The Fed, the ECB, and the Bank of Japan all kept rates on hold last week, just as expected. December is unlikely to bring any surprises either: unless the Middle East crisis eases, the base case is a rate hike, except perhaps in Japan, where the huge debt burden leaves little room for tightening. But why not act now?Starting with the Fed, the case for a hike is already pretty compelling: inflation remains stubbornly high, hitting 3.6% year on year in September, while US growth is strong (GDP expanded at a 3.4% annualized rate in Q3 2026, up from 2.2% in Q2) and consumer spending and investment remain resilient. Hence, two FOMC members voted for a 25-basis-point hike. The rest of the committee, however, are holding back, apparently wary of what comes next in the Middle East: whether peace talks gain traction or tensions flare up again. Oil prices remain a key variable here: any renewed disruption to supply routes or energy infrastructure could push crude higher, adding to inflationary pressures and making a rate hike harder to avoid.And even though Washington has signed off on a draft deal with Iran, covering mutual concessions on its nuclear program and frozen assets, there’s still no clear breakthrough in sight. As for the ECB, unlike in the US, consumption remains weak, there’s no AI investment boom, and inflation is largely driven by energy costs, so it too chose to wait and see how the situation in the Middle East unfolds. Finally, the Bank of Japan warned of fresh inflationary pressures from energy prices, a weaker yen, wage growth, and global demand for semiconductors and other AI-related products, thereby increasing the odds of further rate hikes. USDJPYis one of the key currency pairs to watch, as further yen weakness could fuel imported inflation and strengthen the case for monetary tightening. The risk is that this could unsettle global markets, triggering renewed volatility in currencies as the yen carry trade unwinds, as well as in bond markets. Where does that leave us? If the conflict escalates beyond sporadic exchanges of fire into full-scale military action, with fresh strikes on oil refineries and attempts to shut down the Strait of Hormuz and Bab el-Mandeb, inflation could take another hit, leaving central banks with little choice but to act. An easing of tensions, on the other hand, could give central banks some breathing room, allowing them to keep rates on hold, or even start cutting. For now, though, markets are still bracing for tighter monetary policy, keeping pressure on stocks, bonds and even gold. This article was written by IL Contributors at investinglive.com.