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September was marked by an almost synchronised tightening of monetary policy by the major central banks. Faced with rising energy prices, the Fed, the ECB and the BOJ all raised their key interest rates, reflecting the authorities’ growing concern about the risk of a new bout of inflation. Bucking the trend, the SNB kept its key interest rate unchanged, thereby highlighting the unique nature of Switzerland’s economic situation. At the same time, the sharp rise in long-term bond yields reflected expectations of persistently high interest rates, ongoing concerns about inflation, and prospects for sustained growth.
Inflationary pressures intensified over the course of the month, driven mainly by rising energy prices. Brent crude rose by nearly 10 per cent in September, fuelled by risks to global supply against the backdrop of the conflict with Iran. In the eurozone, inflation continued to accelerate. The ECB believes that rising energy prices could keep inflation above the 2% target for an extended period. Several Fed members have also indicated that inflationary pressures are no longer limited to energy (second-round effects), increasing the likelihood of further monetary tightening measures. Switzerland, however, continues to stand out with significantly more moderate inflation.
Against this backdrop, central banks have continued to tighten their monetary policy. The ECB raised its deposit rate to 2.50%, whilst the Fed implemented a further 25 bps hike (to 3.75%–4%) and is maintaining a restrictive stance for the coming months. For its part, the SNB left its rate unchanged at 0 per cent, whilst reaffirming its willingness to intervene in the foreign exchange market if necessary to ensure appropriate monetary conditions. Sovereign yields continued to rise, leading to the worst quarter for global bond markets since the end of 2024.
Despite this more restrictive monetary environment, global economic activity remains resilient. The PMI surveys published in September point to continued robust growth in the United States, in both the manufacturing and services sectors. The eurozone is also continuing to grow, albeit at a more moderate pace. However, the effects of monetary tightening are beginning to be felt: credit conditions are tightening and the volume of loans granted to European businesses is slowing. The combination of high interest rates, sustained energy prices and more restrictive access to finance could therefore weigh more heavily on growth over the coming quarters, even though no signs of a marked slowdown are yet visible at this stage.
