Deutsche Bank strategist warns investors are sleeping on rate hikes

Markets have a habit of hearing what they want to hear. Right now, they appear to be hearing that inflation is basically over and central banks are nearly done. Henry Allen, a macro strategist at Deutsche Bank, would like a word. Allen warned this week that investors are significantly underestimating how much monetary tightening central banks will need to deliver to bring inflation to heel. The gap between what markets expect and what the data implies, in his view, is uncomfortably wide. The disconnect in plain terms Here is the core problem Allen is pointing to: PCE inflation, the Federal Reserve’s preferred gauge, was running at 3.7% as of June 2026. Meanwhile, market pricing only bakes in roughly 31 basis points of Fed rate hikes through December 2026. That is not much firepower for a central bank still fighting an inflation rate nearly double its 2% target. The US ISM services index is adding fuel to Allen’s argument. Prices paid by service-sector businesses are rising at the fastest pace since inflation peaked post-pandemic, when CPI briefly touched 5%. Services inflation is notoriously sticky, which means it tends to linger well after goods prices cool off. Allen’s concerns a...