Fed leaves rates unchanged
The US Central Bank decided to keep interest rates steady on March 18 at 3.7%, as policymakers assess the implications of higher inflation readings, mixed labour market data and ongoing geopolitical conflict. The decision was also taken in spite of constant pressure from President Donald Trump to lower rates.
In his speech, Federal Reserve chair Jerome Powell contended that higher oil prices will put upward pressure on inflation in the short term, however it is still too early to predict the full extents of such an economic shock. Despite the heightened uncertainty, officials still anticipate an additional rate cut this year.
Updated economic projections show the Fed now expects GDP to grow to 2.4% in 2026, and inflation forecasts are being revised upwards to 2.7% at year end before moving back down as geopolitical tensions diminish.
ECB holds interest rates as energy prices soar
The European Central Bank (ECB) kept interest rates unchanged on March 19 at 2%, in line with predictions, while also underscoring the implications of higher oil prices on both growth and inflation.
The escalation of conflicts in the Gulf regions caused European gas prices to rise by as much as 35% on March 19, with oil briefly reaching the $119 per barrel. In response to these energy shocks, the ECB downgraded its 2026 and 2027 growth forecasts to 0.9% and 1.3% respectively.
President Christine Lagarde assured that the ECB is well equipped to handle such emerging shocks and noted that long-term inflation expectations remain stable. She also highlighted that the current energy shock differs from the previous one in 2022, given a cooler labour market and more stable inflation. However, she
cautioned that memories of the past could complicate expectations moving forward.
Bank of England keeps its rate steady
Following a unanimous decision from its Monetary Policy Committee, the Bank of England (BoE) on March 19 held its interest rate steady at 3.75% in light of rising inflation risks stemming from the escalating conflicts in the Middle East.
Policymakers emphasised the economic shock the conflict has brought with it, primarily in the form of higher energy prices. The bank expects inflation to peak at 3.5% by this summer, which marks a sharp shift from prior forecasts of 2%.
Governor Andrew Bailey stressed that energy market stability rests on the reopening of the Strait of Hormuz, and that the bank made the right decision keeping rates steady as policymakers need more time to assess the situation. Inflation is now expected to remain elevated through 2026 alongside weaker growth, reinforcing the bank’s cautionary approach.
This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap. 370 of the Laws of Malta).
