Central Banks Hold Rates Steady As Inflation Falls

On February 5, 2026, the global financial landscape found itself at a crossroads, as three of the world’s most influential central banks—the Federal Reserve (by proxy through U.S. mortgage rates), the European Central Bank (ECB), and the Bank of England (BoE)—all signaled the next phase in the battle against inflation and economic stagnation. Each institution, facing distinct economic realities, opted to hold their main interest rates steady, but with subtle cues that the era of aggressive rate hikes may be drawing to a close.

For American homeowners, the most immediate sign of shifting tides came in the form of mortgage refinancing rates. According to Zillow data reviewed by Fortune, the average refinance rate on a 30-year, fixed-rate home loan stood at 6.27% as of February 4, 2026. While this figure marks a significant drop from the near-7% highs seen throughout late 2024 and early 2025, it remains far above the 2% to 3% lows of the pandemic era. This persistent elevation has created what’s known as the “lock-in effect”—with Redfin reporting that, as of the third quarter of 2024, 82.8% of American homeowners with mortgages enjoyed rates below 6%, leaving many reluctant to move or refinance.

Yet, there’s been a glimmer of relief for those hoping for a break. Mortgage rates began trending downward at the end of August and into September 2025, averaging closer to 6% for 30-year fixed loans. The shift was largely tied to the Federal Reserve’s decision to cut its benchmark federal funds rate by a quarter point in September, then again in October, and for a third time in December. The market’s anticipation—and subsequent realization—of these cuts helped ease borrowing costs, providing a window of opportunity for select homeowners to refinance.

But refinancing remains a nuanced decision. As Fortune notes, closing costs typically range from 2% to 6% of the loan amount—meaning a $300,000 loan could incur fees between $6,000 and $18,000. Lender origination, appraisal, title search and insurance, application, survey, attorney, and recording fees all add up, not to mention potential prepayment penalties. The calculus is simple: refinancing generally makes sense if you can secure a rate at least one percentage point lower than your current rate, or if you need to tap home equity, change loan terms, or switch loan types. Options abound, from rate-and-term refinances to cash-out, no-closing-cost, and streamline refinances (the latter available to FHA, VA, and USDA borrowers).

Notably, borrowers aren’t obligated to stick with their original lender. Shopping around is encouraged, as some institutions offer incentives for staying put, while others may provide better rates or terms. And for those whose mortgages have been purchased by Fannie Mae or Freddie Mac, programs like Refi Now and Refi Possible could sweeten the deal.

Across the Atlantic, the European Central Bank faced a different, but equally complex, set of challenges. On February 5, 2026, the ECB kept its three key rates unchanged: the deposit facility at 2.00%, the main refinancing rate at 2.15%, and the marginal lending rate at 2.40%. The move came as eurozone inflation fell to 1.7% in January, its lowest since September 2024 and notably below the ECB’s 2% target. Core inflation—stripping out volatile food and energy prices—eased to 2.2%, its lowest since October 2021, while energy prices plunged by 4.1%.

According to a flash estimate from Eurostat, monthly consumer prices in the eurozone contracted by 0.5% in January, the sharpest drop since November 2023. Among the bloc’s largest economies, inflation was muted: Germany reported 2.1%, Italy just 1%, and France a mere 0.4%, while Slovakia stood out at 4.2%. The ECB’s Governing Council expressed confidence that inflation would stabilize at the 2% target over the medium term, citing low unemployment, robust private sector balance sheets, and increased public spending on defense and infrastructure as supportive factors.

Yet, not everyone is celebrating. Joe Nellis, emeritus professor and economic adviser at MHA, cautioned that the disinflationary trend is partly a symptom of weak demand, not just policy success. "This is not necessarily a cause for celebration," Nellis warned, pointing to sluggish economic growth as a contributing factor. Roman Ziruk, senior market analyst at Ebury, added that the rapid appreciation of the euro has helped lower import prices but could hurt export competitiveness—a double-edged sword for the euro area economy.

With inflation now below target and growth subdued, the ECB has little incentive to tighten policy further. In fact, market expectations have shifted dramatically: whereas a rate hike was once considered, there’s now a one-in-five chance of a rate cut before year’s end. Bank of America expects a 25 basis point cut in March 2026, which it predicts will be the last of the current easing cycle. Financial markets took the developments in stride, with the euro steady at around 1.18 against the dollar and eurozone equities inching higher.

Meanwhile, in London, the Bank of England’s Monetary Policy Committee (MPC) delivered its own closely watched decision. The BoE held its benchmark Bank Rate at 3.75% following a surprisingly narrow 5-4 vote—a split that underscored growing divisions among policymakers. Governor Andrew Bailey, who sided with the majority, signaled that a further reduction in rates could be on the table if inflation’s expected drop to the 2% target from April proves sustainable. "We need to make sure that inflation stays there, so we've held rates unchanged at 3.75% today," Bailey stated. "All going well, there should be scope for some further reduction in Bank Rate this year."

The BoE’s caution is rooted in the UK’s unique predicament: it has the highest inflation rate among the world’s major advanced economies, and is still grappling with the aftershocks of Brexit, the COVID pandemic, and the 2022 energy price surge. The central bank cut rates four times in 2025, most recently in December, but policymakers remain wary of moving too quickly. Three MPC members argued for a more prolonged period of policy restriction to ensure inflation doesn’t rebound, while four favored cuts out of concern that inflation could drop too low as the economy weakens.

Economic forecasts reflect the uncertainty. The BoE has trimmed its growth projection for 2026 to 0.9% from 1.2% and now expects unemployment to peak at 5.3%. Wage growth is expected to slow only gradually, with pay settlements forecast at 3.4% this year, down from 4% in 2025. Still, the MPC’s guidance remains consistent: "On the basis of the current evidence, Bank Rate is likely to be reduced further," the committee said. "Judgements around further policy easing will become a closer call. The extent and timing of further easing in monetary policy will depend on the evolution of the outlook for inflation."

As central banks on both sides of the Atlantic tread carefully, the world’s economies remain delicately balanced between the risks of stubborn inflation and the dangers of a growth slowdown. For now, the message is one of vigilance and patience—a waiting game with enormous stakes for households, businesses, and governments alike.