The Federal Reserve, European Central Bank, Bank of Japan, Bank of England and Bank of Canada are widely expected to keep interest rates on hold this week as the Iran war and wild swings in oil prices make inflation forecasts unusually difficult. It is the second large energy shock in five years, and rate-setters fear repeating the 2021-22 mistake of acting too slowly.
The Fed will vote Wednesday with its benchmark range parked at 3.5-3.75 per cent and core PCE inflation still running at 2.8 per cent in February. The ECB sits at 2 per cent — the only major western central bank to have already brought inflation back to target — and markets price two more hikes this year, but chief economist Philip Lane has signalled the bank cannot judge the shock before June at the earliest. The BoJ is expected to leave its key rate near 0.75 per cent rather than the hike previously priced in, and the BoE is in no rush to lift its 3.75 per cent rate.
The Iran war has damped the global economic outlook
GDP growth and inflation forecasts for 2026 (%)
- Pre-conflict
- Reference
- Adverse
- Severe
GDP
Inflation
Source: IMF — scenarios constructed before and after the outbreak of the Middle East conflict
Officials are leaning on scenario analysis rather than point forecasts, partly because Donald Trump's social media posts on the war are themselves moving the oil market. Fed governor Chris Waller has warned that a prolonged price shock could embed higher inflation expectations across the US economy. Source: Financial Times, 27 April 2026, Sam Fleming, Olaf Storbeck, Claire Jones and Leo Lewis.