Macroeconomic pulse (II): interest rates on hold as inflation risks rise
Central banks in the US, UK and EU keep policy unchanged after March meetings as they await the outcome of the Middle East crisis.
As global markets adjust to a renewed wave of geopolitical uncertainty, central banks are moving carefully rather than decisively.
With inflation trends still stabilizing and energy markets reacting to conflict-driven volatility, monetary authorities across the US, UK and Europe have chosen to hold interest rates steady, prioritizing stability over premature policy shifts.
Interest rates on hold
The latest meetings of the monetary policy boards in 3 of the world’s major economies took place between March 18 and 19, roughly 3 weeks after the start of the conflict in the Middle East. The tone adopted by the institutions was one of caution, with close monitoring of a possible rise in prices that could destabilize the inflation target.
The Federal Reserve (Fed), the Bank of England (BoE) and the European Central Bank (ECB) decided to maintain interest rates in the countries and bloc, keeping them at 3.65% in the US, 3.75% in the UK and 2%-2.4% in the European Union.
Both the US and the UK have a target inflation of 2% annually. Fed Chair Jerome Powell said in a press conference after the meeting that the Federal Open Market Committee (FOMC) sees the current monetary policy as “appropriate to promote progress toward our maximum-employment and inflation goals,” although uncertainty regarding geopolitics remains.
The BoE’s Monetary Policy Committee says there had been only limited news regarding the near-term domestic outlook prior to the Middle East conflict, such as a slight improvement in the consumer inflation rate. However, according to the institution, the forecasts that pointed to a drop in inflation in the second quarter have become more “modest.”
China has left its interest rate stable at 3%-3.5% since May 2025. According to news agency Reuters, “Major global investment banks now expect China to keep official interest rates steady this year, scaling back earlier rate-cut calls.”
The Middle East conflict poses uncertainty for the global economy
The concrete effects of the conflict on the world economy are still uncertain. During the FOMC meeting in March, the Fed Chair said that although short-term inflation expectations in the country have risen, most likely reflecting the hike in oil prices resulting from the crisis, indications about the medium- to long-term effect are weaker.
“In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy. We will continue to monitor the risks to both sides of our mandate,” notes Powell.
The BoE also expects higher prices of energy, commodities and indirect costs associated with the conflict. “Prior to this, there had been continued disinflation in domestic prices and wages. CPI inflation will be higher in the near term as a result of the new shock to the economy,” the BoE’s Monetary Policy Committee published.
Negative forecasts
In an economic outlook published in March, the Organisation for Economic Co-operation and Development (OECD) says that “the Middle East conflict has led to a sizable change in growth and inflation prospects.”
For instance, while the institution expected global gross domestic product (GDP) growth to be “upwardly revised by around 0.3 percentage points (p.p.) in 2026, […] this revision has been entirely erased by the impact from the escalation of conflict.”
It projects that global GDP growth will fall until the third quarter of 2026 and recover from the fourth quarter onward, but at lower levels than those recorded in 2025.
At the same time, inflation in the G20 countries, which was expected to be “marginally higher in 2026,” has now been upwardly revised, the OECD says. G20 headline inflation is projected to increase 1.2 p.p. in 2026.
In the pet industry, prices were already rising before the conflict began, with Europe, the UK, the US, Brazil and Canada registering increases. Even with higher prices in 2025, the sector grew in several countries that year, albeit moderately.
JPMorgan Chase’s Chairman and CEO Jamie Dimon addressed the challenges imposed by the conflict in a letter to shareholders published in April, but said that the American economy is resilient precisely because consumers are “still earning and spending (though with some recent weakening) and businesses still healthy.”
Indicators such as consumption, income, and business activity will be even more crucial in the coming months to determine whether resilience – not only in America, but in all economies – will withstand the likely price shocks should the conflict persist.
Navigating policy caution
For industries dependent on discretionary spending, including the pet sector, the coming months are likely to be defined less by strong directional growth and more by sensitivity to price pressures and consumer confidence.
As policymakers maintain a cautious stance, incoming data on consumption, income and business activity will be critical in determining whether current resilience can withstand a more volatile macroeconomic backdrop.
Fonte: globalpetindustry.com
