UBS uses large language models to track the tone of the three major central banks: the Fed and ECB turn more hawkish, while the Bank of Japan's momentum slows

Overview

UBS releases a large language model-based methodology for tracking central bank sentiment and themes, used to analyze policy-related statements by the Federal Reserve, the European Central Bank, and the Bank of Japan in speeches, interviews, and press conferences. The model maps text onto a hawkish-to-dovish scale and further decomposes thematic contributions from inflation, growth, the labor market, and policy guidance. The conclusion is that the Fed and the ECB have recently turned more hawkish, with inflation as the main driver; the Bank of Japan's previously accumulated hawkish momentum has stalled.

Core views

The core view is that communication changes across the three major central banks are not synchronized. The Fed's tone has moved close to neutral, with renewed inflation concerns becoming the key driver, while growth and labor market rhetoric has remained relatively steady, leaving hawkish inflation signals without a clear offset. The ECB displays a stagflation-like response: inflation rhetoric remains hawkish while growth and labor market tones have weakened, though not enough to change the overall hawkish reading. For the Bank of Japan, the hawkish communication that rapidly heated up in the second half of 2025 flattened in 2026, and more cautious growth, policy, and inflation rhetoric signals reduced further tightening.

Analysis framework

The report uses an LLM to conduct daily-updated tone scoring of central bank speeches, interviews, and press conference transcripts, decomposing contributions by theme and speaker. The analysis covers the Federal Reserve, the European Central Bank, and the Bank of Japan, spans more than two decades, and provides data access through an interactive dashboard and a Python API.

Methodology notes

• Text analysisLLM central bank sentiment tracker

  Hawkish/dovish tone scoring

  A large language model reads policy-related central bank statements, maps them to net hawkish or net dovish sentiment, and tracks changes in tone.

• Theme attributionTheme-driven decomposition

  Inflation, growth, labor market, and policy theme contributions

  The model not only produces an overall tone but also breaks down the contributions of different macro themes to the overall hawkish-dovish assessment, helping identify the source of tone changes.

• Speaker analysisCentral bank speaker contribution analysis

  Tone contributions from speakers such as Powell and Lagarde

  The report compares the strength of statements by different central bank officials during the same period to identify the key figures driving overall tone changes.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Fed policy expectations, US Treasuries, and the US dollar

  Fed tone has shifted from dovish-leaning to near-neutral, with inflation rhetoric again becoming the main driver.

  Strengths

  Relatively steady growth and labor market rhetoric makes the narrative that policy is in a good place more likely to be read by markets as no rush to ease.

  Weaknesses

  Labor market concerns still carry a dovish hue, though they have not continued to worsen materially.

  Comparison

  Compared with the ECB, the Fed's hawkish shift comes more from a combination of inflation and growth comfort rather than a single inflation shock.

  Risks

  If inflation data were to fall back or employment weaken rapidly, the current hawkish communication could be quickly repriced.

• ECB policy expectations, Euro area rates, and the euro

  ECB communication has been markedly hawkish after the conflict, with inflation and energy risks as the core drivers.

  Strengths

  Lagarde and most speakers show limited divergence, making the overall hawkish signal relatively consistent.

  Weaknesses

  Growth and labor market tones have weakened, showing that the hawkish stance faces macro slowdown constraints.

  Comparison

  The ECB displays a more typical stagflation-like communication structure: rising inflation coexists with weakening growth.

  Risks

  If growth pressure intensifies further, hawkish rate guidance may be forced to cool.

• Bank of Japan policy expectations, Japanese government bonds, and the yen

  The Bank of Japan's previous hawkish momentum has slowed, and declining communication frequency has caused the index to flatten.

  Strengths

  There was a dense set of policy signals in the second half of 2025, giving markets some baseline of normalization expectations.

  Weaknesses

  After entering 2026, samples are sparse and growth, policy, and inflation rhetoric is more cautious.

  Comparison

  Unlike the Fed and the ECB, where hawkishness is inflation-driven, the Bank of Japan currently looks more like a pause in hawkish signals.

  Risks

  Sparse communication reduces model signal stability; a subsequent key speech or meeting could materially shift market expectations.

Key data

• Covered central banksFederal Reserve, European Central Bank, Bank of JapanUsed to compare the communication tone of major advanced-economy central banks.
• Data frequencyDaily updatesThe dataset is provided through an interactive dashboard and a Python API.
• Historical spanMore than two decadesUsed to observe how central bank tone changes across cycles.
• Current Fed signalCloser to neutral but less dovishInflation tone is hawkish; growth and labor market rhetoric has not significantly offset this.
• Current ECB signalInflation-driven hawkish response continuesLagarde's April press conference was slightly more hawkish than March's.
• Current BoJ signalHawkish momentum stallsAfter entering 2026, communication has decreased, the index has flattened, and the tone has become more cautious.

Impact & implications

For investors, the report suggests that marginal changes in central bank communication can still affect interest rate, foreign exchange, and risk asset pricing. If the Fed and the ECB continue to maintain inflation-driven hawkish rhetoric, expectations of rate cuts and duration asset performance may be constrained; if the Bank of Japan's hawkish momentum slows, expectations of further rapid policy normalization may diminish, but the smaller communication sample means signal reliability should be interpreted cautiously.

Risks

• Central bank communication and actual policy action may diverge; textual tone is not equivalent to the final interest rate path.
• LLM model scoring depends on input text quality, theme definitions, and historical training/prompt frameworks, and may contain misjudgments or contextual bias.
• Recent Bank of Japan communication samples are limited, so the index may reflect continuation of the previous signal more than real-time policy stance.
• Geopolitical conflict, energy prices, inflation data, and labor market data can quickly change central bank narratives.
• The report contains multi-asset investment risks, including market risk, credit risk, interest rate risk, and foreign exchange risk.

What to watch

• Whether the Fed's subsequent statements keep inflation, growth, and labor market rhetoric non-dovish.
• Whether Powell continues the core narrative that policy is in a good place.
• Whether the ECB shifts from monitoring and observation to clearer rate guidance.
• Whether Euro area growth and labor market weakening is sufficient to offset inflation-driven hawkish rhetoric.
• Whether Bank of Japan communication frequency recovers and whether growth, policy, and inflation rhetoric continues to turn cautious.
• Secondary effects of energy prices and geopolitical conflict on the inflation narrative.