Rates: Same story, different risks

Daily update

The Federal Reserve cut rates as expected, but hawkish forecasts and press conference language surprised markets. The pace of rate cuts was always expected to slow in 2025, but the Fed is clearly more focused on the inflation threats of some of US President-elect Trump’s policies (fiscal, mass deportation, and taxing consumers).
Every major central bank followed the path of inflation this year, keeping real rates generally stable. That continues next year, but clearly the Fed’s perception of inflation risks is shifting. There are also downside threats—mass deportations may risk recession. After some social media posts from Trump, risks of a government shutdown are rising.
The Bank of Japan left rates unchanged today, in line with earlier media leaks and so not a surprise for investors. The BoJ is likely to raise rates next year (March seems likely), but more modest inflation pressures and US uncertainty have stayed their hand for now.
The Bank of England is always an interesting central bank to watch as (unlike some central banks) it is headed by economists—always the perfect model of leadership. No rate cut is expected today, with inflation not expected to decline in the near term. Fictional housing measures and the peculiar energy price structure are adding to price levels.