Iran's war sparks inflation concerns, Wall Street includes expectations of European Central Bank rate hikes: actions may come as early as April.

J.P. Morgan, Morgan Stanley, and Barclays Bank predict that the European Central Bank will raise interest rates in 2026, which is in stark contrast to their previous forecasts that rates would remain unchanged. Policymakers have previously indicated that the Middle East conflict could exacerbate inflation risks. Barclays Bank and J.P. Morgan expect the ECB to raise rates at the policy meeting in April, followed by further increases in June and July. Morgan Stanley expects the ECB to raise rates by 25 basis points in June and September respectively. Earlier, the European Central Bank maintained its benchmark interest rate at 2% on Thursday. However, policymakers expect to discuss the issue of raising interest rates in the coming months due to the possibility of the Iran war pushing up inflation in the eurozone. Officials expressed deep concerns about the potential "second-round effects" of soaring energy costs, fearing that the rise in energy prices could transmit to wage agreements and a wider range of service sector prices, leading to entrenched inflation pressures within the eurozone. Influenced by this risk aversion sentiment, the European Central Bank also lowered its economic growth forecast for the eurozone in 2026 from 1.2% to 0.9%, reflecting the dual blow of high inflation and geopolitical risks on economic recovery. Regarding the timing of future rate hikes, there is currently technical disagreement within the European Central Bank. While some hawkish officials support taking decisive action at the meeting on April 29-30, others are more cautious, believing that it may be necessary to wait until June to make a decision after obtaining more comprehensive economic indicators as the April meeting lacks the latest official quarterly forecast data.