“The Fed’s hawkish tone signals that the Central Bank is incorporating a more uncertain outlook. This calls for keeping a tactical approach to bond investing.”
- The ECB remained data-dependent, without pre-committing to any rate path ahead.
- Trump’s tariff policy is a wildcard that could affect the Fed’s monetary policy next year.
- Fed Chair Powell said they are at a point at which it would be appropriate to slow the pace of cuts.
Both the Fed and the ECB cut policy rates by 25bp at their December meetings. On 12 December, the ECB cut rates by 25bp to 4.25-4.50%, removing some hawkish language as interest rates got closer to an estimated neutral level. On 18 December, the Fed also cut by 25bp, but the overall tone was hawkish. The Fed now only expects inflation to hit target in 2026. Even though the Fed does not explicitly incorporate possible policy changes under the new administration, the projection of higher inflation in 2025 suggests they are anticipating a more uncertain outlook. On 19 December, the BoJ left policy rates unchanged at 0.25%. The tone was cautious and the statement said that there are still uncertainties on Japan’s economic activity and prices. The Bank of England also kept rates unchanged, given the higher-than-expected inflation data released recently.
You can now read the full whitepaper at the link below
