LONDON – This week has seen several major central banks announce a hiatus to monetary policy until a clearer picture emerges as to the effects of higher energy prices on their respective economies.
We have reviewed the respective decisions below:
On Tuesday, the Bank of Japan’s Policy Board voted 6–3 to keep the overnight call rate at 0.75%. The three dissenting members, Junko Nakagawa, Hajime Takata, and Naoki Tamura, each proposed raising the rate to 1.0%, arguing that price risks were skewed to the upside and that the bank should move the policy rate closer to the neutral rate.
In the Outlook Report, the BoJ revised down its growth forecast for FY2026, but it significantly revised up its inflation forecasts across the projection horizon.
Ayako Fujita of JPMorgan posited that the magnitude of this upward revision cannot be explained by the assumed oil price path alone, especially given that gasoline prices are being held down by government subsidies.
“We suspect that there has been some shift within the BoJ’s assessment of the inflation mechanism, which would suggest that the bank is increasingly concerned about an acceleration in underlying inflation.
Fujita added that she continued to expect the central bank to raise the policy rate by 0.25% to 1% in June, conditional on risks surrounding the Middle East being contained to some extent by the time of the meeting.
BoC to remain sidelined for now
A day later, the Bank of Canada’s Governing Council announced that it had decided to hold its main policy rate at 2.25% — the third consecutive hold since October 2025. The accompanying statement noted that the war in Iran had led to sharply higher energy prices and transportation disruptions, pushing headline CPI inflation to 2.4% in March from 1.8% in February, with a further rise to around 3% expected in April.
Governor Macklem stated that the Council is "looking through the war's immediate impact on inflation but will not let higher energy prices become persistent inflation," and that if the economy evolves broadly in line with the base case, "changes in the policy rate can be expected to be small." GDP growth for 2026 was projected at 1.2%.
National Bank of Canada’s Taylor Schleich noted that while policymakers said they stood ready to respond if energy inflation spreads and becomes persistent, it’s easy to see that this is not their base-case outlook.
“While a Q4 hike is plausible, we continue to expect the bank to wait until 2027 before starting to move back toward neutral (i.e., 2.75%).”
Fed Chair Powell bows out (ish)
On Wednesday, the committee voted to maintain the federal funds rate target range at 3.50 to 3.75%. The Fed communique noted that economic activity has been expanding at a solid pace, but that inflation was elevated, in part due to the recent rise in global energy prices, and that "developments in the Middle East are contributing to a high level of uncertainty about the economic outlook." The decision was not unanimous: Stephen Miran dissented in favour of a 25bp cut, while Beth Hammack, Neel Kashkari, and Lorie Logan supported holding rates but objected to the inclusion of an easing bias in the statement.
“On balance, Fed Chairman Jerome Powell said that the centre of the committee was moving toward a more neutral place in thinking about cuts versus hikes,” noted Philip Marey, senior US strategist at Rabobank.
“Our baseline forecast is still two rate cuts this year, one in September and one in December,” said the analyst. “Once Warsh becomes the new Chair, he will try to convince the Committee to make more than the single cut in their most recent projections. However, given the developments in the Middle East, we think that in the coming months we are more likely to drop a rate cut from our forecast than add one.”
In what was set to be Powell’s final meeting as chief of the central bank, he effectively ‘thumbed a nose’ at the White House administration by stating that he would stay on as a Fed governor for a “period of time.” He said he wanted to help ensure the Federal Reserve’s independence. Unless another Fed governor leaves, President Trump will not be able to fill the seat until Powell’s term ends in January 2028.
BoE’s keeps it neutral for now
The Bank of England’s Monetary Policy Committee voted 8–1 to maintain the Bank Rate at 3.75%, with chief economist Huw Pill the lone dissenter in favour of a 25bp hike to 4%.
The committee noted that CPI inflation had already risen to 3.3% in March and projected it would remain around 3.1%–3.3% through Q2–Q3 2026, some 1.4 percentage points higher than the February forecast, driven by higher fuel prices and an expected rise in the Ofgem energy price cap.
The Bank set out three scenarios in its April Monetary Policy Report to illustrate the range of possible outcomes and stated it "stands ready to act as necessary" to return inflation to the 2% target sustainably.
Experts at Oxford Economics said, “We still expect the MPC to keep Bank Rate unchanged this year, but it wouldn’t take much to tip the balance towards rate hikes. Continued strength in energy prices or evidence that the MPC has underestimated the indirect impacts of higher energy prices could convince the majority to tighten policy.”
ECB signals likely hike in June
The European Central Bank’s Governing Council kept all three key rates unchanged: the deposit facility at 2.00%, main refinancing operations at 2.15%, and the marginal lending facility at 2.40%.
While incoming data had been broadly consistent with the previous inflation outlook, the ECB noted that "the upside risks to inflation and the downside risks to growth have intensified" due to the war in the Middle East. The council stated that longer-term inflation expectations remain well anchored, but that shorter-horizon expectations have moved up significantly and emphasised a "data-dependent and meeting-by-meeting approach," explicitly noting it is "not pre-committing to a particular rate path."
The hawkish undertone in both the statement and the ensuing press conference by ECB President Christine Lagarde reinforced expectations of a rate hike.
Barclays analysts said, “We think June should provide sufficient information and updated scenarios, allowing the ECB to take an ‘informed’ decision.
We continue to expect a 25bp hike in June and a second 25bp hike in September, taking the deposit rate to 2.5%, which we then see remaining in place through 2027.”
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- BoJ dissent highlights growing inflation concerns
- BoC looks through energy spike but stays cautious
- Fed divisions emerge as Powell signals neutral shift
- ECB and BoE lean hawkish despite holding rates
By Harry Daniels
LiveSquawk News
@HarryDaniels71
1 May 2026 | 16:30 GMT
LONDON – This week has seen several major central banks announce a hiatus to monetary policy until a clearer picture emerges as to the effects of higher energy prices on their respective economies.
We have reviewed the respective decisions below:
On Tuesday, the Bank of Japan’s Policy Board voted 6–3 to keep the overnight call rate at 0.75%. The three dissenting members, Junko Nakagawa, Hajime Takata, and Naoki Tamura, each proposed raising the rate to 1.0%, arguing that price risks were skewed to the upside and that the bank should move the policy rate closer to the neutral rate.
In the Outlook Report, the BoJ revised down its growth forecast for FY2026, but it significantly revised up its inflation forecasts across the projection horizon.
Ayako Fujita of JPMorgan posited that the magnitude of this upward revision cannot be explained by the assumed oil price path alone, especially given that gasoline prices are being held down by government subsidies.
“We suspect that there has been some shift within the BoJ’s assessment of the inflation mechanism, which would suggest that the bank is increasingly concerned about an acceleration in underlying inflation.
Fujita added that she continued to expect the central bank to raise the policy rate by 0.25% to 1% in June, conditional on risks surrounding the Middle East being contained to some extent by the time of the meeting.
A day later, the Bank of Canada’s Governing Council announced that it had decided to hold its main policy rate at 2.25% — the third consecutive hold since October 2025. The accompanying statement noted that the war in Iran had led to sharply higher energy prices and transportation disruptions, pushing headline CPI inflation to 2.4% in March from 1.8% in February, with a further rise to around 3% expected in April.
Governor Macklem stated that the Council is "looking through the war's immediate impact on inflation but will not let higher energy prices become persistent inflation," and that if the economy evolves broadly in line with the base case, "changes in the policy rate can be expected to be small." GDP growth for 2026 was projected at 1.2%.
National Bank of Canada’s Taylor Schleich noted that while policymakers said they stood ready to respond if energy inflation spreads and becomes persistent, it’s easy to see that this is not their base-case outlook.
“While a Q4 hike is plausible, we continue to expect the bank to wait until 2027 before starting to move back toward neutral (i.e., 2.75%).”
On Wednesday, the committee voted to maintain the federal funds rate target range at 3.50 to 3.75%. The Fed communique noted that economic activity has been expanding at a solid pace, but that inflation was elevated, in part due to the recent rise in global energy prices, and that "developments in the Middle East are contributing to a high level of uncertainty about the economic outlook." The decision was not unanimous: Stephen Miran dissented in favour of a 25bp cut, while Beth Hammack, Neel Kashkari, and Lorie Logan supported holding rates but objected to the inclusion of an easing bias in the statement.
“On balance, Fed Chairman Jerome Powell said that the centre of the committee was moving toward a more neutral place in thinking about cuts versus hikes,” noted Philip Marey, senior US strategist at Rabobank.
“Our baseline forecast is still two rate cuts this year, one in September and one in December,” said the analyst. “Once Warsh becomes the new Chair, he will try to convince the Committee to make more than the single cut in their most recent projections. However, given the developments in the Middle East, we think that in the coming months we are more likely to drop a rate cut from our forecast than add one.”
In what was set to be Powell’s final meeting as chief of the central bank, he effectively ‘thumbed a nose’ at the White House administration by stating that he would stay on as a Fed governor for a “period of time.” He said he wanted to help ensure the Federal Reserve’s independence. Unless another Fed governor leaves, President Trump will not be able to fill the seat until Powell’s term ends in January 2028.
The Bank of England’s Monetary Policy Committee voted 8–1 to maintain the Bank Rate at 3.75%, with chief economist Huw Pill the lone dissenter in favour of a 25bp hike to 4%.
The committee noted that CPI inflation had already risen to 3.3% in March and projected it would remain around 3.1%–3.3% through Q2–Q3 2026, some 1.4 percentage points higher than the February forecast, driven by higher fuel prices and an expected rise in the Ofgem energy price cap.
The Bank set out three scenarios in its April Monetary Policy Report to illustrate the range of possible outcomes and stated it "stands ready to act as necessary" to return inflation to the 2% target sustainably.
Experts at Oxford Economics said, “We still expect the MPC to keep Bank Rate unchanged this year, but it wouldn’t take much to tip the balance towards rate hikes. Continued strength in energy prices or evidence that the MPC has underestimated the indirect impacts of higher energy prices could convince the majority to tighten policy.”
The European Central Bank’s Governing Council kept all three key rates unchanged: the deposit facility at 2.00%, main refinancing operations at 2.15%, and the marginal lending facility at 2.40%.
While incoming data had been broadly consistent with the previous inflation outlook, the ECB noted that "the upside risks to inflation and the downside risks to growth have intensified" due to the war in the Middle East. The council stated that longer-term inflation expectations remain well anchored, but that shorter-horizon expectations have moved up significantly and emphasised a "data-dependent and meeting-by-meeting approach," explicitly noting it is "not pre-committing to a particular rate path."
The hawkish undertone in both the statement and the ensuing press conference by ECB President Christine Lagarde reinforced expectations of a rate hike.
Barclays analysts said, “We think June should provide sufficient information and updated scenarios, allowing the ECB to take an ‘informed’ decision.
We continue to expect a 25bp hike in June and a second 25bp hike in September, taking the deposit rate to 2.5%, which we then see remaining in place through 2027.”