Global central banks are closely watching the dark clouds of the trade war, preparing for a large-scale interest rate cut.

Bloomberg predicts that most global central banks will be preparing to cut interest rates in the coming months to cushion the impact of US President Trump's trade war on their economies. Despite ongoing changes in implementation, Trump's tariff policies have already dampened economic growth prospects around the world and increased the risk of economic recession in the US. The World Trade Organization (WTO) has forecasted a decline in international trade this year, and the International Monetary Fund (IMF) is expected to lower its forecasts this week. Based on major central banks, looking ahead to global central bank monetary policy prospects in this context, Bloomberg Economics believes that most global policymakers are prepared to lower borrowing costs to mitigate the worst impacts, although they are cautious about it. The forecasting agency expects a comprehensive measure of interest rates in developed economies to decline by about 50 basis points by the end of this year. Regardless of how monetary policies around the world evolve, the current visibility of policy prospects is astonishingly low, with Trump's erratic ideas exacerbating the situation. For example, the reason for caution in easing policies is the need to guard against inflationary pressures, which could come from either the last surge in consumer prices or the current crisis. In contrast, the US Federal Reserve faces bigger challenges there. The tariffs imposed by the White House may automatically raise prices for US consumers - Fed Chairman Powell promised in a speech last Wednesday to closely monitor inflation shocks. This risk is also why the institution anticipates that the US will not significantly ease its monetary policy. Central banks worldwide will closely monitor retaliatory measures and escalations in the trade war to assess the threat of inflation reemerging in their economies. ECB President Lagarde stated last week that any price impact "will only become clearer over time." In addition, amidst doubts about US decision-making, exchange rate fluctuations brought about by a weaker dollar could pose additional challenges for countries like Switzerland. Federal Reserve The current federal funds rate ceiling is 4.5%, with Bloomberg Economics forecasting it to be 4.25% by the end of 2025. In terms of market pricing, the currency market fully reflects the situation of three 25-basis point rate cuts this year, with a 60% probability of a fourth rate cut. Swap traders believe there is a 70% chance of a 25-basis point rate cut in June, the first cut of the year. Trump's administration's aggressive tariffs are calling into question the Fed's 2025 policy. How the economy will cope with the uncertainty of tariffs has already affected consumer and business confidence. Economists are now concerned that new policies could slow economic growth, raise inflation, even if only temporarily. For the Fed, this could mean choosing between further rate cuts to boost the economy or keeping rates unchanged (or even hiking) for a longer period to deal with rising price pressures. Currently, Fed policymakers are maintaining their "wait-and-see" stance as they evaluate upcoming economic data. Bloomberg economist Estelle Ou said: "In the first quarter of 2025, inflation remained high, while core personal consumption expenditures were well above the Fed's 2% target. FOMC members are increasingly concerned about price pressure driven by tariffs and see parallels with 2022. Therefore, we expect the Fed to cut rates only once this year (likely in the fourth quarter), well below the market's expectations of about three rate cuts. As the Fed has been in wait-and-see mode for most of the year, we expect the unemployment rate to rise to 4.8%." European Central Bank The ECB's current deposit rate is 2.25%, with Bloomberg Economics forecasting it to be 1.75% by the end of 2025. In terms of market pricing, traders expect three more 25-basis point rate cuts this year, with the next cut possibly in June. The ECB is expected to cut rates further by the end of the year, with three more rate cuts expected, which is the basic expectation of investors. However, with Trump's tariff statements continuing to wreak havoc on the market and the global economy, significant uncertainty remains. For Europe, if tariffs do not ease, it could erode already weak economic growth, with analysts predicting sluggish growth by 2025. Germany's infrastructure spending in the hundreds of billions of euros and rearmament actions across the European continent are expected to boost the eurozone economy. However, economic weakness could put pressure on inflation. Signs show that the sticky growth of service prices is beginning to weaken, and inflation has returned to the ECB's 2% target level. Bloomberg economist David Powell commented: "The ECB is facing a world vastly different from the one at the start of the year - high US tariffs will hit demand in the eurozone and potentially curb inflation in the medium term. Furthermore, with service sector inflation and the high wage growth driving inflation slowing down, the anti-inflation process is continuing. We expect the ECB to cut rates by 25 basis points in June and September, bringing the deposit rate to 1.75%." Bank of Japan The target rate ceiling is currently 0.5%, with Bloomberg Economics forecasting it to be 0.75% by the end of 2025. In terms of market pricing, forward pricing shows a 50% chance of a 25-basis point rate hike this year. BOJ Governor Haruhiko Kuroda's task this quarter is to assess whether the US tariff measures warrant a major rethink of his rate hike path. After Trump's tariffs shocked policymakers and corporate executives, a key focus on the BOJ has shifted from whether it will raise borrowing costs in May to whether it can resume rate hikes anytime this year after a hike in January. An uncertainty is Trump's view of the yen, as he has criticized Japan's currency manipulation in the past. While the Japanese Finance Ministry has intervened multiple times to correct excessive yen depreciation, if the yen weakens, the BOJ could find itself in a dilemma, facing political pressure to strengthen the currency to boost the yen, while also facing prospects of economic weakening. Bloomberg economist Taro Kimura said: "Trump's tariff storm has made policy considerations for the BOJ complex. Market"The turmoil will force the Bank of Japan to postpone its interest rate hike plan in May, but it does not change its tightening policy. Last year's sharp drop in the yen, which led to lagging inflation and stable wage levels, may prompt the Bank of Japan to take action again in July. Then, after a temporary halt in inflation due to falling oil prices, we see the Bank of Japan resuming interest rate hikes in 2026 - raising the policy rate to 1.25% twice, driven by strong wage growth from spring salary negotiations.Bank of England The current bank rate is 4.5%, with Bloomberg Economics forecasting it to be 3.75% by the end of 2025. In terms of market pricing, the market has fully priced in the expectation of three 25 basis point rate cuts, with a 50% possibility of a fourth rate cut, and the likelihood of a rate cut in May already fully priced in. The increasingly gloomy global economic backdrop has opened the door for the Bank of England to accelerate rate cuts, with officials keeping an eye on the impact of U.S. tariffs, cooling labor markets, and plummeting energy prices. Bank of England Governor Bailey emphasized the need for caution between rising inflation in the UK and economic stagnation (potentially further exacerbated by trade tensions). While officials remain cautious about domestic price and wage pressures, economists suggest that if U.S. tariffs weaken global demand and lead to discounted goods flooding the UK market, it could suppress inflation in the UK. The weakening of the U.S. dollar and London's reluctance to retaliate against the White House's measures also reduce the risk of trade disputes triggering inflation in the UK. Bloomberg economist Ana Andrade stated, "The restraining force that U.S. tariffs could bring to inflation should rebuild support for the Bank of England's quarterly pace of rate cuts. Previously, tricky underlying price pressures have raised the likelihood of extending the pause in rate cuts." As overall inflation in the UK is expected to rise in the coming months, the space for further easing may be limited we anticipate the rate to stabilize at 3.5% by early 2026 (our estimate for the neutral rate). To lower rates, the economy would need to take a greater hit."