U.S. President Donald Trump on Thursday threatened to destroy Iran’s bridges and power plants, saying the “New Regime leadership knows what has to be done, and has to be done, FAST!” in a Truth Social post.

Trump did not elaborate on what needed to be “done,” but said the U.S. “hasn’t even started destroying what’s left in Iran.”

Hours later, Iran’s semi-official Tasnim news agency reportedly claimed that a U.S. F-35 fighter jet was shot down over central Iran. Images of the jet were posted on Telegram, with one photo that appeared to show the words “U.S. Air Forces in Europe” on what appeared to be the tail section of a plane.

The U.S. Central Command, which oversees the region, and Iranian authorities did not respond to a request for comment at the time of publication.

Trump’s latest threat came a day after a nationwide address in which he said the U.S. military would hit Iran “extremely hard” for the next two or three weeks. He added that the U.S. would “bring them back to the Stone Ages where they belong.”

Hours after his speech, Iranian Foreign Minister Abbas Araghchi struck a defiant tone on X, saying that “there was no oil or gas being pumped in the Middle East back then,” referring to Trump’s stone age remarks.

“Are POTUS and Americans who put him in office sure that they want to turn back the clock?” Araghchi said.

Iran has effectively shut tanker traffic through the Strait of Hormuz, a vital global oil route, after the U.S. and Israel attacked the country on Feb. 28.

Trump has repeatedly threatened to send Iran back to the “stone age” as the war entered its second month and the U.S. military build-up in the Middle East showed no signs of slowing.

Despite reports of overtures from the U.S., including ceasefires and a 15-point peace plan to end the war, Iran has publicly contradicted multiple reports about negotiations with the Trump administration on numerous occasions.

Tehran had described the 15-point proposal as “extremely maximalist and unreasonable,” according to an Al Jazeera report on March 25, citing a high-ranking diplomatic source.

Trump said Wednesday that Iran’s “New Regime President” had asked Washington for a ceasefire, a claim that Tehran has denied. Trump has not specified who the “President” is.

“We will consider when Hormuz Strait is open, free, and clear. Until then, we are blasting Iran into oblivion or, as they say, back to the Stone Ages!!!,” he wrote.

Attacks on power plants could constitute a war crime and violate international law, legal experts said.

In a letter dated Thursday and signed by over 100 law experts, the group said international law prohibits attacks on “objects indispensable to the survival of civilians, and the attacks threatened by Trump, if implemented, could entail war crimes.”

Trump had also earlier said that he could target water desalination plants in Iran.

The Gulf Cooperation Council on Thursday called on the United Nations Security Council to take “all necessary measures to ensure the immediate cessation of Iranian aggressions against the Council states.”

The six countries in the Gulf Cooperation Council — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates — have come under attack from Iranian missiles and drones as the war entered its second month.

The Kuwait Petroleum Corporation said that its Mina al-Ahmadi refinery was hit by drones early on Friday.

Jassim Albudaiwi, Secretary-General of the Gulf Cooperation Council, said that while the bloc does not seek war, Iran had “exceeded all red lines” and described Tehran’s attacks as “treacherous.”

Bahrain, the current rotating president of the Security Council, has led an effort to pass a U.N. resolution to ​authorize “all necessary means” to protect commercial shipping in and around the Strait of Hormuz.

But the proposal reportedly stalled after veto-wielding Security Council members China, Russia and France objected to the draft resolution, which would have authorized military action against Iran.

Gasoline prices over $4 a gallon, part of an ongoing supply shock in the energy markets, might seem like a cue for the Federal Reserve to raise interest rates to head off inflation. At least for now, that looks like a bad bet.

Investors instead expect the central bank to hold benchmark rates steady, or even pivot back toward cuts later in the year as policymakers weigh the risk that higher energy prices will slow growth more than they fuel lasting inflation.

In market-moving remarks Monday, Fed Chair Jerome Powell signaled that raising rates now could be the wrong medicine for an economy already facing a softening labor backdrop and elevated recession concerns on Wall Street.

Asked whether he thought policymakers should consider rate increases here, Powell responded: “By the time the effects of a tightening in monetary policy take effect, the oil price shock is probably long gone, and you’re weighing on the economy at a time when it’s not appropriate. So the tendency is to look through any kind of a supply shock.”

The comments come at a critical juncture for markets, which have struggled to get a handle on the Fed’s intentions amid a bevy of conflicting and perpetually shifting economic signals.

Just a few days ago, traders began to entertain the possibility that the Fed’s next move could be a hike. That mindset followed some unsettling inflation news: Import prices rose much more than expected in February, even ahead of the war-related oil spike, while the Organization for Economic Cooperation and Development raised its U.S. inflation forecast dramatically, to 4.2% for 2026.

However, Powell’s comments — complete with the usual Fed qualifiers that there are potential cases for both hikes or cuts — helped bring the market back off the hawkish position. Before the war, markets had been looking for two and possibly even three cuts this year in anticipation that inflation could continue to drift back to the Fed’s 2% target and central bankers would switch their focus to supporting the labor market.

Futures prices Tuesday morning pointed to just a 2.1% chance of a rate hike by year-end, according to the CME Group’s FedWatch tool. That’s despite headlines noting that regular unleaded gasoline had eclipsed $4 nationally at the pump and U.S. crude oil priced above $102 a barrel.

While there’s still plenty of uncertainty about where rates are headed, Wall Street commentary shifted back to expectations for cuts. To be sure, odds are still low for a reduction — about 25% — but they have climbed considerably over the past two days.

“Central bankers’ bark will be bigger than their bite” when it comes to fighting higher prices, wrote Rob Subbaraman, head of global macro research at Nomura.

“Right now, it makes sense for central banks to do nothing but sound hawkish in order to help anchor inflation expectations as headline inflation spikes,” he added. “However … the pass-through to wage growth and core inflation is likely to be limited, and instead the Middle East war could quickly morph into a global growth shock.”

Indeed, concerns about the impact that the oil price spike will have on growth superseded the worries about consumer prices, echoing Powell’s worry that hiking now won’t fix energy costs and could cause more trouble later. Policymakers are worried less about the immediate hit from energy-driven inflation than the risks that higher prices could sap consumer demand and hiring.

Joseph Brusuelas, chief economist at RSM, said central bankers should fear “demand destruction” brought on by the energy shock.

“Time is not an ally of the American economy,” he wrote. “The bigger risk is what comes next: demand destruction. That’s the economic term for what happens when high prices force people and businesses to spend less. It sounds abstract, but it’s very concrete — it means fewer cars sold, fewer homes bought, fewer restaurant meals, fewer business investments, and eventually fewer jobs.”

The Fed is in a bind policy-wise, Brusuelas added: Raising rates now risks slowing economic growth further, while standing put runs the chance that the oil situation gets worse.

Federal Reserve Chair Jerome Powell, in a wide-ranging talk at Harvard University, said Monday that he sees inflation expectations as grounded despite rising energy prices so the central bank doesn’t need to respond with higher interest rates.

As his term leading the central bank nears an end, Powell avoided questions about the longer-term direction of interest rates or inclinations his designated successor has espoused.

In the near term, he said the proper move is to look beyond the short-term gyrations of the energy market and focus on the Fed’s goals of stable prices and low unemployment.

“Inflation expectations do appear to be well anchored beyond the short term, but nonetheless, it’s something we will eventually maybe face the question of what to do here,” he said during a question-and-answer question with a moderator and students. “We’re not really facing it yet, because we don’t know what the economic effects will be, but we’ll certainly be mindful of that broader context when we make that decision.”

As he has in the past, Powell said he believes the current rate target, in a range between 3.5%-3.75%, is “a good place” for the Fed to sit as it observes events currently playing out, including the Iran war and the impact tariffs are having on prices.

The comments appeared to register in financial markets, with traders no longer pricing in a significant chance of a rate hike this year. As recently as Friday morning, markets were looking at a better than 50% probability of a quarter percentage point increase amid expectations the Fed would react to the surge in energy costs. However, odds of a hike by December fell to 2.2% after Powell’s appearance.

Powell said raising rates now could have negative effects on the economy later. He noted that Fed rate moves have a lagged impact on the economy, so tightening here wouldn’t help the inflationary impact of the Iran war.

“By the time the effects of a tightening in monetary policy take effect, the oil price shock is probably long gone, and you’re weighing on the economy at a time when it’s not appropriate. So the tendency is to look through any kind of a supply shock,” he added.

Market-based measures such as breakeven rates in Treasury yields indicate few fears of an inflation spike. Breakevens measure the difference between Treasurys inflation-indexed securities. The five-year breakeven rate most recently was around 2.56% and trending lower over the past 10 days.

Powell’s term ends in mid-May, and President Donald Trump has nominated former Governor Kevin Warsh as the next chair. However, Warsh’s nomination is being held up in the Senate Banking Committee as U.S. Attorney Jeanine Pirro continues her investigation into renovations at Fed headquarters.

Though a judge threw out a subpoena Pirro’s office issued to Powell, she has appealed the decision. While the case is being adjudicated, Sen. Thom Tillis, R-N.C., has vowed to prevent the nomination from going through.

For his part, Warsh has stated a preference for lower interest rates than the current level. Asked to comment on his successor’s plans, Powell said, “I’m not going to swing at that pitch.”

Regarding private credit, Powell noted rising defaults, investor withdrawals and concerns about wider issues in the $3 trillion sector.

“I’m reluctant to say anything that suggests that we’re dismissive of the risk, but we’re looking for connections to the banking system and things that might result in contagion. We don’t see those right now,” he said. “What we see is a correction going on, and certainly there’ll be people losing money and things like that. But it doesn’t seem to have the makings of a broader systemic event.”

Federal Reserve Governor Stephen Miran on Monday continued his campaign for lower interest rates, telling CNBC that policymakers should disregard the current energy price spike unless there are signs it will have longer-lasting impacts.

“If I saw a wage-price spiral, or I saw evidence that inflation expectations are starting to pick up, then I would get worried about it,” he said during a “Squawk on the Street” interview. “There’s no evidence of it thus far, and you can move the monetary policy rate all you want — today tomorrow — but it’s not going to affect inflation the next couple of months.”

Citing market-based indicators, Miran said inflation expectations remain well anchored, despite the jump in oil to more than $100 a barrel and a price shock at the pump that has pushed gasoline higher by more than $1 a gallon.

Monetary policy works with a lag and isn’t geared toward short-term market gyrations, he added.

Miran has dissented at each of the meetings he has attended since September 2025. He told CNBC that he continues to think “we could be about a point easier, gradually done over the course of a year.”

The fed funds rate is currently targeted in a range between 3.5%-3.75%. Market pricing is implying no moves in either direction before the end of the year.

Miran’s term has expired, but he continues to serve as the nomination of former Federal Reserve Governor Kevin Warsh is held up in the Senate Banking Committee. If confirmed, Warsh will take over as chair for Jerome Powell when the latter’s term expires in May.

Federal Reserve Chair Jerome Powell last week pushed back when asked whether stagflation posed a threat to the U.S. economy. His successor may face a tougher challenge, as Wall Street forecasters raise their expectations of recession, brought on in part by the Iran war and potential for higher prices.

In recent days, economists have pulled up their risk assessments of a U.S. contraction amid heightened uncertainty over geopolitical risk and a labor market that for the past year has shown strains over the past year.

Moody’s Analytics’ model has raised its recession outlook for the next 12 months to 48.6%. Goldman Sachs boosted its estimate to 30%. Wilmington Trust has the odds at 45%, while EY Parthenon has it at 40%, with the caveat that “those odds could rapidly rise in the event of a more prolonged or severe Middle East conflict.”

In normal times, the risk for a recession in any given 12-months span is around 20%. So while the current predictions are hardly certainties, they signify elevated risk.

The situation poses a tough challenge for policymakers who are being asked to balance threats to the labor market against sticky inflation.

“I’m concerned recession risks are uncomfortably high and on the rise,” said Mark Zandi, chief economist at Moody’s Analytics. “Recession is a real threat here.”

Talk of an economic contraction has accelerated as the war with Iran has dragged on.

An oil shock has preceded virtually every recession the U.S. has seen since the Great Depression, save for the Covid pandemic. Prices at the pump have risen by $1.02 a gallon over the past month, an increase of 35%, according to AAA.

While economists still debate the pass-through impact from higher energy, the trend has held.

“The negative consequences of higher oil prices happen first and fast,” Zandi said. “If oil prices stay kind of where they are through Memorial Day, certainly through the end of the second quarter, that’ll push us into recession.”

Like his fellow forecasters, Zandi said his “baseline” expectation is that the warring sides find a diplomatic off-ramp, oil flows again through the Strait of Hormuz and the economy can avoid a worst-case scenario.

To be sure, economists as a lot are negative and subject to the old trope about predicting nine of the last five recessions. Markets also have been wrong about where the economy is headed. A portion of the yield curve — or the spread between various Treasury maturities — most closely watched by the Fed has sent repeated false recession signals for much of the past 3½ years.

But the threat of a prolonged war, pressure on a consumer who drives more than two-thirds of all growth, and a labor market that created virtually no jobs in 2025 collectively raises the risk that the expansion could falter.

“That path through is increasingly narrow, and it’s getting increasingly difficult to see the other side,” Zandi said.

Consumers also are pessimistic. Consumer site NerdWallet said its March survey showed 65% of respondents expect a recession in the next 12 months, up 6 percentage points from the month before.

Beyond energy prices, economists say the labor market is a key pressure point.

The U.S. economy created just 116,000 jobs for all of 2025 and lost 92,000 in February. While the unemployment rate has held steady at 4.4%, that’s largely been because of a dearth of firing rather than a burst in hiring.

Indeed, stocks have had a rough ride during the war. The Dow Jones Industrial Average has fallen more than 5% during the hostilities — important because consumer spending and sentiment have been supported by higher-income households benefiting most from rising equity prices.

Gross domestic product is on track to grow at a 2% pace in the first quarter, according to the Atlanta Fed’s GDPNow tracker of rolling data. However, that’s coming off an increase of just 0.7% in the fourth quarter, the product in part of the government shutdown. Economists had expected that the drain on growth in Q4 would translate to a boost in Q1, but the effects of that appear to be modest.

Still, if global leaders can find an end to the war soon, the economy again is expected to skirt the gloomiest predictions. Stimulus from the One Big Beautiful Bill in 2025 is projected to goose growth, with lower regulations and a boost in tax returns that could help consumers cope with elevated prices. A sustained rise in production also is a factor in the economy’s favor.

“There is support underneath,” said North, the Allianz economist. “That makes me real hesitant to use the ‘R’ word. But certainly, I think we’re seeing a slowdown this year.”

Chicago Federal Reserve President Austan Goolsbee said Monday that he’s more worried about inflation now than he is unemployment, even with apparent progress made on the war with Iran.

In a CNBC interview, the central banker said policymaking is difficult in the current environment. He spoke shortly after President Donald Trump announced that progress had been made in negotiations with Iran and that further attacks on energy infrastructure would be halted for five days as talks continue.

“The most important thing is to figure out the through line of what is happening,” Goolsbee said in a “Squawk Box” interview. “What makes this a fraught but intense moment is nobody can tell us what is going to happen on the ground in the conflict in the Middle East, and how long that lasts.”

Goolsbee had dissented on a rate cut in December and said he agreed with the majority to hold short-term rates steady at the January and March meetings of the Federal Open Market Committee. He is not an FOMC voter this year but will vote again next year.

Following Monday’s war news, traders, in volatile market action, upped bets of a rate hike by the end of the year but still expect a cut in 2027. Stocks spiked higher and oil prices plunged.

FOMC officials last week indicated a majority still expect a cut this year and another the next. However, Goolsbee said that his inclination will depend on the progress of inflation, and he cautioned against “a repeat of the team-transitory mistake” where the Fed underestimated the severity of inflation in 2021.

“I remain fairly optimistic that by the end of ’26 rates could go down, but I wanted to see proof that we’re back on an inflation headed to 2%. This [war] definitely throws a wrench into the plans. We do need to see progress,” he said.

Spring is traditionally the busiest season for home sales, and while this year’s market dynamics have shifted strongly in favor of buyers, broader forces in the economy are creating significant challenges.

The most important factor in any season is mortgage rates. They were expected to be lower this year, as the Federal Reserve dropped its lending rate to counter inflation, but the war with Iran has turned that on its head. The cost of oil is shooting higher, leading to rising inflation and causing the Fed to reconsider.

Now U.S. bond yields are rising, with mortgage rates following suit.

The average rate on the popular 30-year-fixed mortgage had started this year lower, even briefly dipping below 6% at the end of February, but it rose sharply this week to 6.53% on Friday, the first day of spring, according to Mortgage News Daily. It is now just 18 basis points below where it was a year ago.

Higher rates will weigh on affordability, but other factors have flipped the market in favor of buyers. Homes are sitting on the market longer, sellers are increasingly willing to lower prices and the supply of homes for sale is rising, albeit not as quickly as it should be.

“As the housing market approaches the ‘best time to sell’ season, it sits in a precarious position, caught between long-term improvements and sudden short-term instability,” Jake Krimmel, senior economist at Realtor.com, wrote in a Weekly Housing Trends report. “Everything seems much more unsettled and uncertain than it did just a month ago.”

For the week ending on March 14, active inventory was up 5.6% year-over-year, according to Realtor.com, but new listings were down 1.4%.

This means the number of homes for sale is climbing not because there are so many more sellers, but because the homes on the market are sitting. That may be because potential sellers who expected to put their homes on the market are holding back due to concerns about the implications of the Iran war.

“I think inventory is the bigger decider,” said Jonathan Miller, director of markets for StreetMatrix, a housing market data provider. “The idea that rates are going to noticeably come down this year, I think, is generally off the table.”

Given the disparity in inventory across different markets, this spring is likely to be a tale of many cities.

For example, in February, active listings in Las Vegas, Seattle, Cincinnati and Washington, D.C., were all up over 20% from a year ago, according to Realtor.com. Listings in San Francisco, Chicago, Miami and Orlando, Florida, meanwhile, were lower than a year ago.

Home prices had been cooling off for much of the past year, and they continue to do so. Prices were just 0.7% higher in January than they were in January 2025, according to Cotality. That’s down from the 3.5% annual growth at the beginning of 2025. Higher mortgage rates, however, are taking away from that improved affordability.

The Northeast and Midwest are seeing the strongest price appreciation, led by New Jersey, Connecticut, Illinois, Wisconsin and Nebraska, due to tighter supply in those regions, according to Cotality.

Cotality ranks 69% of top metropolitan housing markets as overvalued, noting undervalued markets like Los Angeles, New York City, San Francisco and Honolulu could see a rebound in prices in 2027.

“Ultimately, locations with consistent job growth will remain the primary engines for price appreciation, but they also have larger inventory deficits which are driving pressure on home prices,” Selma Hepp, Cotality’s chief economist, wrote in a recent report.

As for new construction, buyers are likely to see better deals this spring, as builders are struggling to unload an oversupply of homes. Inventories hit a 9.7-month supply in January, according to the U.S. Census, as the result of sales falling to the lowest level since 2022. A growing share of builders cut prices in March, according to the National Association of Home Builders.

“Affordability for buyers and builders remains a top concern,” Bill Owens, chairman of the NAHB, said in a release. “Many buyers remain on the fence waiting for lower interest rates and due to economic uncertainty. Builders are facing elevated land, labor and construction costs and nearly two-thirds continue to offer sales incentives in a bid to firm up the market.”

Construction of single-family homes also dropped in January. While some are blaming rough winter weather for the weakness in the new home market, builders are consistently battling affordability for both their customers and their own bottom lines. Costs for land, labor and materials have not eased.

“I think this is not going to be an inspiring year for the housing market. It started out with high expectations. I think the war, whatever the outcome, has really dampened enthusiasm and kept uncertainty really high,” StreetMatrix’s Miller said.

British government borrowing costs surged to their highest since the 2008 financial crisis on Friday, as investors scrambled to price in rising inflation risks and a growing probability of interest rate hikes later this year.

U.K. government bonds – known as gilts – have undergone a sharp repricing amid the escalation of the Iran war. Yields on the benchmark 10-year gilt have jumped around 68 basis points in the 15 trading days since the conflict began, while the yield on the 2-year gilt has added about 97 basis points.

Bond prices and yields move in opposite directions.

On Friday, the yield on the U.K.’s 10-year government bonds moved around 9 basis points higher to 4.933%, its highest level since the 2008 financial crisis.

Meanwhile, yields on 2-year gilts jumped 11 basis points to around 4.513%, marking their highest level in more than a year.

Britain’s bond market has been particularly susceptible to fears of resurgent inflation as the U.S.-Iran war drags on, in part because of its reliance on imported energy. The war, and the subsequent blockade in the Strait of Hormuz – a critical oil shipping route – has led to a surge in oil and gas prices.

Even before the war broke out, the U.K. had the highest government borrowing costs of any G7 nation, with long-term 20- and 30-year gilts trading well above the crucial 5% threshold. The yields on those bonds jumped by around 9 and 7 basis points, respectively, on Friday.

Nigel Green, CEO of financial advisory deVere Group, told CNBC markets were rapidly unwinding expectations of rate cuts from the Bank of England.

On Thursday, the central bank’s Monetary Policy Committee said it had voted “unanimously” keep its benchmark interest rate on hold, saying inflation would be higher in the near term “as a result of the new shock to the economy.”

Before the war began, the BOE had been expected to cut its key interest rate. Now, markets are pricing in a near 0% chance of a rate cut from the bank this year, with the vast majority of traders seeing a rate hike next month, LSEG data shows. Markets are also overwhelmingly pricing in a key rate of at least 4.25% by the end of the year, which would suggest a minimum of two rate hikes.

“The trigger is energy, as oil and gas shocks are feeding directly into inflation expectations, and gilts are reacting exactly as you would expect in this scenario,” deVere’s Green told CNBC via email. “This isn’t a disorderly sell-off — it’s an understandable repricing of risk.”

There was “also a political layer” to movements seen in gilt markets, according to Green.

“Finance minister Rachel Reeves has built her fiscal framework around stability and credibility, but higher yields quickly translate into higher borrowing costs,” he said. “This, of course, narrows her room for maneuver at precisely the moment pressure is building for additional support on energy and households.”

The bond market has largely been supportive of Reeves’ commitment to her so-called “fiscal rules” during her tenure as finance minister, with speculation that she may be fired from the job last year triggering a gilts sell-off.

Adding to selling pressure on Friday, official figures showed the UK government borrowed a higher-than-expected £14.3 billion ($1.74 billion) in February.

Reeves has committed to bringing day-to-day government spending to a level where it can be funded by tax revenues rather than borrowing, with her rules also saying that public debt must be falling as a share of economic output by 2029-30.

“From an investment perspective, higher yields are starting to restore value in parts of the curve,” Green added. “But volatility will remain elevated while energy markets dictate the inflation outlook.”

George Godber, Fund Manager, Polar Capital U.K. Value Opportunities Fund, told CNBC’s “Squawk Box Europe” on Thursday that his team was avoiding any knee-jerk reactions to the news flow around the conflict.

“The duration of this impact is deeply unknown … In these times, history would tell you the best thing to do is keep calm,” he said. “What we’ve done is very little.”

Europe’s sovereign bonds are facing “a perfect storm” after new inflation fears sparked by the Iran conflict forced the region’s central banks to signal a new course for interest rates on Thursday, sending yields soaring.

The Bank of England left interest rates unchanged at 3.75% on Thursday, with the European Central Bank also holding steady on borrowing costs, as the economic impact of soaring energy costs hangs over rate-setters.

Yields on 10-Year Gilts, the benchmark for U.K. government debt, rose more than 13 basis points to 4.871% — a new 52-week high on Thursday — before easing.  The yield on 2-Year Gilts, which are typically more sensitive to rates decisions, immediately surged 39 basis points in the biggest rise since former Prime Minister Liz Truss’s ‘Mini Budget’ in September 2022.  They were last seen 27 basis points higher, at 4.378%.

French, German and Italian bonds saw less severe selling pressure, but yields rose across the continent.

Market strategists say the BoE’s move — a unanimous call by its nine-member monetary policy committee — effectively ends hopes of any further rate cuts this year and dramatically shifts the policy outlook from where it was just two weeks ago.

Ed Hutchings, head of rates at Aviva Investors, said that the chances of a rate hike from the BoE over the coming months have increased.

“With this in mind, from an asset allocation perspective, we could start to see investors tactically adding overweights in gilts in the short-term, with at least one hike expected later in the year as of today,” Hutchings said.

Matthew Amis, investment director, rates management at Aberdeen Investments, described the unfolding environment as a “perfect storm” for Europe’s sovereign bond markets.

“Energy prices spiking higher and the Bank of England opening the door to potential rate hikes have seen gilts spike higher. German bunds are the relative calm in this storm but are still pushing 3% due to similar inflation fears,” Amis told CNBC via email.

“Gilts and bunds are pricing in a much longer conflict than other markets, focusing on the inflation surge with markets yet to focus on the potential negative impact on growth.”

Meanwhile, the ECB’s next move will now likely be a hike, according to Simon Dangoor, deputy chief investment officer of fixed income and head of fixed income macro strategies at Goldman Sachs Asset Management.

“The governing council is clearly sensitive to upside inflation risks, but will likely look to assess potential second-round effects before making a move,” Dangoor said. “A hike is therefore possible later in 2026; however, the ECB stands ready to act sooner if the situation deteriorates.”