The end of the trading week paints a strikingly divergent global macro picture: the Federal Reserve is signaling a real possibility of rate hikes, the European Central Bank is expected to follow suit in June, and the Bank of Israel—in the opposite direction—is widely expected to cut rates on Monday.

The Fed: rates on hold, but the hawkish turn is unmistakable

The Federal Reserve held its benchmark rate steady at 3.50%-3.75% at the April 28-29 FOMC meeting—the third consecutive hold. But the minutes, released May 20, revealed a much more hawkish tone than markets had priced earlier in the year.

A majority of participants noted that "some policy firming would likely become appropriate" if inflation continues to run persistently above 2%. The April CPI came in at 3.8% year-over-year, up sharply from 3.3% in March, driven by higher energy prices tied to the Middle East conflict and ongoing tariff effects.

Nomura revised its US rate forecast this week to zero cuts in 2026. Markets now price roughly a 58% probability of at least one 25bp hike by year-end, according to Reuters. Minneapolis Fed President Neel Kashkari has been among the more hawkish voices, not ruling out further hikes if the inflation shock proves persistent. The minutes recorded the most dissents since 1992, with Kashkari, Beth Hammack, and Lorie Logan pushing to remove any easing bias.

ECB: inflation accelerates, June hike on the table

Eurozone inflation jumped to 3.0% in April, well above the ECB's 2% target and up from 2.6% in March. President Christine Lagarde confirmed that the Governing Council discussed a rate hike, though it ultimately held rates steady—keeping the deposit facility at 2.00% and the main refinancing rate at 2.15%.

Markets and analyst surveys point to quarter-point hikes in both June and September. Lagarde, speaking at the Eurogroup press conference on May 22, reiterated that long-term inflation expectations remain well-anchored but that the bank stands ready to act if price pressures persist.

The ECB's dilemma is particularly acute: accelerating inflation from one side, weakening growth from the other—a classic stagflationary setup. Analysts note that trade frictions and elevated energy prices are creating conflicting pressures on the European economy.

Bank of Israel: the outlier

While the Fed and ECB grapple with rising inflation, the picture in Israel is markedly different. April CPI held steady at 1.9% year-over-year—comfortably inside the 1%-3% target range—with inflation expectations running around 1.5%-2.0%.

The Bank of Israel's Monetary Committee meets on Monday, May 25. Markets price roughly 67%-70% probability of a 25bp cut to 3.75%, according to Polymarket data. Analysts cite several factors supporting a cut: contained inflation, continued shekel appreciation (which has helped keep imported inflation in check), and the absence of new inflationary shocks.

The shekel has been trading around 2.89-2.90 per dollar, near its strongest level in the past year. Israeli banks have already begun lowering deposit rates in anticipation of the move. Some analysts note residual risks from fiscal pressures and labor market conditions that could keep rates unchanged.

Bond markets: yields stay elevated

The US 10-year Treasury yield is trading around 4.56%, easing slightly from the prior week but remaining high relative to last year. The curve remains partially inverted, with the 2-year yield at 4.12%—reflecting market uncertainty about near-term monetary policy direction.

Macro analyst Lyn Alden noted in her recent newsletters that the Fed has shifted from quantitative tightening to a "gradual print"—buying roughly $18-20 billion per month in short-duration Treasuries to maintain bank reserve liquidity. She flags stagflation as the key risk: high energy prices combined with economic weakness that complicates the Fed's dual mandate.

The bottom line

Three central banks, three different directions. The Fed and ECB face a resurgence of inflation that makes rate cuts difficult—and even raises the likelihood of further hikes—while the Bank of Israel enjoys contained inflation, a strong currency, and room for a measured rate cut on Monday.

The coming week will be pivotal: the Bank of Israel on Monday, the ECB on June 11, and the Fed on June 16-17. Investors will watch closely for any signal on the direction of monetary policy, with US inflation accelerating and energy prices remaining elevated.