markets? Following our review of global central bank policy progress at the end of last year, we once again consolidates the policy paths of 12 major central banks across developed and emerging markets, helping you grasp each central bank's policy pace and its next move!

Key points of this article:

1. About 30% of central banks are now hiking. Will more follow? And how long will this cycle last?
2. Key commentary on the monetary policy direction of the 12 major central banks and what to watch next, covering the Fed, the ECB, the BOE, the BOJ, and the central banks of Canada, Australia, China, South Korea, Taiwan, India, Brazil and Russia.

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▌U.S. Federal Reserve (Fed): Internal divisions notably deepening; the Fed stays on the sidelines over whether to hike in Q3

Since the start of 2026, the Fed has kept its target range unchanged at 3.50–3.75%. Since Warsh took over as Chair, forward guidance has been abandoned in order to avoid revealing the Fed's underlying leanings in any concrete way; nevertheless, judging from individual members' remarks and the three dissenting votes at the latest July meeting, internal divisions have already deepened.

At present, we still believe inflation remains stable with no second round of increases, and against a backdrop where financial markets have priced in an equity correction on their own and real rates have risen — which is itself starting to suppress inflation — the Fed has been bought more time. We therefore continue to see a higher probability that it stands pat this year. On the other hand, FedWatch shows the market expects one 25bp hike this year. Core inflation over the next several prints is worth watching closely: as New York Fed President Williams put it, a monthly increase of 0.2% is relatively safe, while a clear overshoot would cause us to change our view.

On the balance sheet, since Reserve Management Purchases (RMPs) were launched last December, the pace has gradually slowed from the elevated USD 40 billion per month seen ahead of tax season to USD 10 billion per month. According to the Treasury's latest announcement, the Q4 TGA target balance will fall back from USD 950 billion to USD 850 billion; with the liquidity that this releases, we think RMPs could be paused in Q3. That said, the statement reiterated a policy of maintaining ample reserves, so expectations of aggressive balance sheet reduction have already faded and we see no significant cause for concern.

▌European Central Bank (ECB): Energy prices rebound, prompting the ECB to begin precautionary hikes

Headline euro area HICP rose from 2.8% year-on-year in June to 2.9% in July, while core HICP also unexpectedly rebounded to 2.5% (from 2.4%), driven mainly by energy prices accelerating sharply to 10.0% year-on-year (from 8.5%) and services picking up to 3.3% (from 3.2%). European electricity and natural gas futures prices have already exceeded their March highs. Having begun precautionary rate hikes in June this year, the ECB then decided at its July meeting to keep the deposit facility rate unchanged at 2.25% while waiting to see how the conflict develops. If the war in the Middle East drags on, we expect the ECB to have at most one more 25bp hike before year-end.

▌Bank of England (BOE): With the new government expanding fiscal policy, the BOE is acting more cautiously

The BOE voted 6:3 at its July meeting to keep the Bank Rate unchanged at 3.75%, standing pat for a fifth consecutive time, but internal policy divisions have widened markedly, with three members voting for an immediate 25bp hike on concerns that a renewed Middle East conflict would send energy and commodity prices soaring. The latest data show...

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