US Fed will keep Trump waiting amid wave of global rate cuts
NEW YORK – Mr Donald Trump is struggling to get the US Federal Reserve to cut interest rates, but policymakers around the world will not need so much convincing.
The US President’s tariff onslaught is likely to force further measured easing in coming months by most of the 23 central banks featured in this quarterly guide to the global monetary outlook, according to Bloomberg Economics (BE).
Its aggregate measure of advanced-economy rates will drop by more than 70 basis points in 2025, while a similar gauge for borrowing costs throughout the wider world is projected to fall by even more.
The broad direction of travel for policy reflects the view among many monetary officials that Mr Trump’s attempt to repatriate manufacturing and rewire commerce, if enduring, may be more of a danger to growth rather than posing a threat to consumer prices.
“On inflation, cooling demand and falling energy prices point to a continued decline, albeit with variation across countries,” the International Monetary Fund’s No. 2 official, Dr Gita Gopinath, said last week after a meeting of Group of 20 finance chiefs. “Downside risks continue to dominate the outlook and uncertainty remains high.”
For the US, worries about the consumer-price fallout from a tariff-induced jack-up in import costs may stoke ongoing worries at the Fed. BE predicts its policymakers will resist Mr Trump’s pressure to reduce rates until circumstances finally allow a single quarter-point move in the fourth quarter.
Peers in the euro zone, Britain and Canada are all seen delivering two more cuts of that size in 2025. Among the few exceptions to the easing push are Japan, which may raise once more, while Brazil probably stays on hold.
Bloomberg Economics global chief economist Tom Orlik said: “For the US, the impact of tariffs is complex. Higher import prices threaten rising inflation and falling growth. We expect that tension to keep the Fed from lowering rates till late 2025 – despite Trump’s calls for easy money. For the rest of the world, the impact is straightforward. More tariffs mean weaker growth, lower inflation, and so more cuts.”
A lot of what happens in coming months will depend on whatever trade deals emerge, alongside Trump’s capacity to surprise, testing investors and forecasters alike. His actions toward the Fed, for example, are just one potential source of jolts to financial markets that could impact rate-setting.
Given that proviso, here are BE’s best guesses for how monetary policy will pan out in the rest of 2025 for the world’s major central banks:
Money markets fully price in one quarter point Fed rate cut in 2025, coming by October, with an around 80 per cent chance of a second.
In the US, the short-term monetary policy debate has narrowed in recent weeks, focusing almost exclusively around how much tariffs will drive inflation.
Two officials – Fed governors Christopher Waller and Michelle Bowman – have said they believe the hit to prices will be temporary, and so suggest a rate cut might be appropriate when policymakers gather July 29-30 in Washington. The rest of their colleagues are – to varying degrees – more cautious, worried by the risk of a persistent impact on inflation. Seven of the 19 expect no rate cuts at all this year.
Yet so far, inflation data has been mixed. June consumer prices showed a long-awaited pass-through of tariffs for some goods, but the impact was still modest, offering something to support officials on all sides of the debate. Barring a surprise, it looks likely that policymakers will hold rates again this month but may cut at their mid-September meeting.
In the meantime, Mr Trump’s demands for lower rates and personal attacks on chairman Jerome Powell have entered a new, more aggressive phase, all while the White House begins evaluating candidates to succeed Mr Powell, whose term as chair expires in May. Mr Trump has pledged to pick someone who will cut rates, raising the prospect that the new chair will lack credibility with investors and other Fed officials from day one.
Bloomberg Economics analyst Anna Wong said: “Even though inflation prints had been surprisingly soft in 1H 2025, Fed officials continue to be uneasy about tariff-driven price pressures. With activity data solid, the FOMC also sees no urgency to cut rates and prefers to wait to see more inflation prints data over the summer. As a result, we expect just one Fed rate cut this year – likely in 4Q – less than the almost two cuts priced in by markets.”
Traders are wagering one more quarter-point cut by the ECB in 2025 is likely, coming in December.
The ECB is relatively comfortable with the results of its inflation-fighting efforts. Prices are now rising at the pace it targets and rates are at that same level. Most say the ECB is well placed to handle whatever challenges may arise – most likely on trade as Europe and the US look to hash out a final deal that would avoid the worst of MrTrump’s tariff threats.
Among the biggest worries is that the euro zone’s lackluster economy makes the undershoot in inflation that ECB economists predict for 2026 more permanent. A worsening of such fears would favour further monetary easing, though opponents fret about the inflationary power of higher public spending on defense and infrastructure.
Bloomberg Economics analyst David Powell said: “The rise in US tariffs on exports from the EU, especially the levies on pharmaceutical goods threated by Trump, will have a dampening effect on the euro-area economy and create another disinflationary impulse. The ECB will probably respond by lowering rates again by 25 basis points in September and by the same amount in December, bringing the deposit rate to 1. per cent. That should mark the end of the cycle.”
Markets see a BOJ rate hike as more likely than not, pricing a 65 per cent chance of a quarter-point increase by the end of the year.
BOJ governor Kazuo Ueda is broadly expected to keep his wait-and-see stance this quarter before raising the benchmark rate in later months.
Mr Ueda has flagged “extremely” high uncertainty stemming from Mr Trump’s tariff measures, and has made it clear that he wants to confirm their economic impacts in hard data, not just through anecdotal evidence.
The results of the upper house election on Sunday give another reason for the BOJ to pause for now, as traders digest implications for the economy and financial markets. With inflation remaining elevated, Prime Minister Shigeru Ishiba’s minority government has struggled to garner support.
With another rate hike widely expected to take place in the fourth quarter or early 2026, observers will be closely watching signs from the BOJ on its rate path and how clouds hanging over Japan’s economy could be cleared.
Bloomberg Economics analyst Taro Kimura said: “We’ve pushed our BOJ rate hike call to October from July. The political and market backdrop is proving less conducive to paring stimulus than we expected. Inflation still looks set to stay well above 2 per cent, supported by wage gains and rising price expectations. But stalled US-Japan trade talks and surging JGB yields – fanned by fiscal concerns as the political debate turns to budget policy to battle the cost of living crunch – have created too much uncertainty for the BOJ to act now.” BLOOMBERG