Monetary Policy February 7, 2026

Market Overview

Global monetary policy signals are mixed this morning: several central banks are showing restraint while market forces — notably large tech capex plans, commodity price swings and currency movements — are altering inflation and financial‑condition dynamics that will influence policy decisions ahead. Reuters reports India’s central bank is expected to stand pat, reflecting reduced urgency for cuts after a trade deal lowered near‑term downside risks to growth and inflation [28]. At the same time, commentary from Australia has been flagged as a potential wake‑up call for the Federal Reserve, underscoring how cross‑country developments can alter Fed deliberations [29]. The US dollar has recently eased, taking some pressure off imported inflation and changing the transmission of global price shocks to domestic inflation expectations [30].

Key Developments

1) Large-scale private capex expectations: Alphabet’s indication of a very large increase in AI infrastructure spending for 2026 and a proposed capex range that materially exceeds peers injects a notable demand impulse into the technology and hardware ecosystem [1][5][17]. That spending could be inflationary for specific segments (data‑center construction, servers, semiconductors, power equipment) and complicate central banks’ near‑term balance between growth and price stability [1][5][17]. 2) Commodity price disinflationary signals: Oil prices moved lower in volatile trading after renewed U.S.-Iran talks raised de‑escalation hopes, which tends to reduce headline inflation pressure if sustained [7]. Silver’s sharp reversal and plunge indicate risk‑off and forced liquidations in commodity/leverage markets, a dynamic that also eases commodity‑driven inflation risks in the near term [2]. 3) Risk‑sentiment and global demand softening: Major Asian tech sell‑offs and China’s tech bear market point to weakening demand expectations in a large part of the global economy, reducing upside inflation surprises tied to cyclical activity [3][12][8]. These demand signals support a more cautious or neutral stance from central banks rather than an aggressive tightening or loosening move. 4) FX and policy cross‑currents: The recent easing of the US dollar improves terms‑of‑trade for many importers and subtracts from immediate imported inflationary pressures, while warnings from offshore central banks (Australia) could alter Fed communications and the timing of rate moves [29][30].

Financial Impact

Monetary authorities face a mixed signal set: pockets of concentrated investment demand (tech capex) versus broad‑based disinflationary forces from commodities and softening global demand. Bond markets are likely to price a modest decline in terminal rate expectations if commodity-driven disinflation and dollar easing persist, but concentrated capex can sustain sectoral price pressures that complicate headline trends [1][7][30]. Currency movements that lower imported inflation provide central banks room to be patient, as seen in India’s decision to hold [28]. Equity market volatility from tech may reduce wealth effects and slow consumption, further reducing inflationary risk and lowering the impetus for immediate policy tightening [8][3].

Market Outlook

Expect central banks to emphasize data dependence and communications that preserve optionality. Near term, authorities will likely: 1) monitor sectoral inflation stemming from tech capex (labor, inputs) versus economy‑wide trends driven by commodity prices [1][5][17][7]; 2) incorporate exchange‑rate developments into inflation forecasts given the recent dollar easing [30]; and 3) remain prepared to adjust messaging if offshore warnings or surprises (e.g., Australia‑linked developments) change Fed risk assessments [29]. For investors and portfolio managers, the key watch‑items are incoming CPI/PCE data, capex flows and progress or reversal in commodity prices — each will materially influence the timing and magnitude of central‑bank moves. Recent signals point to central‑bank patience but heightened sensitivity to asymmetric, sectoral price pressures driven by concentrated tech investment and volatile commodity markets [28][29][30][1][7][2][3][12][8].