Trump's Return Shapes Global Central Banks' Caution

The potential impact of Donald Trump's return to the White House is already prompting a shift in global economic policymaking, with the US Federal Reserve signaling fewer rate cuts and other leading central banks expressing caution, reports Reuters.

While the Fed delivered an expected rate cut on Wednesday, officials emphasized the uncertainty posed by Trump's planned tariffs, tax cuts, and immigration policies.

"Some people did take a very preliminary step and start to incorporate highly conditional estimates of economic effects of policies into their forecasts at this meeting," Fed Chair Jerome Powell said, explaining the inclusion of higher growth and inflation projections for 2025.

Powell's cautious tone regarding further rate cuts triggered a slide in stock prices, with markets now pricing in only a single Fed rate cut for 2025.

The Bank of England, maintaining its current gradual approach to rate cutting, acknowledged the increased economic uncertainty under the new Trump administration.

"With the heightened uncertainty in the economy we can't commit to when or by how much we will cut rates in the coming year," BoE Governor Andrew Bailey stated.

Echoing these sentiments, the Bank of Japan maintained ultra-low interest rates, citing concerns about Trump's policies' impact on the export-dependent Japanese economy.

"There's uncertainty over the policies of the incoming U.S. administration, so we need to scrutinise the impact more carefully," BOJ Governor Kazuo Ueda noted.

Across the Atlantic, the Norwegian central bank kept its policy rate unchanged at a 16-year high, highlighting the risk of a US-China trade war.

"Higher tariffs will likely dampen global growth, but the implications for price prospects in Norway are uncertain," the bank stated.

Meanwhile, the Swedish central bank cut rates by a quarter percentage point but indicated a more cautious approach to future easing in early 2025.

The US economy faces further uncertainty after Trump's push to block a government funding bill and demand a debt ceiling increase.

These developments come as the European Central Bank and Bank of Canada have already eased rates, with both institutions potentially implementing further cuts in 2025.

While the Fed appeared to be adjusting to Trump's return, the Canadian Finance Minister resigned after clashing with Prime Minister Justin Trudeau over how to handle potential US tariffs.

Powell's assertion that the Fed lacks the authority to hold bitcoin and has no plans to pursue legislative changes in this regard contributed to a broader decline in crypto-related assets, including a significant drop in bitcoin.