Santander has maintained its forecast that the Federal Reserve will raise interest rates at its September policy meeting and follow with another hike in December, while economists polled by Reuters expect the European Central Bank to lift its deposit rate by 25 basis points to 2.5% this month. The two outlooks highlight how major central banks are still leaning toward tighter monetary policy even as markets debate the timing of a pause.
According to a report from Walter Bloomberg, Santander argues that the July Consumer Price Index report, which showed headline inflation rising slightly to 3.2% year-over-year, is unlikely to sway the Federal Reserve. The bank expects the Fed to maintain its commitment to curbing inflation, projecting that the federal funds rate could reach a range of 5.75%–6.00% by year-end if both hikes materialize. That stands in contrast to futures market pricing, which currently suggests a higher probability of a pause in September.
Since early 2022, the Federal Reserve has raised its benchmark federal funds rate from near zero to a range of 5.25%–5.50%, the highest level in more than two decades. Santander's stance reflects a more hawkish view than many market observers, who anticipate a longer pause or even rate cuts by early 2024. For investors, further increases would mean higher yields on short-term government bonds and potentially increased volatility in growth-sensitive sectors. Consumers and businesses would face more expensive mortgages, auto financing, and corporate credit, potentially dampening spending and investment.
Meanwhile, the ECB is widely expected to raise its deposit facility rate by a quarter point at its September meeting, bringing it to 2.5%, according to a Reuters poll of economists. The decision is scheduled for September 14, 2025. Most respondents see this as the final hike in the current cycle, with a terminal rate of 2.5% expected by year-end, although a minority do not rule out further tightening if inflation remains sticky. As of September 2025, the ECB's deposit facility rate stands at 2.25% and the main refinancing rate at 2.50%.
The euro has strengthened in recent weeks on expectations of a hawkish ECB, and eurozone bond yields have already priced in the move, with the German 10-year Bund yield hovering near multi-year highs. Investors will closely watch the ECB's accompanying statement and President Christine Lagarde's press conference for clues on the future policy direction.
The combined effect of more aggressive Federal Reserve expectations and a likely ECB hike reinforces a global environment of elevated borrowing costs, which historically pressures risk assets including cryptocurrencies.
