Four central banks, one week, and what came out of it

Hello,

This was the week the big central banks met. All three held their rates, but each left the door open to more. Here are the stories that mattered, the mechanism behind them, and what comes next.

The week in five stories

1. The Fed held, but two officials wanted a rise. The Federal Reserve kept its range at 3.75–4% in a 10–2 vote, with two members voting for a quarter-point increase. Futures markets still price a rise in December, with US inflation at 3.7%.
howtheworldworks.news/news/fed-holds-warsh-december-hike

2. The US economy grew 3.4%, powered by AI investment. Business investment rose 12.7% in July–September, but imports of AI equipment took 3.3 points off growth and the household saving rate fell to 3.8%.
howtheworldworks.news/news/us-gdp-third-quarter-ai-investment

3. Japan says its inflation goal is in reach. The Bank of Japan held at 1.25% by 8 votes to 1, but said for the first time that underlying inflation is generally consistent with its 2% target, a goal it set in 2013. With rates still below "neutral", further rises are in view.
howtheworldworks.news/news/boj-inflation-milestone-hold

4. The UK Budget spent part of the safety margin. The Chancellor cut his headroom against the fiscal rules to £15bn, from £23.6bn, mainly to help with energy bills. Gilt yields barely moved.
howtheworldworks.news/news/uk-budget-healey-headroom

5. The euro zone grew faster than expected, but France shrank. Euro-area GDP rose 0.4%, helped by a 5.5% jump in Ireland. France contracted 0.1%, bad news for a government paying close to 5% to borrow.
howtheworldworks.news/news/euro-zone-gdp-q3-france-contracts

The mechanism of the week: the neutral rate

Why would a central bank raise rates when inflation is already at target? Because of the neutral rate: the interest rate that neither speeds up nor slows down the economy. The Bank of Japan puts Japan's somewhere between about 1% and 2.5%. At 1.25%, with inflation around 2%, the real rate after inflation is still below zero, so money is still cheap. Once the target is reached, a central bank wants to move towards neutral, not stay below it. The catch is that nobody can observe neutral, only estimate it, which is why central banks move in small steps.
howtheworldworks.news/mechanics/inflation-rates-yields

The numbers

• US 10-year Treasury yield: 4.98% (29 Oct)
• Physical Brent crude: $123.10 a barrel (27 Oct)
• Euro-area inflation: 3.8% (September)
• US inflation: 3.7% (September)
• UK 10-year gilt yield: 5.40% (October average)

What to watch this week

• Tue 3 Nov: the Reserve Bank of Australia, with markets pricing a rise to 4.85%, and the US midterm elections.
• Wed 4 Nov: euro-area inflation for October, after Italy's jumped to 5.6%.
• Thu 5 Nov: the Bank of England, widely expected to raise its rate to 4%, its first rise since 2023.
• Fri 6 Nov: the US jobs report for October.

The full week ahead, with why each one matters:
howtheworldworks.news/week

Did you follow the week?

Five questions, two minutes:
howtheworldworks.news/quiz/2026-11-01

That's it for this week. If this was useful, forward it to a friend, and follow us on Instagram for a short explainer every day: www.instagram.com/howtheworldworks.news/

See you next Sunday,
How the World Works

Educational content only, not investment advice.