ghs. The Bank of Japan became the latest big central bank to tighten on Friday, following rate increases by the Federal Reserve two days before and the European Central Bank last week. The Bank of England left rates unchanged this week but flagged that inflation pressures could require further action. “Our policy phase has changed,” BOJ Governor Kazuo Ueda said as the bank signaled it was prepared to keep pushing up borrowing costs. The moves, while formally independent of each other, reflect a shared concern among policymakers that higher oil and gas costs resulting from the Iran war raise the specter of a new cost-of-living squeeze just a few years after the inflation surge that followed the Covid-19 pandemic. The shift marks a stark contrast with the mood barely a month ago, notably after a short-lived pact between the United States and Iran that encouraged investors and policymakers to bet on easing hostilities and a retreat of energy prices. The collapse of that agreement – and the recent Houthi advance along the Red Sea coast marking a new threat to global oil supplies – have changed the outlook significantly. “The expectation now is that energy prices will stay elevated for longer,” ECB Vice President Boris Vujcic told Reuters in an interview published on Friday. “If inflation remains high through the autumn and affects household incomes and consumer behavior, that will also have a dampening impact on GDP,” he added, saying that future calls would be made on a “meeting-by-meeting” basis. Two sources told Reuters last week that further tightening was now on the cards. While a hike at the next meeting in October could be in play, a move in December – which would be the ECB’s third hike this year – is more likely. “The peak in rates is uncomfortably dependent on events in the Middle East; a hike above 3 per cent cannot be ruled out entirely,” said Greg Fuzesi at JPMorgan. Defying the very public demands of US President Donald Trump for a cut in rates, new US central bank chief Kevin Warsh joined his Federal Reserve colleagues in a move to raise rates on Wednesday. In his post-meeting press conference, he noted he would be “hard-pressed to describe broad financial conditions as restrictive”, a formulation that counters the argument that monetary policy is hurting the economy. The Fed’s unanimous decision to raise rates, coupled with Warsh’s comments on Wednesday, were seen as laying the groundwork for further tightening and helped reassure investors about the central bank’s commitment to fighting inflation. “The Fed has regained some credibility after raising rates,” said Andrew Lake, chief investment officer at Mirabaud Asset Management. Updated quarterly economic projections showed 16 of 18 policymakers anticipate at least one more quarter-percentage-point hike by the end of this year. “Our inflation problem is not just about energy,” Kansas City Fed President Jeff Schmid said on Friday. Compared with the last round, the current global central bank tightening cycle is expected to be far more muted – chiefly because inflation is not rising as sharply. Fed projections released on Wednesday show even the most hawkish US central bankers expect a 4.25 per cent–4.50 per cent policy rate range by the end of 2027, only half a percentage point higher than now, and to drop after that. In 2022–2023, the Fed raised the policy rate by 5.25 percentage points, topping it out in the 5.25 per cent–5.50 per cent range. Even as it held rates on Thursday, the Bank of England said that they might have to go up if the war continues in a commentary interpreted by observers as a clear shift in tone that positions it to follow the Fed and ECB higher. “The longer this goes on, the more difficult this becomes,” said Governor Andrew Bailey, one of three members of the bank’s Monetary Policy Committee who signaled they could back a rise, after he voted to hold at this meeting. Some analysts said they expected the BoE to raise rates only once. But financial markets after the meeting were pricing almost four quarter-point hikes over the next year. Reporting by Francesco Canepa, with additional reporting by Howard Schneider and Ann Saphir. Editing by Mark John, Hugh Lawson and Andrea Ricci. All courtesy of Reuters. Further reading: Retail’s ant-to-elephant problem: When growth breaks the supply chain model