Next week could spice things up for bitcoin as seven central banks face an inflation test

Next week could prove pivotal for markets, including bitcoin, as seven major central banks, including the powerful Federal Reserve, announce rate decisions amid war-driven oil price gains that threaten to reignite inflation in the global economy.

The week’s packed economic calendar includes the Reserve Bank of Australia (RBA) rate decision on March 17, followed by the Bank of Canada (BOC) and the Fed on March 18, and wraps up with the Bank of Japan (BOJ), Swiss National Bank (SNB), and European Central Bank (ECB) on March 19.

Until recently, markets expected most major central banks, led by the Fed, to steadily cut interest rates (or avoid tightening) this year. The rapid emergence of artificial intelligence as a disinflationary force — with the potential to disrupt the labor market — had reinforced this bias for lower borrowing costs. That outlook supported risk assets, including Bitcoin.

However, the war that began on Feb. 28 with coordinated U.S. and Israeli strikes on Iran, which has since involved widespread retaliatory attacks and disrupted energy shipments through the Middle East, has thrown a wrench into that outlook.

Rising oil prices have reignited concerns over inflation, forcing traders to reassess interest rate expectations. Some fear that central banks would respond to the evolving inflationary macroeconomic situation with higher borrowing costs.

As such, hawkish hints next week could trigger downside volatility across risk assets, including Bitcoin. This scenario looks plausible, as policymakers — remembering their 2021–22 misstep when they called inflation transitory and were proven wrong — may be extra quick to curb rising price pressures this time.

If they remain neutral or data-dependent in a wait-and-watch mode or downplay inflation fears, then risk assets could surge. This possibility cannot be ruled out either.

"Like all supply shocks, the first Fed response to an oil price spike is to watch and assess the damage," Economist and Fed Watcher Ethan Harris said in a LinkedIn post.

"There are two reasons for this hesitation. First, oil shocks simultaneously lower growth and raise inflation. Before moving, the Fed wants to figure out which is the bigger problem. Second, most such shocks are transitory. The Fed does not want change rates, only to reverse the move weeks later," he explained.

Historically, only the Fed — and possibly the BOJ — have exerted meaningful influence over Bitcoin prices. With oil prices already straining all corners of the Japanese society, next Friday’s BOJ decision could prove particularly pivotal for both domestic markets and bitcoin.