The day after the Fed's April FOMC minutes hit the tape, the takeaway is unmistakable: inflation is not yet vanquished, and central bankers are anything but united on the road ahead.
While the Fed navigates its deepest internal rift in three decades, Europe's inflation is accelerating, and the Bank of Israel will deliver its next rate decision on Sunday — one markets expect to mark the start of a new easing leg.
Why It Matters
Global bond markets are in the midst of a sharp selloff that has pushed long-term US Treasury yields to levels not seen since 2007. The 30-year yield touched 5.2%, while the 10-year climbed to around 4.6%. German 30-year bunds hit 15-year highs. The driver: persistent inflation fears fueled by oil prices near $99 (WTI) and $104–105 (Brent) — levels that reflect the ongoing geopolitical risk premium tied to the Strait of Hormuz.
Fed: Eight Ayes, Four Nays — The Biggest Split Since 1992
The April 28–29 FOMC minutes, released Wednesday, showed the committee voted 8–4 to hold the federal funds rate at 3.50%–3.75%. That four-person dissent is the largest since 1992.
Governor Stephen Miran voted for a 25-basis-point cut, arguing the current stance is overly restrictive given labor market downside risks. On the other side, Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan supported the rate hold but dissented against the statement's easing bias — demanding more balanced, two-sided forward guidance.
The minutes showed most participants see inflation risks tilted to the upside, and that some policy firming "would likely become appropriate if inflation remains persistently above 2%." The bar for rate cuts has been raised, with most officials now expecting rates to stay higher for longer than markets had previously priced.
ECB: Heading for a June Hike — In the Opposite Direction
Contrast the Fed's paralysis with the European Central Bank, where the conversation has shifted to tightening. Eurozone HICP inflation hit 3.0% in April, up from 2.6% in March — the highest since September 2023. Energy prices surged 10.8% year-on-year, driven by Middle East supply concerns.
Markets now assign an 85% probability to a 25bp hike at the June 11 meeting, which would lift the deposit rate to 2.25%. Bundesbank President Joachim Nagel has signaled openness to such a move if inflation projections don't improve materially. A Reuters economist poll found roughly 85% of respondents expect a June hike.
Caveats remain: oil hasn't risen as sharply as initially feared, core inflation is still a modest 2.2%, and Eurozone growth remains weak-to-stagnant. But the April inflation print shifted the ECB's bias decisively toward action.
Bank of Israel: Rate Cut Expected Sunday
The Bank of Israel's Monetary Committee meets Sunday (May 25) with the rate at 4.00%. Prediction markets assign 66–77% odds of a 25bp cut to 3.75%.
April CPI came in at 1.9% — well within the 1%–3% target band. One-year inflation expectations are in the 1.5%–2.0% range, and the shekel remains strong at around 2.90–2.92 against the dollar, helping contain imported inflation. The case for a cut toward a more neutral rate of roughly 3.5% is solidifying.
The minority view — roughly 30% — argues for holding, citing geopolitical uncertainty, fiscal risks, and continued tightness in the labor market.
FX: Dollar Weakens, Euro Strengthens
The dollar index (DXY) slipped to around 99.1, extending its recent softness. EUR/USD traded above 1.16 — multi-month highs — as markets price in ECB tightening against a deeply divided Fed. The shekel held firm near 2.90, among the stronger EM currencies this year.
The Bottom Line
Three major central banks, three diverging paths. The Fed is locked in an internal standoff that blocks any policy move; the ECB is preparing to hike even as growth flags; and the Bank of Israel is poised to continue its quiet easing cycle. The common thread tying them together: oil, inflation, and the geopolitical uncertainty that has become the dominant macro driver in 2026.
