Recent developments in global energy prices, largely driven by the conflict in the Middle East and the Iran War, have prompted central banks across Norway, Sweden, and the United States to reassess their monetary policy strategies. Nordea economists Kjetil Olsen and Sara Midtgaard expect Norges Bank to raise its key rate to 4.25% in June, citing much higher Norwegian inflation and an energy price shock. They see a higher probability that the key rate will reach 4.5% rather than 4.0% by the end of 2026, emphasizing that Norges Bank will prioritize bringing inflation down to its 2 percent target, potentially preparing markets for this shift at the March meeting [1].
In Sweden, Nomura economists forecast that the Riksbank will keep its policy rate steady at 1.75% during the March 19 meeting and unchanged through 2026. Despite weaker CPIF ex-energy inflation and disappointing GDP data, the Riksbank is expected to maintain its rate due to upside inflation risks from the Middle East conflict and higher energy prices. The bank is likely to highlight concerns about second-round effects of energy price increases and the uncertainty surrounding inflation and economic activity. Nomura notes that a quick resolution to the conflict could lead to a rate cut, while a prolonged crisis may prompt a sooner rate hike. The Swedish economy remains fragile, with monthly GDP data indicating a fall in output in December and January [2].
In the United States, DBS Group economist Philip Wee describes the Federal Reserve as facing a stagflation dilemma ahead of its March 17–18 FOMC meeting. The Fed must weigh surging energy-driven inflation, exacerbated by the Iran War and the closure of the Strait of Hormuz, against weakening US growth. US GDP for 4Q25 was revised down to 0.7% QoQ saar from 1.4%, and February’s non-farm payrolls contracted by 92,000 jobs versus an expected 59,000 gain. The unemployment rate reached 4.4%, triggering the Sahm Rule and making recession a baseline concern. The FOMC must decide whether oil price spikes require higher rates to combat inflation or lower rates to support consumer spending and investment [3].
Across all three central banks, the energy price shock and geopolitical uncertainty are driving a reassessment of monetary policy, with inflation risks and economic fragility at the forefront of decision-making. While Norges Bank is expected to tighten, the Riksbank is likely to hold steady, and the Fed faces a complex trade-off between inflation and recession.
CONCLUSION
Central banks in Norway, Sweden, and the US are responding to energy-driven inflation and geopolitical risks with varying strategies. Norges Bank is expected to hike rates, the Riksbank will likely hold steady, and the Fed faces a difficult decision between raising or cutting rates. The market impact is high, as policy responses will depend on the evolving energy crisis and its effects on inflation and economic growth.