Global central banks are tightening monetary policy. While synchronized rate hikes have raised concerns about risk assets, equities remain near record-highs, supported by strong earnings growth. Importantly, central banks are raising rates to address inflation rather than to slow economic activity, suggesting tightening will be gradual and limited. While higher rates may hinder further multiple expansion, they are unlikely to materially pressure earnings or derail the broader bull market.

Investors are once again confronting rising global policy rates. The Federal Reserve has begun a new hiking cycle, the European Central Bank has continued to raise rates in response to energy-driven inflation, and the Bank of Japan has accelerated its gradual normalization process in response to persistent yen weakness. Global central banks are tightening policy in unison.

Ordinarily, a synchronized tightening cycle would raise concerns about risk assets. Yet markets have taken these developments largely in stride, with equities near record highs as growth and earnings remain strong.

While global central banks are tightening policy, the goal is largely to address inflation and currency pressures rather than deliberately slow economic growth. As such, this is likely to be a relatively shallow hiking cycle. Our base case is for one further Fed hike in December before moving to the sidelines, although additional tightening next year remains possible if inflation continues to prove sticky. Market expectations are somewhat more hawkish, but even they anticipate only one or two additional Fed hikes in 2027. Elsewhere, only gradual and limited additional tightening is expected from the ECB and BOJ.

If policymakers succeed in containing inflation, growth and earnings should remain resilient, and markets should be well placed to absorb a modest rise in policy rates. While higher rates may limit further valuation expansion, they are unlikely to derail the broader bull market.