Global Central Banks Slash Rates Amid Trump’s Return
A wave of drastic interest rate cuts is sweeping across Europe and beyond, as central banks brace for potential economic turmoil following Donald Trump’s return to the White House. Policymakers in Frankfurt, Bern, and Copenhagen all took decisive action this week, signaling a clear shift towards accommodative monetary policy.
The most dramatic move came from the Swiss National Bank (SNB), which unexpectedly slashed it’s interest rate by a full half-point to 0.5%. This marks the lowest level since September 2022, effectively reversing nearly eight years of sub-zero monetary policy.The European Central Bank (ECB) followed suit, reducing its rate by a quarter-point to a one-and-a-half-year low. ECB President Christine Lagarde stated, “the direction of travel currently is very clear.”
Sources familiar with the matter suggest similar quarter-point cuts are likely in January and March. This coordinated easing reflects a growing concern among policymakers that economic growth could falter and inflation could remain stubbornly low, outweighing lingering worries about price pressures.
Allianz chief economist Ludovic Subran succinctly summarized the situation: “For the moment, there’s only one way for European rates – down. The real question is: How far this will go?” He added, concerning the ECB, “I think there is a risk that the ECB may be forced to cut rates faster and more than anticipated now.”
The anxiety surrounding Trump’s return is not limited to Europe. Canada’s central bank, mindful of the potential for increased trade tariffs from its southern neighbor, also implemented a half-point rate cut earlier this week. Similarly, Brazil’s central bank made a 100 basis point adjustment, reacting to recent currency volatility and Trump’s threats regarding the dollar’s dominance within the BRICS nations.
The SNB’s move was particularly driven by concerns about franc speculation.The franc, often viewed as a safe haven during times of geopolitical uncertainty, is attracting increased investor interest, prompting the SNB to act preemptively.
The ECB’s statement now explicitly reflects a less restrictive approach to monetary policy. The bank also considerably lowered its growth projections for 2024-2026. The new forecast anticipates eurozone growth of just 1.1% in 2025, down from a previous estimate of 1.3%. Lagarde emphasized that risks to the outlook are “to the downside.”
economists Nick Kounis, Jan-Paul van de Kerke, and Bill Diviney at ABN Amro noted in a recent report, “Tariffs will ultimately prove to be a disinflationary shock for the eurozone. This should see inflation undershooting the target over the medium term, which would require an accommodative monetary-policy stance.”
With the ECB’s deposit rate currently at 3% after three previous reductions, investors anticipate further easing, potentially reaching around 1.75% by the second half of 2025. Though, even this may prove insufficient, according to Pimco portfolio manager Konstantin Veit, who believes “growth will continue to turn out weaker than what the ECB anticipates.”
Global Economic Outlook: A Cautious 2025 Forecast
The global economic landscape is painted with shades of uncertainty as experts predict a slower-than-expected recovery in 2025. Concerns are mounting across continents, prompting cautious forecasts from leading financial institutions and central bank officials.
Adding to the apprehension, a recent report highlighted the potential for markets to adjust to lower interest rates. as one analyst noted, “We expect, and see potential for markets to price lower terminal rates,” indicating a belief that interest rates may not rise as quickly as previously anticipated.
The situation in Europe is particularly concerning. European Central Bank governing council member Madis Muller expressed reservations about a swift economic rebound.In an interview with Vikerraadio on Friday, Muller stated, “a gradual improvement of the economic situation could take place in the whole of Europe, but no one is directly expecting a very powerful growth spurt or economic boom.” This sentiment underscores a widespread concern about the pace of European recovery.
Despite the anxieties surrounding 2025, there’s a glimmer of hope on the horizon. The upcoming change in management in the United States is expected to bring some clarity to the global economic picture. The incoming administration’s policies and actions could significantly impact international markets and influence the trajectory of the global economy.
international Monetary fund Managing Director Christine Lagarde expressed optimism about the potential for increased clarity in the coming months. “A lot is going to be clarified, we hope, in the next few months,” Lagarde told reporters, suggesting that the uncertainty surrounding future economic policies may soon dissipate.
Looking ahead, central banks are expected to continue their efforts to stimulate economic growth. Further interest rate reductions are anticipated, with predictions of additional cuts from certain institutions. One forecast anticipates the Swiss National Bank (SNB) will lower its rate to 0.25% in March. “We still expect further easing will be needed as other central banks continue to reduce rates. We expect the SNB to deliver another cut in March, taking the rate to 0.25%,” a source stated.
The coming months will be critical in determining the accuracy of these forecasts. The interplay of global events, policy decisions, and market reactions will shape the economic landscape of 2025 and beyond. the world watches with bated breath, hoping for a more optimistic outlook to emerge from the current uncertainty.
