Global Economic Policy Shaped by Trump’s Imminent Presidency

By Dan Burns and Howard Schneider

Overview

The forthcoming arrival of Donald Trump in the White House is impacting global economic policy. The U.S. Federal Reserve has indicated fewer interest rate cuts, while other central banks also exhibit caution regarding their rate strategies.

On Wednesday, the Fed cut rates as expected but expressed that the incoming Trump administration triggers caution. This sentiment was similarly echoed by central banks in London, Tokyo, and Frankfurt.

Fed Chair Jerome Powell noted that some officials were beginning to factor in the economic impacts of Trump’s proposed tariffs, tax cuts, and immigration policies into their forecasts. This led to upward adjustments in growth and inflation expectations for 2025.

Despite the Fed’s rate cut, Powell’s cautious tone caused a decline in stock prices, with only one rate cut anticipated for 2025.

Global Responses

The Bank of England maintained its interest rate at 4.75% and emphasized a need for a cautious approach due to economic uncertainties. BoE Governor Andrew Bailey stated they could not predict the timing or scale of future cuts.

The Bank of Japan also kept interest rates low, highlighting uncertainties stemming from Trump’s policies that could impact Japan’s export-dependent economy. BOJ Governor Kazuo Ueda indicated that Trump’s trade and fiscal strategies would significantly affect global markets.

A Reuters survey indicated that 75% of Japanese businesses anticipate Trump’s presidency will negatively impact their operations.

The Norwegian central bank held its interest rate steady at a 16-year high of 4.50% as it warned of potential trade war outcomes. Meanwhile, Sweden’s central bank cut its rate to 2.50% but indicated a more cautious outlook for future cuts.

In Central Europe, the Czech National Bank paused its ongoing rate cuts due to inflation pressures.

Uncertainty in the U.S. Economy

Trump’s recent actions, including pressuring Congress to reject a funding bill, further cloud the U.S. economic outlook. Recent weeks have seen both the European Central Bank and the Bank of Canada lowering their rates, with expectations for further easing amid a dim outlook.

ECB President Christine Lagarde highlighted various downside risks to growth, particularly regarding trade tensions with the U.S.

In Canada, Trump’s influence was significant enough to contribute to Minister Chrystia Freeland’s resignation after a disagreement with Prime Minister Justin Trudeau over tariff responses.

Moreover, Trump’s proposal for a strategic reserve of bitcoin faced challenges as Powell confirmed that the Fed lacks legal authority to hold bitcoin, resulting in a notable drop in crypto-related assets, including a 5% decline in bitcoin prices—the largest drop in over three months.