Central Banks Reassess Amid Trump’s Tariffs

By Yadarisa Shabong and Alun John

LONDON (Reuters) – U.S. President Donald Trump’s tariffs have darkened the global economic backdrop, forcing big central banks to reassess their next steps.

Policymakers outside the United States now look more likely to cut interest rates than they would have done otherwise – or in Japan’s case raise them less.

The U.S. Federal Reserve is in a tricky position. Here’s a look at where 10 developed-market central banks stand:

1. SWITZERLAND

The Swiss National Bank does not meet until June, but it will be fascinating as markets expect it to cut rates to zero from 0.25%. The SNB prefers not to go further and return to negative rates, but a surging Swiss franc is hurting its export-heavy economy and could push Switzerland into deflation. The franc is the best-performing developed market currency since Trump’s April 2 tariff announcement. The SNB’s other tool, intervening to weaken the franc, could provoke the Trump administration which claims currency manipulation was part of its tariff motivation.

2. CANADA

The Bank of Canada held rates at 2.75% on Wednesday – its first pause after seven consecutive cuts – seeking more information on the impact of tariffs. Governor Tiff Macklem noted that uncertainty complicates economic predictions, stating: “Forecasts for economic growth are of little use as a guide to anything.” Nevertheless, traders anticipate potentially two more cuts by year-end.

3. NEW ZEALAND

The Reserve Bank of New Zealand cut its key rate by 25 basis points to 3.5% last week, marking a total of 200 bps of easing since August. New Zealand’s reliance on China exposes it to risks from a prolonged China-U.S. trade war. Markets expect about three more cuts this year, even though data showed higher-than-expected inflation.

4. SWEDEN

Sweden maintained rates at 2.25% in March and expects to keep them steady for now. Its Riksbank had previously eased rates from 4% to help a sluggish economy, but markets agree that further cuts seem unlikely.

5. EURO ZONE

The European Central Bank (ECB) cut interest rates for the seventh time in a year on Thursday, signaling that more easing could follow. It stated that the growth outlook has declined due to rising trade tensions, and volatile market responses are likely to tighten financial conditions. The ECB’s key rate is currently 2.25%, with markets anticipating two or three more 25 bps cuts this year.

6. UNITED STATES

The Fed faces a dilemma, expecting tariffs to lower economic growth while pushing inflation higher. Consequently, the Fed remains in a wait-and-see mode; Chair Jerome Powell stated on Wednesday that markets expect rates to be held steady in May before potential cuts resume later. The Fed has maintained rates all year after cutting by 100 bps in 2024. Until Trump paused some “reciprocal” tariffs last week, traders anticipated a cut next month to support growth. Complicating matters, Trump criticized Powell by stating that his termination “cannot come fast enough,” urging the U.S. central bank to cut rates.

7. BRITAIN

Markets predict an over 80% chance of a quarter-point rate cut by the Bank of England (BoE) in May, expecting it to continue with a roughly one-cut-a-quarter pace for the rest of 2025. The BoE’s pace of cuts has been slower than many peers due to inflation expectations. However, March’s unexpected cooler print should provide confidence for a cut next month.

8. AUSTRALIA

Australia initiated easing in February, but markets now anticipate greater urgency, with a chance of a larger 50 bps move in May and nearly 125 bps of cuts this year. Its economy is sensitive to China-U.S. trade tensions, given that China is Australia’s biggest trading partner, leading to increased expectations for rate cuts as tensions escalate.

9. NORWAY

Norway’s central bank held rates at a 17-year high of 4.50% last month due to an unexpected resurgence of inflation, causing policymakers to delay earlier plans for a cut. Yet, markets expect a cut in June, with more to follow.

10. JAPAN

The Bank of Japan (BOJ) remains the developed-market outlier as it is in hiking mode, despite complications from tariffs. Governor Kazuo Ueda indicated that the BOJ may need to adjust if tariffs negatively impact the economy, signaling a potential pause in its cautious rate-hiking cycle, which has increased rates to 0.5%. However, actions may provoke a reversal or halt in recent yen appreciation, potentially inciting Trump. Japanese officials are concerned that the slow pace of rate hikes from ultra-low levels might face scrutiny during trade negotiations, even if it was not a topic during the first round of talks.