German central bank president releases hawkish signal: if the Middle East conflict worsens inflation, the European Central Bank may resume raising interest rates in April.

Member of the European Central Bank's Governing Council and President of the German Central Bank, Joachim Nagel, stated that if the war in Iran leads to further price pressures in Europe, the ECB may need to consider restarting the interest rate hike process as early as next month's monetary policy meeting. In an interview with the media on Friday, he said: "Given the current situation, it is conceivable that the medium-term inflation outlook may worsen, and inflation expectations may continue to rise, which means that we may need to take a more restrictive monetary policy stance." As the ECB tries to assess the impact of the Middle East war on inflation and the economy, it kept the deposit facility rate unchanged at 2% in its Thursday meeting for the sixth consecutive time, in line with market expectations. However, the ECB took a more hawkish tone on the risks facing the euro area. In its monetary policy statement on Thursday, the ECB said: "The Middle East war has made the outlook more uncertain, bringing risks of upward inflation and downward economic growth." "The conflict will have a tangible impact on short-term inflation through higher energy prices. The medium-term impact will depend on the intensity and duration of the conflict, as well as how energy prices transmit to consumer prices and the overall economy." The President of the German Central Bank added: "We are expected to receive more reliable data six weeks before the ECB Governing Council's next meeting." Nagel mentioned the previous period of soaring prices driven by Russia's invasion of Ukraine in 2022 multiple times during the interview, calling this experience "likely to play an important role in the current context" - even though the ECB is now "starting from a better policy standpoint." These remarks highlight growing concerns: the surge in energy prices triggered by a new round of geopolitical conflicts in the Middle East is threatening to increase inflation and dampen economic growth. EU leaders held a summit in Brussels on Thursday, with ECB President Christine Lagarde attending. Leaders are preparing for a potential years-long tightening of energy supply, following recent Israeli strikes on a gas field critical to Iran's economy, which has significant repercussions for a major gas infrastructure developed by Qatar in cooperation with US oil and gas giant ExxonMobil. "If production capacity itself is destroyed, the impact of this war will be more enduring," French President Emmanuel Macron said. Although the ECB maintained rates unchanged in its six consecutive meetings this week, insiders indicate that if the spillover effects of the war push inflation far above the central bank's long-term target, ECB officials are prepared to raise borrowing costs on April 30. The market is betting that the ECB will raise rates three times this year by 25 basis points each time, with the first hike potentially as early as April. The latest summary of the ECB's economic growth and inflation forecasts show that the Eurozone consumer price index is expected to rise by 2.6% this year, well above previous benchmarks. The central bank said in an extreme scenario, if oil and gas supplies are interrupted until the end of 2026, inflation may peak in the first quarter of 2027 at 6.3%. Despite this, ECB President Lagarde insists that she and her colleagues are "well-positioned and equipped with sufficient tools" to address the ongoing significant energy price shock. She reiterated their commitment to keeping inflation stable at 2% in the long term. Just hours before the ECB's monetary policy meeting, the Middle East geopolitical conflict further escalated, with an Iranian missile destroying the world's largest liquefied natural gas export plant in Qatar, causing damage that may take several years to repair. Such unpredictable developments in geopolitical conflict have put policymakers in a dilemma: they have vowed not to allow a repeat of the record-breaking inflation surges of 2022 and 2023 and to take decisive action. However, higher energy costs could also disrupt the region's fragile economic recovery process. Nagel emphasized that Thursday's decision "is appropriate", and he repeatedly highlighted the price issues driven by energy, calling the current situation "challenging." "Further developments in geopolitical conflicts will have a significant impact on medium-term inflation," he said, adding that the ECB's future monetary policy decisions will "depend on this." He underscored that ECB rate policymakers "will maintain a prudent monetary policy stance and act with necessary resolve." "Our primary task is price stability. Everyone will benefit from it," he said in the interview. As expected by the market, the Federal Reserve maintained its benchmark interest rate unchanged on Wednesday, but Fed Chair Jerome Powell explicitly expressed a hawkish stance at the press conference, emphasizing that the oil price shock has made the US inflation outlook too uncertain to provide a timetable for easing. Powell repeatedly emphasized that the Fed may not return to a rate-cutting trajectory until inflation shows signs of cooling - even before considering the inflationary impact of the Middle East war, emphasizing that it is too early to assess the war's impact. On Friday, global stocks and bond markets fell in unison, particularly with a sharp drop in the three major US stock market indices. The classic safe-haven asset, gold, is on track for its worst week since 1983. Bond market traders even priced the potential next policy action by the Fed in the second half of the year as a 50/50 chance of a rate hike rather than a rate cut, while the S&P 500 index continued its longest weekly decline in a year. By contrast, the bond market priced in the Fed being likely to cut rates 2-3 times last month, even pricing in the possibility of the Fed resuming a rate-cutting cycle as early as June. Compared to the US, which has abundant oil and gas resources, Europe, with an extremely dependent energy import system, seems to face more significant inflation pressures driven by energy. The ECB and the Bank of England are both facing more severe concerns of a similar nature - that in the case of inflation severely hindering a rate cut due to energy-driven inflation pressures, they may be forced to stay put from April onwards and may even shift towards a rate-hiking path. Interest rate futures markets and the currency market have priced in a 75% probability of the ECB starting its first rate hike as early as April and almost fully pricing in three 25 basis point rate hikes this year.