The European Central Bank (ECB) raised interest rates by 25 basis points on Thursday ahead of Kevin Warsh’s first Federal Open Market Committee meeting as chair of the Federal Reserve next week.
“The war in the Middle East is generating inflation pressures and the decision to raise rates is robust across a range of scenarios mapping out how the shock might evolve and affect the medium-term outlook for the euro area,” ECB President Christine Lagarde said during a news conference.
“Compared with March, staff have revised up their baseline projection for inflation in ’26 and ’27 owing to a higher path for energy prices which to some extent is expected to feed into food, goods and services inflation,” she added.
The ECB is the first major bank to adjust rates based on the Iran war. Central banks in Australia and the Philippines also previously moved to raise rates.
The Trump administration has urged the Federal Reserve to lower interest rates, but Warsh may be forced to increase them as the Iran war lingers.
On Thursday, President Trump said the U.S. would hit Iran “VERY HARD” and target Kharg Island alongside other oil infrastructure, threatening to further strain the global economy and international shipping.
News of the escalation comes after weeks of the White House stating it was nearing a peace deal with Tehran.
However, Israeli offensive efforts in Lebanon threatened to thwart steps toward a final agreement.
Data from the Labor Department show consumer inflation rose to 4.2 percent and more jobs were added than expected over the past 12 months, adding to economic pressure.
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