Central banks under wartime pressure: Fed, ECB, and markets hit by oil, inflation, and trade uncertainty

Central banks enter a week of decisions under wartime pressure

Monetary policy has once again entered a phase in which interest rates are no longer determined only by domestic indicators of inflation, wages, and consumption, but also by the speed at which geopolitical shocks spill over into energy prices, transport, and investor expectations. On Wednesday, March 18, 2026, the U.S. Fed concludes its two-day meeting, while the European Central Bank begins its own meeting on the same day and announces its decision on March 19. In the same period, markets are also awaiting decisions from the Bank of England, the Swiss National Bank, and Sweden’s Riksbank. Such a concentration of monetary decisions would normally mean a focus on standard macroeconomic topics, but this time central banks are entering the decision-making process at a moment when war risk, the jump in oil prices, and disruptions in world trade are changing the assessment of the inflation outlook almost from day to day.

That is why the messages from governors are more important than the technical interest-rate decision itself. Markets are not seeking only an answer to whether rates will remain unchanged or be cut, but also a signal of whether monetary authorities believe the new energy shock is temporary or whether there is a danger that it will spill over into broader price growth. In circumstances where every new escalation in the Middle East can change the price of a barrel within a single trading day, even a nuanced change in a central bank’s wording can immediately move bond yields, currency exchange rates, and expectations about the further direction of rates.

The Fed between easing inflation and the threat of a new price wave

The U.S. Fed enters this meeting after keeping the target federal funds rate in the 3.50 to 3.75 percent range in January. In the meantime, it was announced that the U.S. consumer price index in February stood at 2.4 percent year-on-year, which at first glance suggests a continuation of the gradual easing of inflation. However, that figure covers the period before the full impact of the latest energy shock, so investors are now looking much more ahead than backward. The Fed will therefore, according to the available indicators, have to weigh two opposing forces: on the one hand, weaker economic momentum and the desire not to restrain demand more than necessary, and on the other the danger that rising energy and transport prices will once again slow the return of inflation to the targeted 2 percent.

It is precisely this shift in focus that is important for understanding the current moment. When inflation is mainly a domestic problem, a central bank can assess relatively precisely the impact of wages, the labor market, and credit conditions. When, however, monetary policy is faced with a geopolitical shock that strikes through oil, transport insurance, shipping prices, and global supply chains, the room for reliable assessment narrows considerably. In such circumstances, the Fed does not want to ease too early, but it also does not want to leave the impression that it will respond to every external price shock with additional policy tightening if it turns out to be a temporary disruption.

Special attention will therefore be paid to the tone of the press conference and any new projections for growth, unemployment, and inflation. Markets will try to read from every sentence whether the Fed sees a greater risk in economic slowdown or in a second wave of inflation. Such reading of nuances has in recent years become almost as important as the decision itself, because a change in communication often moves borrowing costs for governments, companies, and households before an actual move is made.

The ECB arrives at the meeting with inflation below 2 percent, but also with warnings about uncertainty

In February, the European Central Bank kept its three key interest rates unchanged, with the deposit facility rate remaining at 2.00 percent and the rate for main refinancing operations at 2.15 percent. At the same time, it said that inflation should stabilize around the targeted 2 percent in the medium term. Eurostat’s latest flash estimate showed that annual inflation in the euro area rose to 1.9 percent in February, after 1.7 percent in January. At first glance, this is a level that could open room for a softer tone, but the ECB itself warned in the account of the meeting at the beginning of February that geopolitical uncertainty and uncertainty surrounding trade policy had risen sharply.

For the euro area, the problem is particularly sensitive because energy and logistics shocks there very quickly spill over into industrial costs, imported inflation, and business sentiment. Europe has already gone through a period in which it became clear that war and energy can change the monetary landscape much faster than classical models suggest. That is why the ECB is now also insisting that it will not pre-commit to a rate path, but will make decisions from meeting to meeting. In practice, this means that inflation below 2 percent in itself is not enough for a more relaxed approach if, at the same time, the risks of a new rise in oil, gas, and transport prices are increasing.

In the background is also the question of economic growth. For months, the ECB has been trying to maintain a balance between protecting its credibility in the fight against inflation and the need not to stifle the recovery at a time when higher public spending on defense and infrastructure could support activity, but external shocks could again worsen costs and expectations. Because of this, markets are not only looking at whether the rate will be changed, but also at whether Christine Lagarde will leave more room for later easing or whether she will place the emphasis on caution.

London, Zurich, and Stockholm under the same pressure, but with different starting points

In the United Kingdom, the Bank of England kept the Bank Rate at 3.75 percent in February, with the decision taken by a narrow 5 to 4 majority. The split vote itself shows that within the committee there is already debate about whether the economy needs more support or whether the inflation risk is still too great for faster easing. An additional problem is that the British economy faces especially quickly the pass-through of changes in the energy market into household budgets, mortgage costs, and market expectations. Because of this, even a decision that formally means holding the rate could be interpreted very differently, depending on whether the emphasis is placed on weaker growth or on the danger of renewed price growth.

The Swiss National Bank announces its decision on March 19, and markets are also watching it because of the exchange-rate dimension. The Swiss franc often strengthens as a safe-haven currency during periods of heightened global uncertainty, which can ease imported inflation but also create problems for the export sector. The SNB therefore traditionally has to manage a different kind of balance than the Fed or the ECB: in addition to prices and growth, it also watches currency movements that can significantly change monetary conditions in the short term.

Sweden’s Riksbank, which also announces its decision on March 19, kept the policy rate at 1.75 percent at the beginning of the year. Sweden is specific in that it felt the slowdown in the real estate and credit cycle earlier and more strongly, so every change in global sentiment is quickly visible in the domestic financing market. There too, the key question is the same: how long can the central bank remain calm if domestic inflation is under greater control, but external shocks are once again threatening to push prices upward.

Oil has once again become a monetary variable

In its March report, the International Energy Agency warned that the war in the Middle East is creating the largest supply disruption in the history of the global oil market, with a sharp drop in flows through the Strait of Hormuz and reduced production in part of the Gulf countries. Such an assessment is important not only for energy specialists but also directly for central banks. The reason is simple: when oil rises sharply in price, the costs of transport, production, heating, and fuel increase, and then part of that shock gradually spills over into broader consumer prices. At that moment, monetary policy is no longer managing only domestic demand, but is trying to prevent an external shock from becoming entrenched inflation.

In that, not only the price of a barrel itself is crucial. Insurance costs, tanker availability, navigation risks, and the length of supply routes are equally important. If ships avoid certain routes or there is a slowdown in passage through key maritime points, companies build higher costs and safety margins into prices in advance. This is the mechanism because of which central banks today monitor logistics more closely than they did about ten years ago. Inflation is no longer only a matter of domestic demand and wages, but also of the resilience of supply chains.

That is precisely why, for monetary authorities, any assumption that the energy shock will automatically fade quickly is dangerous. If companies and consumers believe that higher prices will last, they can change their behavior: businesses raise price lists more aggressively, workers demand higher wages, investors adjust rate expectations, and banks change the price of lending. The central bank is then no longer extinguishing only the current fire, but is trying to prevent the spread of an inflationary mindset through the entire economy.

Trade uncertainty further complicates the picture

Alongside wartime and energy pressure, the monetary picture is also being complicated by trade uncertainty. At the beginning of March, the ECB explicitly stated in the summary of its February meeting that trade policy uncertainty had risen again, to levels seen in the summer of 2025. Such signals are important because trade barriers, changes in tariff regimes, and political risk around supply routes can have an inflationary effect even when domestic demand is not especially strong. In that case, central banks are faced with an uncomfortable combination: weaker growth and at the same time more persistent price growth.

For investors, this is an especially sensitive environment because it undermines simple market narratives. If the economy weakens, logic usually points toward rate cuts. If inflation eases, markets strengthen easing expectations even more. But when external shocks push energy, transport, and imported inflation upward, while domestic activity simultaneously loses momentum, a scenario arises in which central banks can remain cautious for much longer than markets had until recently expected. That is precisely why even short statements from governors today carry a weight that in calmer periods belonged only to formal projections.

Why bonds, the dollar, the euro, and the franc are under scrutiny

This week of decisions is therefore important not only for monetary experts but also for anyone tracking the borrowing costs of governments and companies. If the Fed sounds more hawkish than the market expects, yields on U.S. bonds can rise, the dollar can strengthen, and riskier assets can weaken. If the ECB emphasizes that inflation is formally close to target, but that external risks are too high for faster easing, the European bond market could react similarly, with a correction in expectations regarding future rate cuts. In Switzerland, meanwhile, every wording on the exchange rate and safe-haven capital flows will be important for the franc, while the Bank of England will, through the tone of its statement, also influence mortgage expectations in Britain.

In other words, markets no longer react only to whether interest rates have been changed by 25 basis points. They react to the assessment of how deep the problem is, how long it might last, and how willing central banks are to tolerate temporarily higher inflation if it is caused by war and energy rather than domestic overheating. This explains why current decisions are now followed almost in real time through currency prices, futures contracts, and sovereign bond yields.

Monetary policy can no longer ignore geopolitical economics

The most important change this week may not be the level of interest rates itself, but the fact that central banks are once again forced to conduct policy in a world where the line between monetary analysis and geopolitical economics is fading. It once used to be enough to watch inflation, wages, lending, and employment. Today, the Strait of Hormuz, shipping costs, the security of energy routes, and political decisions that can disrupt trade are followed almost just as closely. This does not mean that domestic data have lost importance, but that they are no longer sufficient on their own.

Because of this, it is entirely possible that in the coming months the scenario will be confirmed in which formal inflation remains relatively close to targets, but central banks nevertheless postpone stronger easing because they do not want to risk a new price wave. In such an environment, even one sentence about “elevated uncertainty,” “close monitoring of energy commodities,” or “decision-making from meeting to meeting” can carry more weight than the decision to keep the rate unchanged itself. That is precisely why this week goes beyond the usual rhythm of the central bank calendar: it shows that the fight against inflation in 2026 is no longer only a domestic economic story, but also a direct consequence of war, energy, and fractures in global trade.

Sources:

• Federal Reserve – calendar and information on FOMC meetings for 2026, including the March 18, 2026 meeting (link)
• Federal Reserve – statement after the January 28, 2026 meeting, confirming the federal funds range of 3.50 to 3.75 percent (link)
• U.S. Bureau of Labor Statistics – official report on CPI for February 2026, with annual inflation of 2.4 percent (link)
• ECB – Governing Council meeting calendar, including the monetary policy meeting on March 18 and 19, 2026 (link)
• ECB – monetary policy decision of February 5, 2026, with key interest rates unchanged (link)
• ECB – account of the meeting of February 4 and 5, 2026, with emphasis on rising geopolitical and trade uncertainty (link)
• Eurostat – flash estimate of inflation in the euro area for February 2026, with a rise to 1.9 percent (link)
• Bank of England – February 2026 decision to keep Bank Rate at 3.75 percent and announcement of the next decision on March 19, 2026 (link)
• Bank of England – MPC meeting schedule in 2026, including the announcement on March 19, 2026 (link)
• Swiss National Bank – official event schedule with the monetary assessment scheduled for March 19, 2026 (link)
• Sveriges Riksbank – calendar for 2026, including the March decision and conference on March 19, 2026 (link)
• Sveriges Riksbank – January 2026 monetary decision to keep the policy rate at 1.75 percent (link)
• IEA – Oil Market Report for March 2026 with an assessment of the largest supply disruption in the history of the global oil market (link)