Are the world’s central banks about to slam on the brakes together?

The world’s most powerful central banks are lining up to raise interest rates at the same time. History suggests this rarely ends quietly.

The Federal Reserve is, I believe, likely to hold this month, then hike in December. Markets put the odds of a European Central Bank rise in December at 84%. Canada’s inflation has smashed through its target. British wage growth keeps running hot.

Everywhere you look, rate-setters are reaching for the same lever.

Each decision makes sense on its own. Together, they risk becoming one of the biggest policy mistakes in a generation.

Brent crude is hovering near $110 a barrel, petrol prices are soaring, and shipping and insurance costs are climbing with them. This inflation was born at the petrol pump and the power meter, far from overheated shoppers or bosses throwing money at staff.

Interest rates can’t pump oil out of the ground. A higher policy rate does nothing to calm supply fears thousands of miles away.

What it does do is squeeze households and businesses already paying more to fill the tank and heat the home. They get hit twice: once at the pump, and again when the mortgage or the business loan resets.

So, why are central bankers doing it? Fear.

They were caught napping in 2021, when they called inflation “transitory” and then spent the following two years cleaning up the mess. Their credibility took a beating. Nobody running a central bank today wants to be accused of making the same mistake twice.

Expectations matter too. Once workers and companies believe prices will keep rising, they demand bigger pay rises and push through bigger price increases. The hot wage numbers in Britain are exactly the kind of signal that keeps policymakers awake at night.

Fair enough; but fighting the last war carries its own dangers.

When one central bank tightens, the pain stays largely local. Other economies keep buying, keep investing, keep trading. When they all tighten together, there’s no offsetting demand elsewhere to cushion the blow.

Trade slows across the board. Demand weakens in every major market at once. Exporters lose customers abroad just as their home market cools.

Bond markets are already flashing red. The US 10-year Treasury yield sits above 5%, its highest since 2002. Britain’s 30-year gilt yield has broken through 6%. France’s 10-year borrowing costs are flirting with 5% as its budget crisis drags on.

Those numbers translate directly into pain. Mortgage rates reset higher, corporate refinancing gets more expensive, and governments carrying record debt pay more to service it, leaving less for schools, hospitals and defence.

Then, of course, there’s the stock market.

Equity valuations, particularly in the AI-driven corners of the US market, were built on the assumption that borrowing costs would eventually ease. A coordinated hiking cycle tears up that assumption. Tech investors have already turned jittery, with confidence in the AI trade now hanging on every earnings report.

Currencies add another layer of risk. When everyone hikes together, the rate gaps that normally drive exchange rates partly cancel out. Markets start trading on fear and fiscal credibility instead.

The euro’s recent slide, tied closely to French political turmoil, shows how quickly that can turn ugly.

Central banks could still blink. A sharp drop in oil prices would hand them the perfect excuse to pause, or weaker data over the winter could force a rethink before December arrives.

But the direction of travel is clear. Cheap money isn’t coming back any time soon, and the coming months are likely to bring a squeeze felt in every major economy at once.

Central bankers have spent four years trying to prove they’re tough on inflation. The danger now is they prove it too well, and pay for it with a downturn they chose.