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[Major Central Banks Tighten Amid Energy Shock, Market Pricing May Be Overly Aggressive] ⑴ Amid the energy price shock, major central banks are generally on a tightening path. The Federal Reserve recalibrated its policy to a more restrictive stance on Wednesday, but traders continue to price in a more aggressive rate hike response than its dot plot predicts. ⑵ Economists believe the market is overpricing future rate hikes, partly due to concerns that the oil shock could worsen after the Houthi rebels seize strategic areas along the Red Sea coast. This move is seen as a move by the Iranian-backed militia to harden its stance. ⑶ The Reserve Bank of Australia has raised interest rates three times this year to 4.35%, completely reversing last year's rate cuts. The door to further rate hikes seems to be open, and the market widely expects a rate hike at its meeting later this month. ⑷ The Norwegian central bank kept its interest rate unchanged at 4.25% in August, noting that inflation has eased and second-quarter economic growth was only about 0.3%, slower than expected. The market is pricing in another 25 basis point rate hike before the end of the year. (5) The Bank of England kept interest rates unchanged at 3.75% on Thursday as expected. Three members voted to raise rates, and Governor Bailey warned that the ongoing Middle East conflict might require tighter policy. The market is pricing in at least one more rate hike this year. (6) The Federal Reserve raised rates and hinted at further hikes. Policymakers expect one more rate hike in 2026 and to hold rates steady in 2027, but traders are pricing in more than one this year and about three by the end of 2027. (7) The Reserve Bank of New Zealand raised rates for the second consecutive month to 2.75% and hinted that further tightening might be gradual. Recent growth data was higher than expected, and the market is pricing in at least one more rate hike before the end of the year. (8) The European Central Bank raised rates for the second time this year and released a hawkish tone. The market is pricing in at least one more rate hike before the end of the year and deposit rates above 3% in 2027, but some economists expect the energy shock to drag down growth and help curb inflation next year. (9) The Bank of Canada kept interest rates unchanged this month, but Governor Macklem stated that multiple rate hikes were possible if inflation remained high. Following signs of a cooling labor market, the market is still pricing in one more rate hike before the end of the year. (10) The Swedish central bank has a dovish stance and is expected to maintain its key interest rate at 1.75% at its meeting later this month. Lower-than-expected inflation in August reinforced this view, but the market expects rates to rise later this year. (11) The Bank of Japan is expected to raise interest rates to 1.25% at its meeting this week. Investors are focused on the hawkishness of the post-meeting rhetoric. Economists surveyed expect rates to rise to 1.75% in the second quarter of 2027, earlier than previously anticipated. Market focus remains on the potential repatriation of funds from the Japanese Government Pension Investment Fund.