Global Central Bank Divergence and US Federal Reserve Actions
Central banks worldwide are exhibiting divergent monetary actions compared to the US Federal Reserve.
Actions by Other Central Banks
- The European Central Bank cut interest rates in April, citing a deteriorating growth outlook due to rising trade tensions.
- The Reserve Bank of India also lowered interest rates around the same time.
- The Bank of England reduced its interest rates, following the trend of other central banks.
US Federal Reserve's Position
- The US Federal Reserve kept its rates unchanged in May for the third consecutive time, maintaining the federal funds rate at 4.25-4.5%.
- Fed Chairman Jerome Powell noted increased risks of unemployment and inflation.
- The US GDP contracted by 0.3% in the first quarter of 2025, with imports rising by 41.3% as consumers and firms anticipated tariffs.
Inflation and Labor Market
- Inflation remained stable between 2.5% and 3%, with the personal consumption expenditures price index at 2.3% in March.
- The labor market remains strong, with non-farm payrolls rising by 177,000 in April and unemployment steady at 4.2%.
Impact of Tariffs and Trade Deals
- US tariffs, particularly those announced by President Donald Trump, are larger than anticipated, potentially increasing inflation and unemployment.
- The economy's future depends on the resolution of trade deals and tariff adjustments.
- Trump announced a trade deal with the UK and ongoing negotiations for other deals, but remains firm on tariffs with China ahead of upcoming talks.
