Fed Drives Global Push to Cut Rates Despite Questions Over 2025

Bloomberg News
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(Bloomberg) -- With the last traces of the global inflation shock fading, the shift toward lower borrowing costs is about to maintain momentum as economies tread toward a new year fraught with unknowns.

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Now that the US Federal Reserve has joined rich-world peers with its own initial interest-rate cut, lingering worries about consumer prices are increasingly poised to give way to concerns about growth around the world, according to Bloomberg Economics.

Its aggregate gauge of advanced-economy borrowing costs shows a decline of almost 40 basis points between now and the end of the year, and a further drop totaling more than double that amount by the time 2025 is out.

While the Fed will now take charge of the global easing push, the shift lower is likely to be widespread, with most of the rest of the Group of Seven staying on board, and even holdouts such as Norway and Australia likely to join in, in due course.

But unanswered questions are haunting the outlook, with the US election in November key among them. It’s hard to guess just how different Donald Trump taking office in January might be from Kamala Harris, but — fully implemented — his policies on tax, tariffs and immigration would have major implications for the US economy — and so also for the Fed.

Whatever happens, a sustained period of central bank activism, in contrast to the recent hiatus of higher-for-longer rates, is likely to take hold.

Out of 23 institutions focused on here, just three are anticipated to leave borrowing costs unchanged over the coming three months, and every one of them is forecast to tweak them in some way by the end of 2025.

And while monetary easing is the prevailing theme, some countries are likely to see tightening instead — not least with Japan seen hiking its rate again, and Brazil doing so too.

What Bloomberg Economics Says:

“The Fed’s half-point move and the PBOC’s surprise stimulus mean the narrative on central banks has shifted from inflation-crushing hikes to market-boosting cuts. The BOJ heading in the other direction — and all that means for the yen carry trade — is a major cross current. The second may come from the US election. If delivered, Trump’s campaign pledges on taxes, tariffs, and deportations would shift the trajectory for the economy, and force the Fed into another course correction.”

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