THINK Ahead: ECB hikes, Fed cuts? Don’t bet on it in Stock News 15/03/2026 In all the turmoil, investors now expect the European Central Bank to hike rates more than once this year at a time when the Federal Reserve is cutting. Does that really make sense? It’s not unprecedented, but the bar for the ECB and BoE to hike rates this year is high, writes James Smith. It’s a central bank bonanza next week and here’s our guide to all the action ECB hikes, Fed cuts? Don’t bet on it Will the Federal Reserve really be cutting rates as the European Central Bank – and Bank of England for that matter – are raising them? If it sounds unlikely, then this is exactly what markets are pricing. Things are bouncing around. But investors still roughly see one rate cut from the Fed this year while an ECB hike is priced in by July. Markets are flirting with a BoE rate hike, too. The chart below shows how the repricing since the start of the Iranian conflict has been particularly severe in Europe. A peculiar proposition, though certainly not unprecedented. The ECB was cutting as the Fed was hiking in 1999 and again briefly in 2015/16. And let’s not forget the infamous Trichet rate hike in July 2008, long after the Fed and BoE had started cutting. Of course, there have been plenty of times when one side of the Atlantic is changing policy and the other has kept things unchanged. Still, it’s unusual to have a situation where Frankfurt and Washington are pushing in opposite directions. And to be honest, we’re sceptical. But it’s worth thinking about how this situation could come to pass this year. The most obvious rationale would be the difference in objectives. The Federal Reserve explicitly has a dual mandate, one where it must balance price stability against full employment. In Europe, the focus is on the former – even if in practice the two are closely intertwined. Then there’s the fact that US interest rates are still widely considered to be above neutral, even if not by much, unlike the eurozone where 2% rates are seen as neither expansionary nor contractionary for the economy. The centre of gravity is lower for the Federal Reserve than it is for the ECB; it can, in theory, cut rates and still retain some restriction. What’s really happening here, though, is that investors seem to be applying the 2022 playbook to the current crisis. Back then, inflation on both sides of the Atlantic surged. But the drivers were very different. Where energy-independent America saw inflation spike on the legacy of domestic Covid-era stimulus and acute hiring challenges, in Europe energy prices played a much larger role. Check out the contribution to headline inflation over that period from energy (petrol/gasoline and household electricity/heating costs) and food (which is heavily affected by the cost of energy). But this is not 2022. I wrote last week about how things have changed an awful lot in the global economy since then, leaving it less vulnerable to a re-run of the protracted inflation spike we saw at that time. This is true on both sides of the Atlantic. If anything, the fact that the US is running hot on AI spending – something Europe is clearly not – could make it a touch more exposed to inflationary pressures emanating from the domestic economy. And Europe’s relationship with energy has changed dramatically, too. I urge you to read my colleague Warren’s full article on this. But in short: Europe now consumes a lot less gas, uses plenty more renewables and is no lon