Markets have pushed rate‑cut bets further out after oil prices rose following the Iran conflict, leaving five major central banks to adopt a cautious, wait‑and‑see stance this week. The Federal Reserve, Bank of Japan, Bank of Canada, Bank of England and European Central Bank are widely expected to keep interest rates unchanged; the Bank of Japan opens the sequence on Tuesday, the Bank of Canada and the Fed follow midweek, and the BoE and ECB are due on Thursday. Officials are expected to stress caution while saying they remain ready to act if inflation pressures persist.

What officials are likely to do

Policymakers in Washington, Tokyo, Ottawa, London and Frankfurt are set to deliver a string of decisions that most economists expect will leave policy rates where they are. The Bank of Japan is first on Tuesday, where officials who have spoken recently have leaned toward delaying any move this month. The Bank of Canada and the US Federal Reserve meet midweek, and the Bank of England and European Central Bank round off the schedule on Thursday.

The staggered schedule lets global markets digest each decision in turn. A consensus view has formed that central banks will repeat a cautious stance — holding rates steady while signalling a readiness to tighten again if energy‑driven price pressure intensifies.

Fed: steady funds rate and a delicate balancing act

The Federal Open Market Committee is widely expected to leave the federal funds rate unchanged at this meeting. Traders are pricing a very high probability of a hold, according to market measures.

The Fed cut rates last year as policymakers sought to cushion a slowing labour market, but the recent rise in oil prices after the Iran conflict has complicated the picture by adding upward pressure to inflation. Markets initially expected multiple cuts this year; those expectations have been pushed back sharply as energy costs have risen.

How markets are pricing policy

Market-implied tools show a marked shift in pricing across regions. Investors had been betting on cuts; now they see fewer or later reductions. A recent Reuters poll and market commentary reflected economists moving to later easing expectations.

RateProbability, a site that compares market-implied policy paths, illustrates how traders translate central-bank calendars into expected policy moves. Its charts and tables are a snapshot of how much tightening or easing markets have priced for each upcoming meeting — and they have moved in recent weeks to reflect a later easing cycle.

Energy shock and the policy trade-off

  • Officials and investors are watching developments in the Strait of Hormuz and broader tensions in West Asia because disruptions there can lift oil prices and, in turn, consumer prices.
  • Higher petrol and wholesale energy costs feed directly into headline inflation and can spill into core measures over time.
  • Central banks that thought the 2022 spike was temporary are now more alert to the risk that a fresh shock could be longer lasting — raising the bar for any decision to loosen policy.

Domestic data still matters

Despite the global risk, each central bank will lean heavily on domestic indicators. In the US, economists expect a rebound in first-quarter growth after last year’s end-of-year drag, supported by stronger business investment, while consumer spending growth was forecast to soften slightly. Those mixed signals — reasonable growth but cooling consumption — illustrate why central bankers will weigh domestic data carefully when deciding their next moves.

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The sequence concludes on Thursday, when the Bank of England and the European Central Bank deliver their decisions; officials across the five central banks say they remain prepared to tighten again if inflation pressures persist.

This article was created with AI assistance.