Inflation Persists, Major Global Central Banks Face Policy Divisions and Challenges
Fed's Rate Cut Pace May Slow
As US President Trump is about to officially take office, uncertainty surrounding the Federal Reserve's future monetary policy is increasing. Although Fed Chair Powell emphasized that current policies would not change due to Trump's unimplemented new policies, the latest FOMC meeting minutes convey a more cautious signal.
The meeting minutes indicate that although the Fed has once again cut rates by 25 basis points and adjusted liquidity through balance sheet reduction, further rate cuts may be limited as inflation has not yet returned to the 2% target, and unemployment shows signs of rising. The market generally believes that the first phase of the Fed's rate cuts might have concluded, with the rate and pace of cuts in 2025 possibly slowing or even pausing, or potentially reverting to rate hikes.
Trump's Policies Intensify Inflation Expectations
Another important variable facing the Fed is Trump's policy plans. Adjustments in tariffs and tech competition could drive inflation, pressuring Fed monetary policy further. Additionally, global markets are wary of trade tensions potentially arising from a "Trump 2.0" government. Since October, the dollar has appreciated against major currencies, reflecting market uncertainties regarding Fed policies and the global economy.
ECB Internal Discord Intensifies
In the Eurozone, although the ECB continued a 25 basis point rate cut in December, internal disputes over the future direction of monetary policy are becoming increasingly apparent. ECB President Lagarde stated after the rate cut that there would be no further cuts in the short term. This indicates the ECB is attempting to manage market expectations while balancing economic stimulation with monetary stability.
Currently, the Eurozone faces structural issues such as sluggish economic growth, an aging population, and weak consumer demand. Although inflation targets have been temporarily achieved, new US tariff policies could present further challenges to the Eurozone.
US-EU Policy Differences May Lead to More Uncertainties
ECB Vice President Luis warns that new US tariffs could result in global economic fragmentation, counter to the principles of long-term trade cooperation. This external pressure will further complicate the Eurozone's monetary policy challenges. Moreover, if the Fed slows its rate cut pace, it could limit the ECB's policy space for easing, intensifying US-EU monetary policy divergences.
Global Central Banks Face Dual Objective Challenges
Both the Fed and the ECB face challenges in balancing inflation with goals of economic growth and employment. If global trade frictions intensify, central banks will have to navigate a more complex economic landscape. For the world's major economies, maintaining price stability while fostering economic growth will remain a core issue for future monetary policies.
