Policy Decisions in September: Three Central Banks, Three Different Paths

This month, monetary policy decisions from three major central banks are attracting particular attention. The ECB's decision on September 10 is the most clearly telegraphed of the three, while the Fed's decision on September 16 looks increasingly uncertain. The SNB follows on September 24 and occupies a category of its own.

What matters, then, is not only what these central banks decide in September, but what signals they send about the path of rates ahead — and, by extension, for financial markets.

ECB poised for another rate hike

Of the three upcoming decisions, Thursday's ECB meeting is the most fully anticipated. Financial markets are pricing in a 25-basis-point rate hike with near certainty, which would take the main refinancing rate to 2.65%. Headline inflation in the eurozone has picked up sharply again this year, climbing from 1.7% in January to 3.3% in August. The main drivers have been sharply higher energy prices tied to the conflict in the Middle East and disruptions around the Strait of Hormuz. At the same time, economic growth has also surprised to the upside: second-quarter GDP growth came in at 1.2% year-over-year, above consensus estimates, supported in particular by higher defense spending and AI-related investment. This combination takes away at least part of the ECB's case for standing pat, since economic momentum remains resilient despite inflationary pressure.

While the rate hike itself is widely seen as a foregone conclusion, the ECB's communication on the path ahead — together with its updated projections, due out at the same meeting — is likely to matter more. A Bloomberg survey of economists suggests the September hike could be the last, with the deposit rate remaining unchanged through 2027. Financial markets, by contrast, are currently pricing in roughly three rate hikes by mid-2027 — a materially steeper path than economists expect.

The Fed: uncertainty ahead of the September decision

In the US, the FOMC meeting has become one of the most uncertain monetary policy decisions in years. US headline inflation remains sticky at 3.4% year-over-year in July, still well above the Fed's 2% target, even though it has eased notably from a peak of 4.25% in May. At the same time, economic growth remains robust: second-quarter GDP growth came in at 1.5% year-over-year, while the labor market continues to outperform consensus expectations. Nonfarm payrolls rose by 162,000 in August, well above expectations, while the unemployment rate held steady at 4.1%. Although growth cooled somewhat from the first quarter, consumer spending and business investment remained resilient despite higher energy and fuel prices.

The combination of sticky inflation and a robust labor market has considerably strengthened the case for tighter monetary policy, even as second-quarter growth moderated somewhat. Fed Chair Warsh also struck a clearly hawkish tone in his Jackson Hole speech, reinforcing market expectations for an imminent rate hike.

The key remaining data point, however, is the August inflation report, due out ahead of the Fed's September 16 decision. Inflation coming in hotter than expected would largely seal the case for a hike, while a significantly softer-than-expected reading could tilt the balance back toward holding rates steady. Financial markets currently price in roughly a 60% probability of a rate hike.

Note: The chart shows market expectations for cumulative rate changes by December 2026, derived from swap rates. The baseline is the policy rate as of 1 January 2026. Negative values represent expected rate cuts, positive values rate hikes.

The SNB: Likely on hold, with a focus on 2027

The SNB occupies a category of its own. Swiss consumer prices rose 0.8% year-over-year in August, above consensus expectations. Even so, inflationary pressure in Switzerland remains low overall, leaving no immediate pressure to act. Second-quarter GDP growth of 1.5% also surprised to the upside.

Even though both inflation and growth have surprised positively, both remain well within comfortable ranges. As a result, the SNB has no compelling reason to adjust policy in September, and financial markets are likewise pricing in unchanged policy at this meeting.

The central, ongoing consideration for the SNB remains the strength of the Swiss franc — long one of its most important policy considerations — rather than domestic price or growth dynamics. That said, the franc has been on more of a depreciation path since the start of the year rather than continuing to strengthen, which likewise argues for the SNB holding steady.

Looking ahead to 2027, however, the picture could shift. If current trends continue and both inflation and growth keep surprising to the upside, a rate hike in 2027 becomes a realistic scenario. A sustained rise in inflation toward the upper end of the target range, combined with robust domestic demand, would meaningfully change the SNB's policy calculus.

Such a scenario could, in principle, be welcomed by the SNB, as it would allow a move away from a zero-rate policy — even if the policy rate were initially to reach only 0.25%. The monetary policy debate of recent years has increasingly highlighted the advantages of a modestly positive neutral rate as a long-term policy anchor. Such a level preserves conventional policy space for downturns, reduces the need for unconventional tools, supports bank profitability and healthy credit intermediation, reduces financial-stability distortions from reach-for-yield behavior, and is more consistent with long-run equilibrium in capital markets.

Accordingly, the September meeting will be watched closely — particularly for any shift in the SNB's communication around the inflation outlook.