This year has seen a series of rate cuts across major central banks around the world. But with many policy-makers signaling they're near or at the end of that cycle, what does 2026 have in store for central bank watchers?

Central banks in Australia and New Zealand have adopted a more hawkish stance in response to robust consumer spending, tight labor markets, and persistent inflation, with rates now hovering between 2.5% and 3% in many advanced economies. This shift marks a departure from previous expectations of rate cuts, as central banks aim to address inflation that remains above target.

The Bank of Japan is highlighted as being especially behind the curve, with actual inflation outpacing its forecasts and the Taylor rule suggesting further rate hikes are needed. In the United States, the Federal Reserve faces challenges in achieving consensus for rate cuts, given strong economic growth and sticky core inflation, leaving little room for policy easing.

Rich world's rate-cut momentum fading away

Morning Lizzie. That's absolutely right. We have seen the central banks in Australia and New Zealand kind of turn very hawkish over the past couple of weeks. And that is because of two factors primarily. One is that growth has been pretty resilient. Consumer spending has been robust. The labor markets are pretty tight as well. It turns out much more much tighter than central banks were expecting around even earlier this year. And there is also the inflation picture. The inflation picture is kind of sticky. Gone are the days when we seem to be comfortable talking about 2 percent inflation. Now we are talking about two and a half if not 3 percent inflation in many of the economies. And that's the reason why central banks are quickly pivoting away from dovishness into hawkishness. Now you and I both know no central banker likes to hit the reverse button and admit a policy error. Which major central bank then is most likely to surprise us in 2026 and why. Well I think that you know that award has to probably go to the Bank of Japan because they are behind the curve. If you look at their own projections for inflation they are forecasting inflation to come in at one point eight percent for the next fiscal year. And that is never mind that realized inflation is running at 3 close to 3 percent in Japan. And they are also expecting growth to be above trend next year as well. So if you put all those together in the Taylor rule equation what you get is a recommended rate of 1.5 percent. So that means that they've got 75 basis points of rate hikes that they need to put through whether they will put through that put that through or not is the big question. But there is no question that they are behind the curve in kind of firefighting the inflation. And there are also other central banks that are likely to turn more hawkish as well. Well let's talk about the Fed because the expectation then is of course that they might get a dovish Fed chair next. Why might that chair struggle to get the FOMC on board for deep breakers. Well the point is you know the Fed is at 350 to 375 now. And if you look at how sticky core inflation has been and how resilient the U.S. economy has been we got the print yesterday 4.3 percent blowing out all estimates. So that and the Fed expects the economy the U.S. economy to go 2.3 percent next year. That's fully half a percentage point above what they were expecting in September and 2.3 percent. Even that is conservative. 2.3 percent would be well above trend. So you've got an economy growing well above trend. You've got coal PCE that is hovering close to 3 percent. That means that there is just no wiggle room for the Fed to be cutting rates and for the new incumbent whoever they are. They are me. They are required to be dovish by job description as we know. But the question is whether they will be able to drive that consensus and not all on the Fed Policy Committee may agree to cutting rates endlessly because of the factors that I mentioned of coal PCE being sticky and resilient economic growth which means that the Taylor rule rate is is at 350.

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