Many Central Banks Follow the Federal Reserve’s Lead This Week
Unexpected moves or a more pessimistic tone from any of these central banks could add further uncertainty to the markets.
Most central banks are holding off on adjustments until macroeconomic indicators reflect the impact of the U.S.-led trade war.
This week, early economic data from the U.S. will provide insight into the global economic landscape. Meanwhile, geopolitical uncertainty adds another layer of volatility, as NATO countries increase defense spending, prompting higher debt levels or adjustments to deficit limits.
Bank of Japan
The Bank of Japan (BoJ) will set the stage before the Fed’s decision. Japan’s inflation stands at 4%, with core inflation at 3.2%—its highest level since July 2023. Rising industrial prices and Q4 GDP growth suggest conditions for a tighter monetary policy.
However, BoJ is prioritizing yen stability against currencies like the U.S. dollar. Japanese bond yields are also hitting new highs, with 40-year debt reaching a historic 3% yield. Analysts expect the BoJ to maintain its 0.5% benchmark rate at least until the next meeting.
Bank of England
In the UK, inflation rose last month, potentially slowing the pace of future rate cuts. Still, analysts believe the ongoing tariff war is the dominant factor influencing central bank decisions, including at the BoE. The governor recently noted that Trump’s trade policies could have a significant impact.
Unexpected moves or a more pessimistic tone from any of these central banks could add further uncertainty to the markets. Surprises could come from the Fed, the BoJ, or the BoE, and if anything changes, it will likely be for the worse. Meanwhile, Tuesday’s talks between Putin and Trump are unlikely to yield anything constructive.
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