NDR: Energy shock reignites global monetary tightening risks

The outbreak of war in the Middle East and the resulting surge in energy prices have prompted a hawkish shift among many of the world's major central banks, increasing the risk of further policy tightening as policymakers seek to prevent energy-driven inflation from becoming embedded in wages and prices.

The Federal Reserve recently delivered its first rate hike in three years and could raise rates again before year-end, while the European Central Bank and Bank of Japan have each tightened policy for a second time this year, with further increases likely given resilient economic activity and persistent inflation pressures. Although the Bank of England held rates steady, its messaging remained notably hawkish. 
 
As a result, the share of global central banks in easing cycles has declined sharply, particularly among developed markets. While historical experience suggests that gradual tightening typically poses limited risks to equities, a prolonged period of elevated energy prices could lead to a more restrictive global policy environment. For now, however, global central bank indicators remain broadly supportive of equity markets, with the GDP-weighted global policy rate still below its 36 month moving average despite moving higher this year (chart above).  Download the full publication by completing the form to the right.

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