Global Central Banks Hold Rates as Iran-Linked Energy Shock Looms

All major G-10 central banks – the Fed, ECB, BoE, BoJ, RBA, Norges Bank, BoC, Riksbank, Reserve Bank of New Zealand and SNB – left policy rates unchanged this week. The Fed’s 8-4 vote was its narrowest split in decades; the ECB kept its deposit rate at 2 %; the BoE held 3.75 %; the BoJ kept 0.75 % but signalled a near-term hike; the RBA’s 4.1 % remains the highest. Inflation readings that prompted caution include Australia’s 4.1 % headline (core 3.5 %), Norway’s core ? 3 %, Canada’s 2.4 % and the euro-area’s ? 3 % headline.

Rate hikes are getting closer, big central banks say

The U.S.–Israeli war with Iran has lifted oil and gas prices, creating an “energy shock” that is now feeding higher headline inflation in several advanced economies and reviving worries about second-round effects on wages.

Central banks edge toward rate hikes as energy shock revives inflation fears

Fed Chair Jerome Powell said he will stay on the Board of Governors and noted that “developments in the Middle East are contributing to a high level of uncertainty about the economic outlook.” ECB President Christine Lagarde said the June decision will be taken with “insufficient information,” though a hike was discussed “at length.” BoE Governor Andrew Bailey warned against waiting for second-round effects. The BoJ stressed “extra vigilance” on inflation, and the RBA reaffirmed its 2-3 % target.

Central banks edge toward rate hikes as energy shock revives inflation fears

Within the Fed, three officials opposed the “easing bias” while one voted for a cut. The BoE recorded a single vote for an immediate hike, and three BoJ members pushed for a rate rise. White House NEC Director Kevin Hassett called a prospective ECB or Fed hike a “policy error,” echoing President Trump’s stance. In the G-7, economist Stephen Miran was the lone voice urging a U.S. rate cut.

Rate hikes are getting closer, big central banks say

Markets differ on the timing of future hikes: some price three Fed increases by year-end, others see no further moves if energy prices ease. The ECB’s June outlook remains ambiguous, with “insufficient information” cited as a barrier. Data on the duration of the Iran-related energy shock are limited, leaving policymakers without a clear timeline for second-round inflation effects.

Central banks edge toward rate hikes as energy shock revives inflation fears

• “developments in the Middle East are contributing to a high level of uncertainty about the economic outlook.” — Federal Reserve policymakers

New York Times

• “It would be a mistake to wait to see second-round effects before acting,” — Andrew Bailey, Governor, Bank of England

Bloomberg

• “policy error.” — Kevin Hassett, White House NEC Director

Bloomberg

• “insufficient information” — Christine Lagarde, President, ECB

Bloomberg

The Fed, ECB, BoE and BoJ will meet in June, where a shift toward tightening is likely if energy prices stay high. The RBA may hike as early as next week, with an 80 % chance of another increase. Norges Bank, the BoC and the Riksbank will review inflation data in upcoming meetings, while the SNB will monitor franc movements. Traders continue to price multiple G-10 hikes through 2026.

Rate hikes are getting closer, big central banks say