Excerpt: For a year the question was how far central banks would cut. Now they don’t even agree on direction.
For most of 2025, the only question was how far central banks would cut. In 2026 the question changed — and they stopped agreeing on the answer. An energy-driven inflation impulse has pushed the major central banks onto different paths: some pausing or reversing to defend their targets, others still easing to prop up weakening demand. The synchronized playbook is gone.
The shift in tone has mattered as much as the shift in rates. After years of cushioning growth, the emphasis at several of the largest central banks has swung back toward forcing inflation down to target — even at the cost of slower activity. When the framework itself is under review, markets have to relearn the reaction function, not just read the current level of rates.
Divergence changes the texture of markets. Synchronized policy compresses currency volatility and simplifies cross-border positioning; split policy paths do the opposite, widening the range of outcomes for exchange rates, yield curves, and capital flows between developed and emerging economies. Layer on an inflation shock that lands unevenly across regions — heaviest where energy is imported, lighter where it is produced — and the dispersion widens further.
There is a sharper complication in this cycle: growth is cooling while inflation stays elevated. That combination shrinks the room to maneuver and turns the sequencing question — who moves, in which direction, and when — into the one that matters more than any single decision. A cut and a hike can now be the right call in the same quarter, in different capitals.
For a macro observer, divergence is not a hazard to avoid but a regime to read. The question is no longer “will rates rise or fall,” but “which economy turns first, and what that means for relative value across regions” — while keeping the harder discipline in view: telling genuine regime change apart from short-term noise.