Central bank scanner: Fed weighs joining rate cutting cycle

European Central Bank (ECB):

• Recent Action (July 24): No change to the policy rate. Headline inflation is at the 2% target; however, services inflation remains elevated. Stronger-than-expected GDP growth, led by pharmaceutical exports from Ireland provided some buffer for the ECB.
• Upcoming (September 11): No further rate cuts are forecast. The ECB struck a hawkish tone following the July meeting, indicating rates changes paused pending changes in the trajectory of inflation and trade.

Federal Reserve (Fed):

• Recent Action (July 30): No change to the policy rate. For the first time in 30 years two governors dissented citing concerns over labor market cracks and slowing growth.
• Upcoming (September 17): The Fed is forecast to cut twice by year-end and get more aggressive on rate cuts in 2026. We could end 2026 with the Fed funds rate below its estimate of neutral (2.75%-3.0% in June 2025). The Fed is weighing whether the neutral rate has fallen since the start of 2025, which is shifting the terminal point on rates along with potential changes to Fed leadership.

Bank of Canada (BOC):

• Recent Action (July 30): No change to the policy rate. Resilient retail sales and consumer confidence provided a buffer for no rate cut even as the recovering economy faces tariffs.
• Upcoming (September 17): No further rate cuts are forecast this year. Trade tensions with the US are expected to push unemployment and inflation up by year-end. The BOC is waiting to see more clarity on trade tensions before deciding its next move.

Central Bank of Brazil:

• Recent Action (July 30): No change to the policy rate. Inflation has been above the central bank’s target for nine straight months but down from March and April levels.
• Upcoming (September 17): The CBB is forecast to cut rates in 2026 from an elevated 15% in 2025. Fiscal stimulus has kept consumer spending resilient, despite restrictive monetary policy.

Bank of Japan (BOJ):

• Recent Action (July 30): No change to the policy rate. Headline inflation continues to climb, while core inflation is below target. Economic growth has not collapsed but is weak; exports contracted at their fastest pace since early 2021 in July.
• Upcoming (September 18): The next hike in rates is forecast in early 2026. Skyrocketing bond yields, exacerbated by fiscal dominance, keeps the BOJ on hold in the back half of 2025.

Reserve Bank of India (RBI):

• Recent Action (August 5): No change to the policy rate in a unanimous decision. The monetary policy committee did not seem concerned with the impact of the 50% tariff on exports to the US.
• Upcoming (September 30): We forecast no further rate cuts. The RBI previously signaled there would be no further cuts after the last 50 basis point bumper cut; however, unexpectedly soft inflation has raised the probability that the RBI will have to cut again.

Bank of England (BOE):

• Recent Action (August 7): The BOE cut 25 basis points. The Monetary Policy Committee (MPC) voted 5-4 to cut, which cast the cut as hawkish. A recent move up in inflation could slow the pace of future cuts – healthy tourism is boosting costs.
• Upcoming (September 18): The BOE is forecast to cut 25 basis points at this meeting and an additional 50 basis points by year-end. The MPC’s revised forward guidance reflects concern that lower rates may no longer be restrictive. The MPC is becoming more divided and concerned about additional progress on inflation. 

Bank of Mexico (Banxico):

• Recent Action (August 7): Banxico cut 25 basis points in a 4-1 vote. GDP exceeded expectations in the second quarter, providing some breathing room.
• Upcoming (September 25): Banxico is forecast to cut several more times this year, including at this meeting. Annual core inflation accelerated in June, giving reason for caution.

Reserve Bank of Australia (RBA):

• Recent Action (August 11): The RBA cut 25 basis points. Inflation neared the midpoint of the RBA’s inflation target, while the unemployment rate rose.
• Upcoming (September 29): The RBA is forecast to cut 25 basis points in 2025 and another 25 basis points in 2026. Lackluster economic performance will drive the RBA to stimulate.

People’s Bank of China (PBOC):

• Recent Action (August 19): No change to the policy rate. Since post-pandemic inflation has not been an issue for China; the PBOC has been cutting rates to stimulate soft domestic demand.
• Upcoming (September 19): The PBOC is forecast to cut rates later this year, albeit gradually. Deflation has caused high real borrowing costs. Policymakers posited that additional monetary easing may worsen overcapacity issues via cheap credit.

Changes in trade policy left the Fed lagging many of its peers when it comes to rate cuts and could put additional tension on its dual mandate by year-end. Rate cuts are coming but the Fed remains reluctant to make outsized moves due to its own assessment that the risks to both inflation and unemployment are to the upside. Central banks on the other side of trade tensions have largely eased monetary policy. The central banks of Japan and Brazil are notable exceptions.

Rising sovereign debt burdens are further complicating the calculus on rate cuts as investors demand compensation to lend long-term. That could limit the transmission of monetary stimulus, as a floor could form under long-term debt instruments.