The Federal Reserve and three of the central banks that had just backed its chairman are poised to keep interest rates unchanged at a tense moment for global policymakers.
On Wednesday, at the conclusion of a two-day meeting, authorities in Washington are expected to ignore the pleas from U.S. President Donald Trump for lower borrowing costs. Brazil, Canada, and Sweden could also hold their rates steady.
These three were among more than a dozen, including the Bank of England and the European Central Bank, whose presidents voiced “total 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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Besides Trump’s frequent complaints about the Fed’s reluctance to cut rates, the central bank now faces subpoenas from a grand jury that threatens criminal indictments, while the Supreme Court heard arguments on Wednesday about whether the president can dismiss Governor Lisa Cook.
Moreover, all central banks operate in a tense global backdrop, as evidenced by Japan’s recent sharp market decline, investors’ persistent concern about Trump’s plans for Greenland, and his incessant threats of new trade disruptions.
“We are in a world more prone to shocks,” said Kristalina Georgieva, managing director of the International Monetary Fund, on Friday during the closing session of the World Economic Forum in Davos. “We are no longer in Kansas.”
“We believe that most FOMC participants can cite data to justify keeping rates unchanged at the meeting. This degree of unity would be seen as a vote of support for Powell, who has been the target of strong criticism from the White House. The most interesting figures to watch are the members of the Board of Governors, 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 regarding the Fed’s independence. We expect Waller to vote with the majority, but Bowman to vote against,” say Bloomberg Economics economists.
While policymakers are focused on the potential growth risks posed by tariffs, they are also watching for possible inflationary pressures in the current environment.
Eighteen central banks around the world have decisions scheduled for next week. Unlike the Fed, their peers in Africa, which are facing a different phase of the economic cycle, may announce a wave of monetary easing.
James Whitmore