Central banks aren't singing in unison

Global central banks are pursuing divergent monetary policies because their growth and inflation paths differ, although the Iran war has created a common energy shock.

• Japan reached its 2% inflation target in October, and the Bank of Japan is expected to raise rates toward 1.5% in December after holding at a 1.25% policy rate in October.
• Australia raised rates to 4.85% in November after five increases during 2026, while China effectively cut its policy rate by 15 basis points through a liquidity injection.
• The Fed raised rates to 3.75% to 4.00% in September, paused in October by a 10-2 vote, and is expected to resume tightening in December and continue in 2027.
• The ECB delivered two 25-basis-point hikes in June and September before holding at 2.50% on October 29, while the BoE raised rates to 4.00% after holding in September by a 6-3 vote.
• Federated Hermes presents a sticky soft landing and an inflation persistence scenario, favoring short-duration bonds and investment-grade credit, with large-cap quality equities preferred when inflation remains persistent.

Takeaway: Divergent rate cycles broaden the opportunity set for active global investors, while short duration preserves flexibility and the preferred equity and credit exposures depend on whether inflation moderates or remains elevated.