Rising energy prices represent a classic negative supply shock to the economy, but there are a number of reasons why the major central banks should set aside their standard response to such shocks. This has major implications not only for asset prices but also for economic growth. In this interest rate report, we discuss what this means for European and U.S. interest rates.

The central banks in the U.S., Japan, and the Eurozone are likely to raise interest rates this month. In doing so, the Fed must still take into account a possible clash between Warsh and Bessent, while the ECB faces a triple stagflationary threat consisting of higher energy prices, drought, and growing political uncertainty. In this report, we explain why this is happening and what it specifically means for European and U.S. interest rates (EURIBOR, SOFR, and Swap rates).

While corporate profits are breaking records and more than 85% of U.S. shares are held by the top 10% of households, wage income as a percentage of GDP is declining, many young people are losing the prospect of homeownership, and AI is eroding job security. Over the next decade, this could lead to a political backlash, with higher taxes on capital, greater political pressure on monetary policy, and higher inheritance taxes.