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  1. Thoughts on the Market
  2. The Global Rate Debate
The Global Rate Debate

The Global Rate Debate

Thoughts on the Market · Jul 21, 2026

Global central banks diverge: The Fed holds on disinflation hopes, the ECB eyes another hike, and the BOJ normalizes cautiously.

Morgan Stanley Sees AI's Biggest US Inflation Risk in Broad-Based 'Animal Spirits', Not 'Chipflation'

The direct inflationary impact of AI components like software is minimal, as they are less than 1% of the consumer basket. The more significant, yet harder to predict, risk is that AI-driven optimism boosts overall economic demand and 'animal spirits,' creating broad-based price pressures.

The Global Rate Debate thumbnail

The Global Rate Debate

Thoughts on the Market·a day ago

ECB May Continue Rate Hikes as Its Policy Is Still Considered Neutral, Unlike the US Fed

The European Central Bank has more room to raise interest rates because its policy is still considered within the 'neutral' range, not yet restrictive. Even another hike to 2.5% would likely be viewed by many governing council members as non-restrictive, a stark contrast to the U.S. Fed's stance.

The Global Rate Debate thumbnail

The Global Rate Debate

Thoughts on the Market·a day ago

Japan's Inflation Is Driven by a Weak Currency, Not Strong Demand, Allowing for Gradual Rate Hikes

The Bank of Japan can afford a slow normalization path because Japan's inflation is not demand-driven. The primary causes are a weak yen and supply-side shocks. Tepid consumer demand, just 1% above pre-COVID levels over seven years, indicates there is no domestic pressure for aggressive rate hikes.

The Global Rate Debate thumbnail

The Global Rate Debate

Thoughts on the Market·a day ago

China Plans to Boost Growth By Spending Its Existing Budget, Not By Announcing New Stimulus

In response to weak domestic demand, China's government is expected to deploy a 2 trillion RMB fund already available in its budget. The focus is on executing planned infrastructure spending in the second half of the year, rather than introducing a new, large-scale stimulus package.

The Global Rate Debate thumbnail

The Global Rate Debate

Thoughts on the Market·a day ago