Therefore, the rise in nominal yields reflects high real returns and persistent inflation concerns. These yields attract capital to the United States. They also raise borrowing costs elsewhere and reduce the appeal of expensive equity valuations.

ECB and BoE Rate Outlook: Inflation Delays Policy Easing

Other central banks of the developed nations also face inflation pressure. The ECB raised the deposit rate to 2.50% and the refinancing rate to 2.65%. It expects inflation of 3.0% in 2026 but growth of only 0.9%. The BoE took a different approach. It held the interest rate at 3.75% by 6-3 vote. The three dissenters wanted an increase to 4.00%.

UK inflation was 3.1% in August and the bank warned that another energy shock could push the inflation above 4% in early 2027. These figures explain why both banks are cautious despite the weaker growth.

BoJ Hikes Rates as China Holds Policy Steady

Asia presents more divided picture. The Bank of Japan raised the overnight rate to 1.25% on September 18 as energy prices, wages and yen weakness increased the risk of inflation. Australia has held the rate at 4.35% after several increases in 2026.

China has kept the one-year loan prime rate at 3.00% while consumer inflation was only 0.8% in August. This is selective global tightening phase rather than synchronized hiking cycle. A stronger dollar will limit how quickly many countries can cut rates because weaker currencies raise the costs of imports and energy.