Every day, one story that matters, broken down into three numbered scenarios, each with its own probability. Never fixed — it shifts as the situation changes.
After eight months of Fed inaction and the ECB's first rate hike in three years, can central banks still promise a real, lasting cut to interest rates?
After the post-Covid inflation peak, markets and households expected real monetary relief in 2026: lower rates, cheaper credit, an easier recovery. That's not what's happening — and the two sides of the Atlantic aren't even moving in the same direction anymore. In the United States, the Federal Reserve (Fed) has held its policy rate range* at 3.50%-3.75% since December 2025, without the slightest move in five consecutive meetings.
In the eurozone, it's actually the opposite. On June 11, 2026, the European Central Bank (ECB) raised its policy rate for the first time in three years, lifting its deposit rate from 2% to 2.25%. The reason cited by its president, Christine Lagarde: rising inflation, at 3.2% in May, driven by the oil shock tied to the war in the Middle East — a stagflation* risk that Europe is absorbing harder than the United States, as we'll see.
Understand
The same oil shock doesn't weigh the same on both sides of the Atlantic.
The United States now produces more oil than it consumes (the shale boom): a price shock hits it about half as hard as the eurozone, which imports most of what it uses. A 10% rise in the price of a barrel weighs roughly twice as much on inflation and growth in Europe as in the United States — hence the urgency the ECB feels, not the Fed.
The Fed's delay has a second explanation, specific to the United States: Donald Trump's tariffs, which the Fed's own researchers estimate are responsible for nearly a full percentage point of extra inflation. Jerome Powell long argued this effect would stay one-off — an isolated price rise, not a lasting drift — even if he's softened that stance in recent weeks. The ECB has no such doubt: its shock comes from outside, not from a policy decision it could judge temporary.
We've been tracking this oil shock since July: the Strait of Hormuz, through which a fifth of the world's oil usually passes, remains closed. Iran reaffirmed on August 18 that it won't reopen it until the United States honors its commitments — we already covered this crisis, see our tracker for more. The concrete result: Brent crude* is trading around $89 in mid-August, up from about $70 before the crisis.
Understand
Central banks steer monetary policy — raising or cutting rates — based on their projections of future inflation, and crude oil has long served as an early indicator for that.
The reasoning: the stronger expected inflation is, the more central banks are tempted to raise rates to curb it — crude gave an early signal on energy prices to come. Since August 17, there's also the refining margin, or "crack spread*": a record $102.20, five times normal. Four causes are compounding: refinery strikes, a Russian embargo on its diesel exports, US inventories at their lowest in 23 years, and demand rising with the northern hemisphere harvest, a heavy diesel consumer.
In the United States, the Fed isn't unanimous either. At its July 29 meeting, its monetary policy committee (FOMC*) voted 9 to 3 to hold steady. The three dissenters — Beth Hammack, Neel Kashkari, and Lorie Logan — wanted a hike to contain inflation. A weaker-than-expected US jobs figure, released in early August, has since pushed the market-implied odds of a September hike down to about a third.
This divergence feeds on itself: it strengthens the dollar against the euro, which makes oil — priced in dollars — even more expensive for the eurozone, and could push the ECB toward another hike. The ECB's next decision falls on September 10, the Fed's on September 16. Between an oil shock that could worsen or ease and a Fed that's divided internally, the outcome is open both ways: a real rate cut, a simple extension of the current pause, or a fresh wave of hikes.
Fed policy rate (upper bound)3.75% ▲ unchanged for 5 meetings, despite 3 dissenting votes for a hike in July
ECB deposit rate2.25% ▲ raised from 2% to 2.25% on June 11, 2026, first hike in three years
Favorable, stable, or degraded
Will central banks cut, hold, or hike their rates?
What we're assessing
Does inflation ease enough for the Fed and the ECB to resume cutting rates? Do both central banks simply stay on pause, moving neither one way nor the other? Or does the oil shock around the Strait of Hormuz push them to raise their rates again?
Favorable
20%
Unlikely
Rate cuts resume
A truce holds in the Middle East and the Strait of Hormuz reopens to normal traffic. Oil prices fall back below $75 a barrel, and inflation slows on both sides of the Atlantic. The Fed uses this window to cut rates as early as its December meeting. The ECB, for its part, drops any further hike and prepares a first cut for early 2027. Credit gradually becomes cheaper again for households and businesses.
This is the least likely of the three scenarios. As of mid-August, nothing points to a quick de-escalation in the Middle East. Less likely than the stable scenario, where the pause drags on without a clear reversal. Less likely still than the degraded one: internal dissent at the Fed points toward a September hike, not a cut.
The France angle
Falling rates would finally make mortgages and business loans cheaper in France, and ease the burden of public debt. ↑ Rather favorable for France.
Stable
50%
Likely
The pause continues on both sides
The Fed holds its 3.50–3.75% range at its September 16 meeting, despite the three dissenting votes in July. The ECB, for its part, doesn't hike a second time but doesn't cut either, sticking to the "meeting by meeting" stance championed by Christine Lagarde. Oil stays expensive without climbing further, around $85–90 a barrel. No clear improvement or worsening: both central banks wait for more clarity.
More likely than favorable: inflation still above 3% in the eurozone and a US economy that's holding up leave little room for a real cut. But also more likely than degraded: weaker US jobs data in July has already pushed down expectations of a September Fed hike.
The France angle
Mortgages and French government borrowing stay expensive, with no further worsening — but no return either to pre-2022-2023 rate levels. ↓ Rather unfavorable for France.
Degraded
30%
Likely
A fresh wave of hikes
The Strait of Hormuz stays closed, or closes further after a new tanker attack. Oil tops $100 a barrel, and inflation picks up sharply on both sides of the Atlantic. The Fed joins its three dissenting members and hikes rates as early as September 16. The ECB raises its own a second time before year's end. Credit becomes more expensive, for households and governments alike.
Less likely than stable: it would take an added shock, not just a continuation of the current tension. But more likely than favorable: June's precedent — the ECB's first hike in three years — shows this scenario has already played out once this summer, it's not just a theoretical hypothesis.
The France angle
Fresh hikes would make credit and France's public debt burden — already close to €3.3 trillion — even more expensive. ↓ Rather unfavorable for France.
While households and businesses hoped for real credit relief in 2026, will central banks manage to deliver a lasting cut to interest rates?
The Fed has held rates between 3.50% and 3.75% since December 2025, and the ECB has just raised its own for the first time in three years, to 2.25%, because of an oil shock tied to the Strait of Hormuz crisis.
The most likely scenario (50%): both central banks simply stay on pause through year's end, with no new hike and no real cut.
Signal to watch: the Fed's decision on September 16, 2026, and any further development in oil traffic through the Strait of Hormuz.
Fairly negative
Our assessment of the impact on France: fairly negative. The most likely scenario (50%) extends rates that are already high compared with pre-2022 levels, with no worsening but no relief either for household credit and public debt. The degraded scenario (30%), a fresh rate hike, adds further to that negative weight — only the favorable scenario (20%) pulls the score the other way, without being enough to tip it back into positive territory.
The US Federal Reserve's monetary policy committee (Federal Open Market Committee), which sets the level of interest rates at eight meetings a year.
Policy rate
The interest rate set by a central bank — here the US Federal Reserve — which shapes the cost of credit across the whole economy.
Stagflation
An economic situation where inflation stays high while growth slows or stalls — the worst of both worlds for a central bank.
Brent
The main oil price benchmark used in Europe, quoted in dollars per barrel.
Crack spread
The margin a refinery earns from turning crude oil into a finished product (here, diesel) — the wider it is, the more refining itself adds to the final price, beyond the cost of crude alone.
