ING Think rates spark either way the fed will surprise

THINK economic and financial analysis

Article | 27 July 2026 RATES SPARK

Rates Spark: Either way, the Fed will surprise Markets are split about the Fed's move on Wednesday, and with no forward guidance, we don't expect that to change. In any case, we still take a more dovish view than markets, not just of the Fed, but also the Bank of England and European Central Bank. But with oil still the main driver, timing a material dovish turn remains difficult

We don't think the Federal Reserve will hike rates this week, but markets see a significant 30% probability

Markets still too hawkish, but hard to fight against oil The key event to watch this week will be the Federal Reserve meeting on Wednesday, especially now that markets are split about the outcome. The priced-in probability of a hike is around 30% and has been feeling upward pressure on the back of higher oil prices. This weekend's headlines took Brent oil below $100 again, but the situation in the Middle East remains fragile.

Our economists expect a hold at this Fed meeting, and if oil prices ease further, no hike should be needed at all this year. That means we still see significant scope for 2Y USD swap rates to move lower from here. Having said that, we might not learn much from Fed Chair Kevin Warsh at this meeting given his dislike for forward guidance.

THINK economic and financial analysis

We also have the Bank of England meeting on Thursday, but here markets only see a negligible chance of a hike. Still, similar to the US, we think markets are positioned too hawkishly. Unless new forecasts start showing inflation above 4%, the BoE should be able to hold the policy rate at 3.75%. The front end of the sterling curve continues to be driven by oil, but 10Y gilt yields could also face more upward pressure from the ongoing political uncertainty.

In the eurozone, we have inflation numbers coming in on Friday, which will be watched closely. Last week the ECB again emphasised the lack of data available to assess the magnitude of second-round risks. This also explains why euro swap rates have religiously followed oil prices, given it’s still the only timely data point that helps predict the potential impact on inflation. Unfortunately, with oil prices higher again than a month ago, this inflation print will not provide a complete picture. If core inflation manages to stay at 2.4%, that should at least provide some peace of mind that the pass-through so far is not excessive. Having said that, a September hike will be more a function of oil and gas prices from here than the CPI figures.

Monday's events and market views From Germany, we start the day with Ifo survey outcomes, where consensus sees the expectations component improving from 84.1 to 84.7. But similar to the better PMI readings from last week, these figures do not fully account for the latest escalation in the Middle East. The US will publish durable goods orders for June.

Belgium will auction 5Y OLO, 7Y OLO and 9Y OLO bonds for a total of €2.8bn. The US will auction a new 2Y Note and a new 5Y Note for a total of $139bn.

Author Michiel Tukker Senior UK & Eurozone Rates Strategist

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