Imagine for a moment you\u2019re a central bank boss here in Europe. Not a great role play right now, if I\u2019m honest, given, well\u2026 *gestures at everything going on in the world right now*<\/p>\n
You have the unenviable task not only of setting policy next week, but also of coming up with a coherent message about what you might do in June.<\/p>\n
Let’s start with the bad news: having kept all your options open in March and intimated you\u2019d have a better grip of the situation by April, the truth is quite the opposite.<\/p>\n
The better news is that nobody else has a clue where the crisis is headed, either. Another week of contradictory headlines and stalemate in the Strait of Hormuz has made the situation, if anything, harder to forecast. Polymarket, to the extent that it is a reliable gauge of anything, is pricing a 28% chance of a permanent peace deal by the end of May, down from 74% a week ago.<\/p>\n
Better still, markets aren\u2019t expecting a rate hike this month, anyway. Not from the Fed, ECB or Bank of England. An \u201con hold\u201d decision looks like a no-brainer.<\/p>\n
Time is on your side, but perhaps not for long. Markets are pricing upwards of two rate hikes for the eurozone and UK by year-end. A June rate rise is near-enough fully priced.<\/p>\n
Your central challenge is that the data isn\u2019t proving to be much of a guide right now. Inflation is up, but so far only because of motor fuel. We\u2019ll get new numbers out of Europe over the coming days, but they\u2019re unlikely to tell us much about the knock-on impact on core or food inflation. That\u2019s going to take time; it\u2019s not clear you\u2019ll be much the wiser by June, even.<\/p>\n