Global Central Banks Shift Toward Caution in Rate Cuts

Major global central banks are increasingly adopting a cautious stance on interest-rate cuts, as uncertainty over inflation, growth, and geopolitics clouds the outlook. 

Key Highlights

• The Federal Reserve recently cut rates by 25 bps to 3.75%-4.00% but stressed that future cuts are not a given, citing elevated uncertainty.

• The European Central Bank and the Bank of Japan both held rates unchanged, signalling that the era of aggressive easing may be ending.

• Other banks, including the Swiss National Bank and the Bank of Canada, have flagged high inflation or weakening growth as reasons to move slowly.

Why It Matters

• A synchronised shift toward policy caution means global monetary support may be less robust than markets anticipate.

• Risk assets such as equities, commodities, and emerging-market currencies may face headwinds if markets were betting on a broad easing wave.

• The USD could gain if other major economies pull back on cuts, tightening global relative rates.

Outlook

Markets should monitor:

• The next round of central-bank communications for hints of future cuts or pauses.

• Inflation data and labour-market signals, which will shape policy momentum.

• Differences between markets’ expectations and policy-makers’ guidance — a gap here may trigger volatility.

As noted by Fed Chair Jerome Powell, “If you’re driving in the fog you slow down.” Markets appear to be doing the same.