No free riders: the committees are tightening together

Kevin Warsh used a fireside chat in Bangkok to decline the one thing markets wanted. “I don’t prejudge meetings,” the Fed chair said, adding that forward guidance is a business the Fed is “not in … anymore”¹. He described “a synchronous tightening in monetary policy in most places around the world”, which means “there’s no free riders”¹. The Fed raised its range to 3.75–4% last month; CME FedWatch showed traders pricing a 72.3% chance of no change at the 27–28 October meeting¹.

Christine Lagarde’s statement to the IMF’s steering committee was the European version, in writing. The ECB raised rates by 25 basis points in June and again in September². Headline inflation was 3.8% in September and core 2.5%, and wages “have so far shown no material response to the energy shock”². Financing conditions have tightened, with long-term rates rising notably, which “will slow growth and reduce pass-through” more than projected in September².

Read the two together and the method is the message. Both central banks are saying: the bond market has already done some of our work, wages have not yet moved, so we will look at the data rather than at you. The ECB’s next decision comes on 29 October, after a two-day meeting in Frankfurt³.

For you, the useful part is that this is not a mystery. The ECB publishes its three criteria: the inflation outlook, underlying inflation, and how strongly policy is getting through². Watch those three and you will not need the podium.