The Federal Reserve, European Central Bank, Bank of Japan, and Bank of England are all likely to exercise caution this week when they set borrowing costs, uncertain of an economic picture clouded by the Iran war.
The conflict has set off fears of higher inflation driven by rising oil prices, as well as slower growth. Markets are largely betting on policymakers turning hawkish, suggesting higher-for-longer rates that could also hit developing countries that borrow in Western currencies in order to lure international investors.
Oil prices surging further, however, could trigger “asymmetries in central bank reaction,” JP Morgan’s chief economist noted, with the Fed looking to cut rates to support growth and the ECB raising them to tame inflation.