ECB's Interest Rate Policy Warning, Trump Concerns in the U.S., Latest Developments from the Far East: What's Happening in Global Markets?
Central banks in Europe, the US, China, and Japan continue to shape global economic dynamics through changes in monetary policy. While members of the European Central Bank (ECB) discuss the limits of interest rate cuts in line with inflation and economic growth targets, the US Federal Reserve (Fed) is reviewing its interest rate decisions amid inflation concerns related to the policies of the Trump administration. In this process, the central banks of China and Japan are also taking flexible steps in monetary policy to support economic growth.
ECB and Warnings on Monetary Policy Members of the European Central Bank (ECB) Governing Council, Martins Kazaks and Robert Holzmann, have issued significant warnings regarding the institution's interest rate policies. Kazaks noted that the ECB could gradually reduce borrowing costs but emphasized that there is no need to lower rates to levels that would stimulate economic growth. The Latvian member highlighted that inflation has not fallen below 2% and that Europe faces risks from geopolitical conflicts and potential changes in the trade environment.
Holzmann stated that the purpose of the ECB's interest rate cut policies is not to revive the economy, but rather to ensure price stability. He pointed out that pursuing interest rate cuts for economic recovery would contradict the ECB's core stance.
Concerns in the US Regarding Trump and Fed's Monetary Policy Economists participating in a Financial Times survey predict that the Fed will be more cautious regarding interest rate cuts due to concerns that the Trump administration's policies will increase inflation. The surveyed economists agree that, by the end of 2025, the federal funds rate will be at 3.5% or higher. With a quarter-point reduction expected at next week's meeting, the Fed's policy rate would be between 4.25%-4.5%.
According to the previous FT-Chicago Booth survey, economists believed that interest rates would remain below 3.5% in September; however, recent survey results indicate that this expectation has changed. This situation signals that concerns over Trump’s inflationary policies have led to an increase in interest rate predictions.
Recent Developments in the Chinese and Japanese Economies An official from the People's Bank of China (PBOC) announced that there could be cuts to interest rates and reserve requirement ratios (RRR) next year. Wang Xin stated that the central bank may further reduce the amount of cash banks need to hold in reserves by easing its monetary policy. These developments suggest that financing conditions will be loosened further to support the real economy.
The Bank of Japan (BOJ) will address the issue of interest rate hikes at this week’s policy meeting. Experts argue that there is no urgency for this process despite an impending rate increase. Recent data suggests that, under President Kazuo Ueda, the likelihood of a surprise rate hike by the BOJ is considered low, though the possibility is not entirely ruled out.