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Major central banks are set to deliver monetary-policy decisions this week, but analysts say the Gulf region’s volatility and uncertainty around how an energy-price shock will affect growth and inflation could push policymakers toward a “wait and see” approach rather than immediate rate changes.
With the Federal Reserve (Fed), the European Central Bank (ECB), the Bank of Japan (BOJ), the Bank of Canada (BoC) and the Bank of England (BoE) all scheduled to announce policy decisions, officials face an unusually complex backdrop. The Gulf conflict is forcing them to weigh geopolitical risks alongside volatile commodity-market developments and the implications for their inflation targets.
In an interview with the Financial Times, Tomasz Wieladek, European macro strategist at T Rowe Price, said the appropriate stance for central banks is to “wait and see.” He added that policymakers are increasingly relying on scenarios that cover a range of possible outcomes rather than a single forecast.
Analysts also noted that memories of 2021 and 2022—when many central banks were criticized for acting too slowly to curb inflation—remain fresh.
Markets have leaned toward expectations that the ECB could raise rates twice this year from the current 2%, but ECB Chief Economist Philip Lane said the institution does not want to rush.
In Frankfurt, Lane said: “Until we know more about how long this war will last, it is really difficult to know whether this is a temporary issue or a much bigger shock to the European economy.”
Morgan Stanley economist Jens Eisenschmidt said the timing for the ECB to “properly assess whether action is needed” will not come before June, and could be even later.
Katharine Neiss, PGIM Fixed Income’s European chief economist, said the ECB is in a “better position” than many Western central banks because “the ECB has actually brought inflation back to 2%.”
The ECB’s rate decision is scheduled for Thursday (April 30).
At the Fed, policymakers will vote on the rate on Wednesday (April 29). Odds of a rate increase are viewed as unlikely, with most expectations pointing to the federal funds rate staying in the 3.5–3.75% range.
The Fed is also seen postponing any rate cut until clearer evidence emerges on whether the Iran conflict will make it harder to reach the Fed’s 2% inflation goal or whether it will undermine the U.S. labor market, which has already weakened.
U.S. inflation measured by the Personal Consumption Expenditures (PCE) price index was 2.8% in February, above the 2% target.
Several Fed officials have warned about the risk of inflation re-accelerating. Fed Governor Chris Waller said that a series of price shocks—driven not only by the conflict but also by Trump’s trade policies—could erode public trust in the Fed’s ability to control price pressures. He argued that the longer energy prices stay high, the more inflation could “erode into the U.S. economy,” affecting households and businesses and potentially leading them to expect higher prices for longer.
For the BOJ, markets had priced in a possible move to raise rates from 0.75% this week. However, at the meeting that concluded on Tuesday (April 28), the BOJ kept rates unchanged.
The decision reflected uncertainty tied to the Gulf conflict and concerns about risks facing Japan as an energy- and input-importing economy. Three BOJ policy-board members dissented in favor of raising rates to 1%.
At the same meeting, the BOJ raised its core inflation forecast for Japan’s fiscal year 2026 to 2.8% from 1.9% previously. The outlook for Japan’s economic growth this year was cut sharply to 0.5% from 1%.
Following the BOJ meeting, analysts expect the central bank to raise rates to 1% at the mid-June meeting.
In March, markets had speculated that the BoE would soon raise rates from 3.75%. But expectations have since been scaled back ahead of the BoE’s policy meeting this week after Governor Andrew Bailey signaled that investors may be getting ahead of themselves.
The BoE’s rate decision will be made on Thursday (April 30).
Wieladek said policymakers are “waiting to see whether the 2022 story, when inflation rose much more than expected, reoccurs,” adding that they “cannot draw conclusions from one month’s data.”
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