- September brings a concentrated run of major central bank meetings, with several G10 central banks fully expected or considered likely to raise rates.
- Markets lean towards 25bp hikes from the Fed and RBA, while the ECB and BOJ have hikes effectively priced as a done deal.
- A 25bp hike alone may not generate lasting volatility if it is already reflected in market pricing.
- The bigger risk is that central banks signal a longer hiking cycle and push expected terminal rates further above neutral.
A Big Month for Central Banks
One of the biggest macro themes set to drive markets through September is the convergence of major central bank meetings, with several G10 central banks expected, or considered likely, to raise interest rates.
The ECB meets on 10 September, followed by the Federal Reserve on 16 September, the Bank of England on 17 September and the Bank of Japan on 18 September. The Riksbank, Norges Bank and RBA follow later in the month.
For traders, the question is not simply which central banks hike, but whether current market pricing is correct and whether the decisions alter expectations for the broader interest rate cycle.
How Markets Price Rate Hikes
Interest rate futures and overnight index swaps (OIS) provide an effective way of measuring market expectations for central bank policy.
The Federal Reserve is a much closer call. Around 15bp of tightening is priced, equivalent to roughly a 60% probability of a 25bp hike. The weight of capital therefore leans towards a hike, but either outcome could still generate a meaningful market reaction.
The Bank of England looks less likely to move, with only around a 14% probability of a September hike priced, while Norges Bank remains closer to a line-ball decision.
The Bank of Japan is potentially one of the more interesting meetings. A 25bp hike is effectively fully priced, while the market also assigns around a 22% probability to a larger 50bp move. Given recent rhetoric from Governor Ueda and pressure from the US Treasury, the market appears to see September as a potential catch-up meeting for Japanese monetary policy.
The RBA is another genuine risk event. Around 15.4bp of tightening is priced, equivalent to roughly a 62% probability of a 25bp hike. The market leans towards another increase, but the decision is far from fully discounted.
Why a Rate Hike May Not Be Enough to Drive Volatility
A central bank raising rates does not automatically mean sustained market volatility, particularly when the move is already largely priced.
What matters is why rates are rising and whether the economy can absorb the additional tightening. If inflation remains elevated because demand and economic growth are resilient, another 25bp hike may do relatively little damage.
Australia is a good example. Demand continues to run ahead of supply capacity, but the economy has so far absorbed recent tightening without a significant deterioration. Another RBA hike could cool demand at the margin without necessarily creating a major economic shock.
The Terminal Rate Is the Bigger Risk
In simple terms, if OIS prices 15bp of tightening for a meeting where the likely outcomes are either no change or a 25bp hike, that equates to an implied probability of around 60% for a hike:
15bp ÷ 25bp = 60%
It is not a probability in the same sense as an opinion poll. Rather, it reflects the weighted distribution of money positioned across the rates market and provides traders with a benchmark for what is already priced.
What Is Priced for September?
The ECB has around 28.7bp of tightening priced for September. That means a 25bp hike is fully discounted, with the market also assigning some probability to a larger 50bp move.
For markets, the bigger issue is not necessarily what central banks do in September, but how far rates ultimately rise.
The terminal rate represents the peak policy rate expected during the tightening cycle. The further that rate moves above the estimated neutral rate, where monetary policy is neither stimulatory nor restrictive, the greater the pressure on economic activity and financial conditions.
So far, markets have largely pulled rate hikes forward rather than dramatically increasing expectations for the overall amount of tightening.
That distinction matters.
If central banks simply hike sooner, markets may absorb the moves relatively comfortably. If they signal that rates need to rise sooner, faster and ultimately much further above neutral, the implications for bonds, equities, FX and volatility become considerably more significant.
What Traders Should Watch
September presents an unusually concentrated calendar of central bank risk, but the individual rate decisions may only be part of the story.
The bigger volatility catalyst would be evidence that September's hikes are not isolated adjustments but the beginning of a broader tightening cycle.
For now, markets are pricing earlier rate hikes, but only modest additional tightening further along the curve.
If that changes, September could become less about whether central banks deliver another 25bp and much more about how high rates ultimately need to go.
