BofA Global Economic Weekly (20 Mar 2026)
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Global Economic Weekly
Food for Hawks
Global Letter: Food for Hawks As largely expected, the Fed, ECB, BoE, and BoJ all remained on hold. But the focus was on communication, with an across-the-board hawkish shift driven by the Iran war. Markets took notice, with zero cuts priced in for the Fed for remainder of the year, and more than 50bp of hikes priced in for the ECB and the BoE. Likely because of initial conditions, BoJ pricing is the exception to this move. The question is whether all this repricing is warranted. In our view, markets seem to be focusing mostly on inflation, while more disruptive scenarios for growth appear to be underpriced.
US: What cuts? Let’s talk about hikes Markets have nearly priced out Fed cuts for the year. Clients are starting to ask about the risk of hikes. We see at least three conditions for the Fed to hike: a stable labor market (u-rate <4.5%), further increases in core inflation (core PCE > 3.2%) and Powell as Chair. These conditions are most likely to be met if the Iran shock is sustained but moderate. This “sweet spot” for hikes is likely within the $80-100 range on WTI.
Euro area: ECB review – balanced at first sight The ECB kept policy rates unchanged and opted for very neutral language. Forecasts show more nervousness, a hawkish twist. Crucial: bigger second round effects are expected this time. Rate hikes aren't granted, but the bar is lower than we thought.
UK: BoE review – Hawkish hold Hawkish hold with a 9-0 vote, removal of easing bias and BoE opening the door to hikes. But Bailey noted caution about hikes. This poses risks to our call of further easing this year. Hikes are possible- bar is high but lower than we thought.
Asia: China – Better-than-expected activity Industrial activity and investment rebounded notably in Jan-Feb, with IP and FAI growth picking up to 6.3% yoy and 1.8% yoy. The strong start to 2026 lowers near-term expectations for further fiscal or monetary easing absent a renewed slowdown.
Emerging EMEA: CEE – high bar to hike Unlike 2022, today's shock is about price, not supply. CEE buffered by diversified supply and positive real rates. Cuts not in sight if oil above $80/bbl. But hikes only in extreme case: NBP/NBR more at risk; HUF key to NBH; CNB can hold.
Latin America: Mexico – trip notes Banxico will likely cut following a negative output gap and a relatively strong peso, despite inflation above 4.00%. Mexico is now prioritizing growth. We remain constructive USMCA.
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