Central bank scanner: Trade policies impact central banks

European Central Bank (ECB):

• Recent Action (September 11): No change to the policy rate. Policymakers assessed that risks were evenly balanced between labor market conditions and inflation. Despite increasing rates throughout the euro area and ongoing political uncertainty in France, the ECB chose not to address potential bond market interventions.
• Upcoming (October 30): No further rate cuts are forecast. The cutting cycle has likely come to an end barring unexpected changes to trade and inflation. The latter show signs of moving higher.

Federal Reserve (Fed):

• Recent Action (September 17): The Fed cut 25 basis points in an 11-1 vote. The Federal Open Market Committee judged that downside risks to the labor market outweighed upside risks to inflation. Seven of nineteen members expect no further cuts this year, but rising long-term unemployment and shrinking job openings, among other weakening labor market indicators, make additional rate cuts more likely.
• Upcoming (October 29): Fed Chair Powell’s recent remarks suggest that interest rate cuts remain possible in October and December, alongside potential adjustments to the Fed’s balance sheet. Powell also indicated a more cautious approach for 2026. Early next year, the Fed is likely to pause its policy easing and halt the runoff of Treasury bonds from its balance sheet—a move intended to maintain liquidity in the fed funds market and prevent disruptions like those seen in 2019. As a result, the Fed’s balance sheet will stay larger than its pre-2008 levels. We expect more aggressive monetary easing in the latter half of 2026, which could heighten inflation risks. Future policy decisions may depend on whether the administration replaces Powell when his term ends in May, though it remains unclear if the White House can remove Board members. The ongoing government shutdown complicates matters, contributing to short-term economic weakness and depriving the Fed of critical data—some of which may be lost entirely this October.

Bank of Canada (BOC):

• Recent Action (September 17): The BOC cut 25 basis points. The labor market weakened with the unemployment rate reaching 7.1%, the highest since August 2021.
• Upcoming (October 29): One more rate cut appears likely this year, but it is not guaranteed. Growth remains subdued due to US imposed trade restrictions and threats.

Central Bank of Brazil:

• Recent Action (September 17): No change to the policy rate. Growth has been soft, but the labor market is strong—sending a conflicting signal. Fiscal stimulus has supported consumer spending, despite restrictive monetary policy.
• Upcoming (November 5): The CBB is forecast to cut rates in late 2025 or early 2026 from the current elevated level of 15%. The central bank does not want to relive its last episode when cutting rates too early contributed to a resurgence of inflation. The bank is fiercely independent, which is a major shift from the past, when its easing supercharged bouts of inflation.

Bank of Japan (BOJ):

• Recent Action (September 18): No change to the policy rate. A new government, a trade deal with the US and subsequent effects of tariffs on corporate profits and wage increases (and inflation) make a tricky puzzle for policymakers.
• Upcoming (October 29): The next rate cut is expected in early 2026. New government leadership with a bias towards a lower rate environment increasing the likelihood of a cut at the October meeting.

Reserve Bank of India (RBI):

• Recent Action (September 30): No change to the policy rate. Inflation remains in the central bank’s target range; growth decelerated in the second quarter.
• Upcoming (December 5): The RBI is forecast to cut rates at least once more through the early part of 2026. That will provide a buffer from the effects of US tariffs. A beneficial trade deal would decrease the likelihood of further cuts. Purchasing managers’ indexes have already softened across the board.

Bank of England (BOE):

• Recent Action (September 18): No change to the policy rate in a 7-2 vote. The dissents favored a 25-basis point cut. The Monetary Policy Committee (MPC) voted to slow the pace of its balance sheet reduction to relieve pressure on gilt yields.
• Upcoming (November 6): A 25-basis point cut is expected over the next several months. The 10-year gilt yield has declined 15 basis points since the announcement to reduce gilt holdings.

Bank of Mexico (Banxico):

• Recent Action (September 25): Banxico cut 25 basis points in a 4-1 decision. Slowing growth and trade policy shifts were the drivers to cut though price pressures persist.
• Upcoming (November 6): Another rate cut is expected by year-end. Banxico will be watching the Fed and downside risks to growth from US trade policy.

Reserve Bank of Australia (RBA):

• Recent Action (September 29): No change to the policy rate. Price pressure early in the third quarter gave the RBA pause. Weak consumer sentiment and soft employment were raised as yellow flags.
• Upcoming (November 4): The RBA is forecast to cut 25 basis points in 2025 and another 25 in 2026. The central bank is gauging the level of restrictiveness of policy before taking additional steps.

People’s Bank of China (PBOC):

• Recent Action (September 21): No change to the policy rate. Growth has been slowing since late 2024 but it has held up better than expected.
• Upcoming (October 20): The PBOC is forecast to cut rates later this year, gradually. Escalating tensions with the US may prompt the PBOC to cut rates. Policymakers are concerned that cutting too much would exacerbate overcapacity issues.

Central Bank of Turkey (CBRT):

• Recent Action (September 11): The CBRT cut 250 basis points. Annual inflation has receded from a scorching hot 75.5% in May 2024 to 33.3% in September 2025. That gave the central bank room for the cut. However, hawkish forward guidance indicates that the CBRT is prepared to tighten if inflation pulls a U-turn and heads higher again.
• Upcoming (October 23): The CBRT is forecast to cut rates again before year-end. The size of the cut is up in the air, but likely more than 150 basis points. The central bank is navigating from a peak policy rate of 50% in mid- to late-2024, which was necessitated in part by weak central bank independence leading to rampant inflation.

Central banks are not all moving in sync, despite the pivot toward rate cuts by the Federal Reserve. The European Central Bank appears to have finished its rate-cutting cycle, the Fed has resumed cautious cuts while the Central Bank of Brazil is standing pat for now. Ballooning government debt and the ongoing evolution of US trade policy are muddying the waters for central banks, including the Fed. Adding insult to injury is the federal shutdown in the US, which has sidelined key data on the US economy. That has ripple effects around the world, given the outsized role the US plays in the global economy.  Some data could be lost entirely. The result has left central banks treading with more caution than certitude on their policy decisions.