Even before taking office, Donald Trump is casting a long shadow over the global economy. Central banks across the world, from the U.S. Federal Reserve to the Bank of Japan, are grappling with the uncertainty of Trump’s proposed policies, which include tariffs, tax cuts, and immigration restrictions, as the world braces for his return to the White House.
Fed Signals Unease, Markets Recoil
The U.S. Federal Reserve, as expected, cut interest rates on Wednesday, but Chair Jerome Powell’s cautious tone about future rate decisions jolted markets. Stocks tumbled as Powell warned that persistent inflation and the economic unknowns tied to Trump’s policies warranted a slower pace of easing.
“Some people did take a very preliminary step and start to incorporate highly conditional estimates of economic effects of policies into their forecasts at this meeting,” Powell said, referencing Trump’s proposed fiscal and trade measures.
The Fed revised growth estimates upward for 2024, reflecting the anticipated impact of Trump’s economic agenda, but also predicted higher inflation. As a result, markets now expect just one more rate cut in 2025, a significant recalibration from earlier projections.
Global Central Banks on Edge
Across the Atlantic, the Bank of England (BoE) held its rate steady at 4.75% on Thursday but echoed the Fed’s hesitancy. Governor Andrew Bailey warned of heightened economic uncertainty, saying: “We can’t commit to when or by how much we will cut rates in the coming year.”
In Asia, the Bank of Japan (BOJ) maintained its ultra-low interest rates amid concerns about Trump’s trade policies. BOJ Governor Kazuo Ueda said, “There’s uncertainty over the policies of the incoming U.S. administration, so we need to scrutinize the impact more carefully.”
Norway’s central bank, which held its policy rate at a 16-year high, also pointed to the potential fallout from a U.S.-China trade war, while Sweden’s Riksbank trimmed rates but flagged caution about further cuts in early 2025.
Trump’s Policies Stir Global Concerns
The specter of a Trump-led U.S. has rattled policymakers worldwide. European Central Bank President Christine Lagarde underscored the risks to growth from looming U.S. trade tensions, while Canada faced political upheaval as Finance Minister Chrystia Freeland resigned after clashing with Prime Minister Justin Trudeau over handling potential Trump tariffs.
Trump’s warning of a 25% tariff on imports from Canada and Mexico unless stricter measures are implemented to curb migration and fentanyl flows has raised alarms. Freeland called the threat a “grave danger” and urged Ottawa to prioritize fiscal discipline in anticipation of a tariff war.
Crypto Takes a Hit
Trump’s floated idea of creating a strategic bitcoin reserve sent ripples through the crypto market. However, Powell dealt a blow to crypto enthusiasts, clarifying that the Fed lacks legal authority to hold bitcoin and has no plans to seek such powers. Bitcoin dropped 5% following the remarks, its largest slide in three months, dragging other crypto assets with it.
A World on Edge
From trade tensions to monetary policy, Trump’s potential return to power is already reshaping the global economic outlook. Central banks are recalibrating strategies, governments are bracing for confrontations, and markets are reacting to every hint of his policy plans. As 2024 unfolds, the world’s financial system appears increasingly tethered to the uncertainty surrounding Trump’s economic vision.