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Republic Research / ARTICLE

The entire global rate cycle has flipped from cuts to hikes. For about 15 years, the reflex everyone learned was simple. When things get shaky, central banks cut. They print, they ease, they backstop the system, and asset prices go up. That's the world we've been trading in since 2008. It's the muscle memory behind every buy-the-dip instinct in the market. That's not the world anymore. A large majority of the world's central banks are now overshooting their inflation targets, and the Street is pricing hikes, not cuts. Across the board. Start with the Fed. No cuts are expected this year, and the market is now starting to price in a small chance of hikes by year-end. Trend and trimmed-mean inflation gauges have stalled out around 3% and headline CPI is drifting toward 4%. The June 17 meeting is the first one chaired by Kevin Warsh, and he's a genuine wildcard. He's signaled a more dovish, smaller-balance-sheet philosophy, but he's walking into rising inflation on day one. What he says will matter more than what he does. But the one I want you focused on is the Bank of Japan, because that's the domino that actually reaches us. A hike to 1.0% on June 16 is now priced at over 90%. The tone out of Japan has turned openly hawkish, with upside inflation risks judged to be the bigger threat, and there's reporting that the US Treasury is quietly encouraging them not to obstruct normalization. The terminal rate is now seen at around 1.5-2.0%. Here's why that matters. For years, near-zero rates in Japan funded the global carry trade. You borrow yen for nothing, you park it in higher-yielding assets around the world, including US Treasuries and US equities. When Japan raises rates and the yen strengthens, that trade starts to unwind. Money goes home. We got a preview of exactly this in August 2024, when a BoJ move helped trigger the worst Nikkei crash since 1987 and a violent global sell-off. The carry trade is close to a trillion dollars, spread across Treasuries, private credit, and leveraged strategies. An orderly unwind is manageable. A disorderly one touches everything. And it's not just those two. The ECB is hiking June 11 into a stagflationary European backdrop with more to follow. The Bank of England is considering rate hikes in July and November if energy prices remain elevated, with gilts pressured toward 5%. The whole developed world is tightening into inflation that won't quit.

Published Jun 05, 2026Updated Jun 05, 20266 min read
The entire global rate cycle has flipped from cuts to hikes. For about 15 years, the reflex everyone learned was simple. When things get shaky, central banks cut. They print, they ease, they backstop the system, and asset prices go up. That's the world we've been trading in since 2008. It's the muscle memory behind every buy-the-dip instinct in the market. That's not the world anymore. A large majority of the world's central banks are now overshooting their inflation targets, and the Street is pricing hikes, not cuts. Across the board. Start with the Fed. No cuts are expected this year, and the market is now starting to price in a small chance of hikes by year-end. Trend and trimmed-mean inflation gauges have stalled out around 3% and headline CPI is drifting toward 4%. The June 17 meeting is the first one chaired by Kevin Warsh, and he's a genuine wildcard. He's signaled a more dovish, smaller-balance-sheet philosophy, but he's walking into rising inflation on day one. What he says will matter more than what he does. But the one I want you focused on is the Bank of Japan, because that's the domino that actually reaches us. A hike to 1.0% on June 16 is now priced at over 90%. The tone out of Japan has turned openly hawkish, with upside inflation risks judged to be the bigger threat, and there's reporting that the US Treasury is quietly encouraging them not to obstruct normalization. The terminal rate is now seen at around 1.5-2.0%. Here's why that matters. For years, near-zero rates in Japan funded the global carry trade. You borrow yen for nothing, you park it in higher-yielding assets around the world, including US Treasuries and US equities. When Japan raises rates and the yen strengthens, that trade starts to unwind. Money goes home. We got a preview of exactly this in August 2024, when a BoJ move helped trigger the worst Nikkei crash since 1987 and a violent global sell-off. The carry trade is close to a trillion dollars, spread across Treasuries, private credit, and leveraged strategies. An orderly unwind is manageable. A disorderly one touches everything. And it's not just those two. The ECB is hiking June 11 into a stagflationary European backdrop with more to follow. The Bank of England is considering rate hikes in July and November if energy prices remain elevated, with gilts pressured toward 5%. The whole developed world is tightening into inflation that won't quit.