The Federal Reserve and three of the central banks that just backed their president are poised to keep interest rates unchanged at a tense time for global policymakers.
On Wednesday, at the end of a two-day meeting, officials in Washington are expected to ignore US President Donald Trump’s calls for lower borrowing costs. Brazil, Canada and Sweden can also maintain current interest rates.
These last three were among more than a dozen, including the Bank of England and the European Central Bank, whose presidents spoke out in “full solidarity” with Jerome Powell, supporting independence at a time when the government in Washington is increasing pressure on him and his colleagues.
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In addition to Trump’s frequent complaints about the Fed’s reluctance to cut interest rates, the central bank now faces grand jury subpoenas that threaten criminal indictments, while the Supreme Court heard arguments Wednesday over whether the president can fire Gov. Lisa Cook.
Furthermore, all central banks operate in a tense global context, as evidenced by the recent sharp market decline in Japan, persistent investor concern about Trump’s plans for Greenland, and his incessant threats of further trade disruptions.
“We are in a more shock-prone world,” Kristalina Georgieva, managing director of the International Monetary Fund, said Friday during the closing session of the World Economic Forum in Davos. “We’re not in Kansas anymore.”
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“We believe that the majority of FOMC participants can cite data to justify holding interest rates at the meeting. This degree of unity would be seen as a vote of support for Powell, who has been the target of heavy criticism from the White House. The most interesting figures to watch are Board of Governors members Christopher Waller and Michelle Bowman: if they vote with the majority to hold rates, they will be signaling to Trump that they are on Powell’s side — including on the Fed’s independence. We expect Waller to vote with the majority, but that Bowman vote against”, say economists at Bloomberg Economics.
While policymakers are focused on the potential growth risks posed by tariffs, they are also mindful of potential inflationary pressures in the current environment.
18 central banks around the world have decisions scheduled for next week. Unlike the Fed, its peers in Africa, which are facing a different phase of the economic cycle, may announce a wave of monetary easing.
