At their latest meetings on 17–19 March, the Fed, the ECB, the BoE and the SNB all kept interest rates unchanged. While this uniformity may appear striking, it reflects a shared set of economic conditions and risks rather than coordination.
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Central banks pause, but remain on guard
Last week, the Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank all left interest rates unchanged. In this Macro Flash note, Stefan Gerlach, Chief Economist, explains why these decisions reflect a small number of shared underlying factors rather than coordination.
Before the recent escalation in the Middle East, the macroeconomic backdrop was broadly similar across countries. Inflation remained somewhat above target, but the disinflation process was well underway. At the same time, growth and labour markets were softening. Against that backdrop, most central banks had paused interest rate cuts, but markets were expecting gradual rate cuts later in 2026.
Geopolitical shocks complicate the outlook
The war in the Gulf and the rise in energy prices have complicated this outlook. It will push inflation higher in the near term, but the magnitude and persistence of the effect are highly uncertain. Oil prices could move sharply in either direction over the coming weeks. For policymakers, this creates a clear risk of acting too quickly on incomplete information. Holding rates steady allows central banks to assess how the shock evolves. Changing rates now, only to reverse course shortly thereafter, would risk undermining credibility.
Learning from the 2021-22 inflation spike
While policy has remained unchanged, communication has not. Central banks are keenly aware of the experience of 2021–22, when inflation rose sharply and policy tightening came late. That episode continues to shape current behaviour. Policymakers are therefore emphasising vigilance and readiness to act if needed. This is intended to anchor inflation expectations, particularly given that rates were not raised in response to the recent shock. In practice, this stronger communication can itself tighten financial conditions by pushing up short-term market rates.
The risk of a repeat of the post-pandemic inflation surge appears limited. The macroeconomic environment is very different. Monetary policy is no longer highly expansionary, labour markets are no longer exceptionally tight, and fiscal support has faded. The current shock is hitting economies that are growing below potential and where spare capacity is emerging. While higher energy prices will lift inflation temporarily, the conditions for a sustained wage–price spiral are largely absent.
Policy stability vs geopolitical uncertainty
Taken together, these factors explain the current stance. Central banks are choosing to wait, not because the outlook is benign, but because uncertainty is unusually high. At the same time, they are signalling clearly that they will act if inflation proves more persistent.
For now, the combination is one of policy stability and heightened vigilance. How long it lasts will depend primarily on the path of energy prices and the extent to which the current shock feeds into broader inflation dynamics.