Global monetary policy has entered a holding pattern at a moment of heightened uncertainty, as central banks weigh conflicting economic signals against an increasingly volatile geopolitical backdrop. With financial markets reacting sharply to surging energy prices and shifting expectations for interest rates, policymakers are treading carefully, reluctant to commit to a clear course of action. The result is a rare alignment of caution across major economies, reflecting just how unclear the path ahead has become and setting the stage for a critical period in the months to come. Our Chief Investment Officer, Jeff Brummette, summarises recent central bank news following meetings held by key monetary policymakers.
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In a move that surprised no one, all four major central banks left monetary policy unchanged.
Overnight Policy Rates
Source: Bloomberg Finance L.P.
All cited major uncertainty stemming from the war in the Middle East.
Markets have been in a panic, as oil prices have surged to nearly $120 a barrel in very volatile trading. The fear is that higher energy costs will feed into broader prices and perhaps even wages, producing a powerful upward move in inflation. Under normal circumstances, this would typically be met by interest rate hikes from the central banks. This has produced some very sharp moves in market interest rates since the war began, with two-year yields up over 50 basis points and expectations shifting from rate cuts to rate hikes over the course of this year.
Yield Change Since End of February 2026
Source: Bloomberg Finance L.P.
Often overlooked is the risk that higher energy prices reduce business and consumer confidence, curb spending, weaken labour markets and slow growth. This would normally be met by rate cuts by the central banks. None of the central bank leaders were confident about which scenario was most likely.
They all stressed that it was too early to tell if second round effects were going to appear and threaten inflation stability, and therefore it would be premature to take any kind of action. They declined to make forecasts or outline what would provoke them to act on rates. No one ruled out rate hikes, but none were prepared to forecast them either. In truth, the central bankers appear just as uncertain as the markets in assessing the economic implications of the conflict in the Middle East.
U.S. Federal Reserve “Fed” Chair Powell stated “the implications of events in the Middle East for the U.S. economy are uncertain. In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy.”
There were no major changes to the Fed’s forecasts and Chair Powell cautioned against reading too much into them, as they were merely estimates by FOMC members at one moment in time easily subject to change. He did take the time to stress that he would remain at the Fed until the investigation involving him was concluded. He also affirmed that he would serve as interim FOMC chair if his successor had not yet been approved by the Senate before his term as Chair expires in May.
Bank of Japan Governor Ueda stated clearly that if inflation and growth moved as they forecasted in January, then the Bank would continue to raise interest rates. He also emphasised the need to monitor developments in the Middle East.
In the UK, Bank of England Governor Bailey remarked “the starting point for this shock is a real economy with limited pricing power. Holding Bank Rate (steady) at this meeting is appropriate. I will be monitoring developments extremely closely and stand ready to act as necessary to ensure that inflation remains on track to meet the 2% target in the medium term.”
Whilst in the Eurozone President Lagarde of the European Central Bank stated “The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth. It will have a material impact on near-term inflation through higher energy prices. Its medium-term implications will depend both on the intensity and duration of the conflict and on how energy prices affect consumer prices and the economy.” She briefly outlined scenario work prepared by the Bank’s research team, then ended the press conference early to catch a flight to Brussels.
All of these central banks meet again at the end of April. With luck, neither they, nor the rest of us, will still be grappling with this same uncertainty around developments in the Middle East.
The price and value of investments and any income that might accrue may fall as well as rise and is not guaranteed. You may not get back the amount of your original investment.
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Hear more from the Oakglen experts
Our investment team continue to provide interesting and informative content to help keep you in the loop on recent global news and market trends. See below for some key highlights from around the world which our Chief Investment Officer has also recently covered:
Read more:
- March 2026 Investment Summary
Jeff Brummette, Chief Investment Officer
- Oil Fears Rising: The Conflict Continues…
Jeff Brummette, Chief Investment Officer
- Operation Epic Fury: Tensions Rise in the Middle East
Jeff Brummette, Chief Investment Officer
You can read other articles from the team on our News & Insights page.
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