Nonetheless, interest rates are on the rise globally. Rate increases started in early February, when the Reserve Bank of Australia board enacted the first of its three hikes. The tightening spread to other economies over the next few months. In early May, Norway’s Norges Bank raised rates, with the European Central Bank and Bank of Japan following a month later. The Reserve Bank of New Zealand raised rates in July.

Early in 2026, economists and financial markets largely expected the opposite outcome. Morgan Stanley and Deutsche Bank analysts said there were favorable conditions for lower rates in the United States, mostly from the slower-than-expected labor market. Stanford Institute for Economic Policy Research analysts described the economy as being in a strange place: It was experiencing a slower job market, but consumer spending remained high. Uncertainty over the Trump administration’s tariff policy also complicated matters, as companies decided whether to absorb tariff costs or pass them down to consumers.

Economist Mark Zandi went so far as to predict three rate cuts in 2026 as the Fed looked to encourage borrowing and stimulate the economy. He added the Fed could see pressure from the White House to lower rates to help Republicans in the midterm elections.

In Europe, policymakers at the ECB disagreed on whether to cut rates or keep them steady. They expressed similar worries about job growth. While ECB officials were confident the bloc could survive any sudden price shock, some members said it would be better not to make any predictions about interest rates. This was because the economic outlook was so uncertain.

Sticky inflation was mostly blamed for the rising interest rates, but central bank leadership disagreed on what caused higher prices. The central banks of the European Union and Japan pegged increased energy costs to the Iran war. The ECB Governing Council said it wouldn’t know what sort of secondary price shocks might hit the economy so long as the war dragged on. The Bank of Japan added that inflation could increase as the yen’s value against the U.S. dollar continued to fall.

Australia and Norway also blamed the Middle East conflict but noted that inflation had been running hot for months.

“The rapid rise in business costs in recent years will contribute to keeping inflation elevated ahead,” Norges Bank governor Ida Wolden Bache said last month.

Australian businesses have been paying more for goods since the middle of 2025. Reserve Bank officials said cost pressures are now being passed down to consumers. That’s caused consumer spending to slow, but not enough for the bank. Following three rate hikes this year, bank officials plan to wait for more information on the economy and oil prices before moving forward with further rate decisions.

Opinions differ about why inflation lingers

Economists interviewed by the Washington Examiner offered different explanations for why inflation has proven persistent.

Jai Kedia, a research fellow at the Cato Institute, saw rising oil prices as the primary cause. He said there was a trickle-down effect on other goods because oil is a component in synthetic fabrics and plastics. “The rate hikes were a response to this.”

Those higher energy prices tell only part of the story, said John H. Cochrane, a senior fellow at the Hoover Institute. He harkened back to stiff price rises during the COVID-19 pandemic.

“Inflation never got fully under control after 2021-2022, and the current surge is not all oil prices, so central banks feel they have to move fast to contain a wider outbreak,” Cochrane said in an interview.

The debate over the source of inflation is now shaping expectations for other central banks.

The question now is whether other major central banks will continue their wait-and-see strategy or begin increasing rates.

The Federal Reserve Bank and the Bank of England have kept rates steady — for now. Some of that is because the job market in both countries has been steady, but weak. Unemployment in both nations remains above 4%, and statistics show lower hiring by British and American companies.

Economists have predicted that another wave of rate increases could begin this fall if prices remain high.

“If inflation expectations do rise, this can result in workers demanding higher wages, potentially running the risk of a wage-price spiral developing, as was seen in 2021/22,” said Michael Brown, an independent market strategist in the United Kingdom. “The theory goes that, by raising rates, central banks can re-anchor inflation expectations and ensure such an eventuality doesn’t come to pass.”

As central banks wait to make decisions on the future of interest rates, so do Americans.

If the Fed increases rates, consumers will see tighter credit conditions and slower economic conditions in the short term — even as inflation goes down. Businesses would end up spending less money, while borrowers would end up paying more. That could exacerbate concerns about affordability, an issue that has been concerning Americans since 2021.

Cochrane is worried that the current economic climate could eventually lead to a recession.

“If we have to repeat 1979 — high inflation leads to a major rate rise causing a recession — then hard all around,” he said.

It’s also a major test for new Fed Chairman Kevin Warsh. He’s promised to deliver price stability but is facing competing pressure from the market and a White House that has lobbied for lower interest rates for more than a year.

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“One thing I am sure of is that this won’t be the last test that Warsh faces during his term,” Brown said.

The Federal Open Market Committee isn’t scheduled to meet until Sept. 15 and 16.

Taylor Millard is a freelance journalist who lives in Virginia. Follow him on X @TaylorMillard.