A few months ago, the European Central Bank was lining up rate cuts. Its hawks are now openly calling for a hike.
The Iran war is the reason.
Madis Muller is a top voice at the ECB. He said this week that there is a good case for the bank to raise rates at its June 11 meeting.
The trigger is a sharp jump in energy costs from the Iran war. That jump has pushed inflation back above the bank's 2 percent goal.
Muller was clear about the off-ramp. A hold in June needs a fast fix to the Strait of Hormuz.
Without an open shipping lane and cheaper oil, a hike is on the table.
A rate hike is still not a done deal. The full ECB board has to vote. But the tone has shifted hard.
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Muller is not the only one talking. Bundesbank chief Joachim Nagel told Bloomberg TV this week that the ECB may need to act in June.
He called the energy shock more lasting than the bank thought it would be.
Austria's Martin Kocher went further. He said a June hike is forced if Hormuz stays shut.
France's outgoing central bank head, Francois Villeroy de Galhau, added that the bank is set to bring inflation back to 2 percent.
Three of the ECB's loudest voices are now in the same hawk corner.
Why does it matter? The longer crude stays high, the higher the odds that energy costs spread into food and other goods. Once that happens, central banks tend to act fast.
The ECB's deposit rate sits at 2 percent right now. The bank treats this level as neither boosting nor slowing the economy.
A move higher would push policy into tight mode for the first time in this cycle.
Traders are already pricing in two to three small hikes by December. The euro has firmed up too.
A stronger euro can help on imports. But it can hurt the bloc's exports.
The repricing is showing up in bond markets. Yields across the euro zone have jumped, and the U.S. 30-year Treasury yield just hit a 19-year high.
The June 11 meeting is the next test. The Bank of England is watching. So is the Fed.
Each central bank is reading the same oil tape.
Watch oil. Watch the Hormuz news. Both will shape the ECB vote in three weeks.
If oil pulls back fast, the bank may hold. If crude stays at 105 dollars a barrel or higher, a hike is the more likely path.
The cost of waiting is the real fear at the bank. If the ECB sits still and inflation digs in, the next move could be a bigger hike later in the year.
Investors should track two data points next. The first is the May inflation print for the euro zone.
The second is the bank's June forecast update.
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