For quite a while after Russia invaded Ukraine, Western central banks included an admonishment to the Kremlin in policy statements.

“The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” as the Fed put it at the time.

“Russia’s aggression in Ukraine is causing enormous suffering,” the ECB jeered, in its April 2022 communications. “It is also affecting the economy, in Europe and beyond.”

Fast forward four years and you could substitute “America” for “Russia” and “Iran” for “Ukraine” in such lamentations.

Forgetting who’s at fault, the bombing of Iran by America is undoubtedly “causing tremendous human and economic hardship.” It’s also “affecting the economy, in Europe and beyond.”

But something tells me you won’t see any such assessments in this week’s FOMC and ECB statements. There may be an allusion or two to the war, but any such mentions won’t constitute normative judgments.

Such are the privileges of the hegemon which issues the world’s reserve currency. Imperialistic wars of aggression which imperil the economic prosperity of the international community are in fact defensive operations designed to promote world peace and collective security. According to Washington, whose word for it you have to take unless you too want to be bombed in the name of peace.

(And we wonder why Kremlin-style “Whataboutism” is so effective as a propaganda tool.)

Anyway, the Fed will keep rates unchanged this week. If anything, recent fireworks across the energy complex argue for a hawkish cadence around the prospects for the pair of cuts most market participants expected for the full year prior to the onset of “Operation Epic Fury.”

As discussed in the latest Weekly, front-end US rates have repriced dramatically, with 2s at (and at one point through) IORB and STIRs struggling to cling to one fully-priced cut for all of 2026.

The figure gives you some context. Market pricing reflected two Fed cuts plus even odds of a third on the eve of Ali Khamenei’s assassination. Now, the same contracts suggest some chance that the Fed will “fail” to cut at all this year.

“[O]ne could make the case that the Fed pivots hawkishly by rotating the dual mandate emphasis even further toward the upside risks to realized inflation and long-term inflation expectations,” BMO’s Ian Lyngen and Vail Hartman wrote, quickly adding that they’re “leaning toward an outcome that disappoints those more hawkishly inclined given the two-sided risks to an oil shock, and unknowable timeline of the ongoing disruption to global energy supply.”

That neatly encapsulates the quandary. The key question’s whether a sustained spike in oil and the accompanying surge in gas prices will consume enough of Americans’ disposable income to moderate services-sector inflation through the demand channel.

I think the answer’s probably “yes,” and there anyway isn’t anything Jerome Powell nor Christine Lagarde can do to address an oil supply shock. In simple terms: Both the Fed and the ECB will look through recent energy volatility unless and until doing so isn’t feasible.

Obviously, both Powell and Lagarde will be compelled to talk a lot about the potential ramifications of triple-digit crude for monetary policy, but at least for now that’s all it’ll be: Talk.

In terms of the Fed’s communications materials, the fog of war will make the SEP refresh and dot plot even more useless than they (arguably) are by their very nature. Forecasts for headline inflation and the policy rate are meaningless right now.

In addition to playing out against the backdrop of a shooting war in the Mideast, this week’s FOMC meeting takes place amid a legal battle between Powell and Trump’s surrogates who are appealing a federal judge’s decision to reject subpoenas served to the Fed in January.

Retiring GOP senator Thom Tillis is still blocking Kevin Warsh’s otherwise assured confirmation until former Fox personality and current US Attorney Jeanine Pirro ceases to pursue Powell for misleading Congress about the cost of a renovation project.

Conceivably — which is to say if Pirro’s determined to tilt at this windmill until Tillis retires — Powell could be acting Fed Chair even after his tenure expires given that his term as a board member (which is separate) isn’t up until 2028.

Bottom line: If Trump wants Warsh in the big seat, Pirro needs to drop the case against Powell so Tillis will unblock Warsh’s nomination.

Late last week, between threatening to visit various visions of the apocalypse upon the regime in Tehran, Trump demanded Powell cut rates as part of the war effort. “Where is Jerome ‘Too Late’ Powell, today?” Trump wondered, on TruthSocial. “He should be dropping Interest Rates, IMMEDIATELY.”

In addition to the Fed and the ECB, the Bank of England and the Bank of Japan also set policy this week.