In the first months of 2026, the global economy finds itself trapped in a paradox. Central banks in the United States, the eurozone, and several emerging economies have kept interest rates at levels unseen in two decades, hoping to tame an inflation that refuses to fully subside. But the remedy has side effects: credit becomes more expensive, companies cut investments, and families feel the weight of mortgages that offer no respite.
The year-on-year inflation rate in the United States stood at 4.2% in May 2026, well above the 2% target set by the Federal Reserve.
The central banks' dilemma
The Federal Reserve, the European Central Bank, and the Bank of England face a classic dilemma worsened by the current situation: raise rates further to cool demand or pause increases to avoid strangling growth. So far, the majority option has been the former. At its June meeting, the Fed held rates at 5.75%, while the ECB set them at 5.25%. Both figures are the highest since the 2008 financial crisis.
The argument of monetary hawks is that core inflation—which excludes food and energy—remains persistent, driven by rising service costs and wages. But more voices are warning that such a restrictive policy could trigger a recession in several economies, especially in Europe, where manufacturing already shows signs of contraction.
What are interest rates?
Interest rates are the price central banks charge to lend money to commercial banks. Raising them makes credit more expensive and reduces consumption, helping to lower inflation. But it also slows the economy and increases unemployment.
Impact on daily life
Far from central bank boardrooms, the impact translates into concrete figures for millions of people. In Spain, the Euribor—the index to which most variable-rate mortgages are linked—exceeded 4.8% in June, raising monthly payments by an average of over 300 euros compared to 2023. In the United States, the 30-year fixed mortgage rate hovers around 7.5%, which has sunk the housing market.
Small and medium-sized enterprises, which depend on bank credit for daily operations, suffer the most. According to a report by the Spanish Confederation of Small and Medium Enterprises, 40% of Spanish SMEs have had to delay investments planned for 2026 due to the higher cost of financing. In Germany, the situation is no better: the IfO business climate index fell for the fourth consecutive month in June.
Is there a way out?
Analysts point out that inflation could moderate in the second half of the year if commodity prices stabilize and supply chains, still strained by geopolitical tensions, normalize. But they also warn that a premature rate cut could reignite inflationary pressures. The balance is fragile.
Uncertainty is such that the International Monetary Fund has lowered its global growth forecast to 2.8% for 2026, half a percentage point less than its October projection. For developing countries, the situation is even more complex, as high interest rates in advanced economies make their external debt more expensive and hinder access to financial markets.
What does this mean for the world?
Restrictive monetary policy is reshaping the global economy in a way reminiscent of the 1970s stagflation, but with nuances specific to this century: inflation driven by supply shocks—the pandemic, the war in Ukraine, trade tensions—and demand that resists falling due to excess savings accumulated during lockdowns. The big question is whether central banks will manage a soft landing or whether the landing will turn into a crash.