Monetary Policy Report—April 2026
The war in the Middle East has driven up inflation worldwide and is weighing on global growth. Uncertainty has risen markedly. US trade policy continues to reshape global trade.
In most economies, inflation is expected to peak in the near term and then gradually ease as energy prices are assumed to decline (Chart 21). In the base-case projection, global growth is expected to be steady at around 3%. Robust investment in artificial intelligence (AI) and fiscal measures in several major economies continue to support growth.
The war in the Middle East is clouding the outlook. Higher oil prices are weighing on global growth. In particular, regions that import oil, such as Asia and the euro area, will be most adversely affected. If disruptions to the supply of oil and liquefied natural gas persist, shortages may emerge that would severely restrict economic activity in these regions. For example, some countries are already rationing jet fuel and other petroleum products. Meanwhile, US trade policy, which remains unpredictable, continues to reshape trade around the world and weigh on global growth.
United States
The US economy is projected to grow at a solid pace, supported by strong investment in AI and growth in consumption. The surge in oil prices is pushing up inflation and is expected to have a small negative effect on growth.
Economic activity remains strong despite slow job growth
Growth in gross domestic product (GDP) is estimated to have rebounded to 2.3% in the first quarter of 2026, up from 0.5% in the fourth quarter of 2025 when the shutdown of the federal government suppressed activity. AI‑related investment continues to boost GDP growth. Consumption growth is anticipated to have moderated, with higher gasoline prices, a softer labour market and past tariff hikes squeezing real incomes (Chart 22).
GDP growth is expected to average about 2¼% over the projection horizon. Consumption growth is forecast to be solid, reflecting income gains due to strong productivity growth. Robust investment in AI will support economic activity. Higher oil prices are expected to have a small negative impact on GDP growth, as real household income falls and investment in the oil sector does not increase in response to a significant but temporary rise in oil prices. Tariffs and elevated uncertainty about economic policy also continue to weigh on activity. The duration of the war in the Middle East and its effects on economic activity remain uncertain, with risks leaning toward weaker GDP growth.
The rise in oil prices is driving up inflation
US personal consumption expenditure inflation was 2.8% in February, partly driven by past increases in tariffs. The rise in oil prices will push inflation higher to reach a peak of roughly 3½% in April. Inflation is then projected to slow due to the assumed decline in oil prices and the fading effect of past tariff increases. With a balanced labour market and moderate growth in labour costs throughout the projection horizon, inflation is expected to ease through 2027 and 2028.
Euro area
GDP growth in the euro area is forecast to average about 1% over the projection horizon. Given the euro area’s high reliance on imported energy, the surge in energy prices is anticipated to restrain growth. US tariffs and competition from China will hamper exports. Domestic demand will be supported by government spending on defence and infrastructure, alongside strong growth in digital services.
Inflation is forecast to peak at just over 3% in May, driven by higher energy costs. Inflation slows thereafter, consistent with the assumed decline in global prices for oil and natural gas.
China
China’s strong growth at the end of 2025 is expected to continue into the first half of 2026 and reach 4¾% for the year. Robust exports to emerging markets in Asia and to other non-US markets are supporting this growth. In contrast, growth in domestic demand is anticipated to remain modest, weighed down by weakness in the property sector. Higher oil prices also weigh on activity, though government controls on fuel prices, supported by China’s large oil reserves, should help mitigate the impact of higher energy costs.
Over the medium term, GDP growth is projected to be around 4¼% in 2027 and 2028. Export growth is expected to slow as gains in competitiveness level off, while the pace of domestic demand improves due to fiscal support and a stabilization in the housing market.