The Zhitoong Finance APP learned that the heads of global central banks are expected to further reduce interest rates in 2025, but will proceed cautiously and closely monitor the upcoming policies of USA President Donald Trump. Although almost all major economies are expected to implement monetary easing in the coming year, the pace may slow down. Bloomberg Economics predicts that the total interest rate in developed countries will only decrease by 72 basis points in 2025, lower than the level in 2024.

The changes in this Indicator indicate that the loosening cycle is underway, and concerns about the inflation pressures that may still need to dissipate linger, while Trump's impending second term will also bring many unknown factors.

For central bank heads around the world, the next President of the USA is an undeniable presence. If implemented with the intensity advocated by Trump, the resulting threat of trade tariffs could harm economic growth and drive up Consumer prices in the event of retaliation from various countries.

Domestically in the USA, the Federal Reserve has shifted its focus to the risks of rising inflation, temporarily suppressing the prospect of significantly easing monetary policy. Major countries, from Europe to the United Kingdom and Other, are prepared to continue lowering borrowing costs to support economic growth, but there are no signs of urgency to take action.

Among the 23 central banks that are of most concern, only two are likely to raise interest rates by the end of the year. Japan's rate hike cycle may continue, while Brazilian officials remain determined to take action to curb fiscal-driven inflation.

Tom Orlik, Bloomberg Economics' Chief Economist for the USA, stated, "The last mile for central banks on the path to policy normalization will not be smooth. The imbalanced progress towards 2% inflation, the impact of the incoming Trump administration, and the uncertainties surrounding neutral interest rates all increase the likelihood of unexpected outcomes. Bloomberg Economics expects the average interest rate for central banks in developed economies to rise from 3.6% at the end of 2024 to 2.9% at the end of 2025. Sometimes even a short distance can be difficult to cover."

Here is an outlook from foreign media on some central banks' monetary policies for the coming year:

Federal Reserve

The current federal funds rate (upper limit) set by the Federal Reserve is 4.5%. Bloomberg Economics predicts it will be 3.75% by the end of 2025. The market's expectation for a 25 basis point rate cut before March has remained flat, while the expectation for a cut before June is completely consistent, and the likelihood of a second rate cut before the end of the year is close to 70%.

In December last year, the Federal Reserve cut rates again by 25 basis points, but new forecasts show that many policymakers believe it is sufficient, and for at least a few months, they are pressing the pause button. Policymakers only hinted at a 50 basis point cut by 2025.

Just months ago, there were near-collapse signs in the USA labor market, and now the Federal Reserve's attention has firmly shifted back to inflation, which appears to be stagnating above the 2% target. Federal Reserve Chairman Jerome Powell clearly stated that officials must see new progress in this area before taking action again.

Powell expressed considerable confidence that monetary policy will still be a meaningful restrictive policy, and inflation will continue to decline. However, based on new inflation forecasts and predictions for neutral interest rates (where policy neither helps nor harms the economy), several Federal Reserve officials seem to be more skeptical.

As 2025 approaches, this creates a highly tense atmosphere for the committee, and another source of pressure is subtly emerging: Donald Trump.

The elected president prefers low interest rates and soaring stock markets, and both markets have been hit after the Federal Reserve's recent decisions. He may be further angered by the gap between the benchmark interest rates in the USA and the Eurozone, which is expected to widen in 2025.

Bloomberg Economics Analyst Anna Wong stated thatthe Federal Open Market Committee(FOMC) adopted a hawkish stance at their last meeting in 2024, disappointing market expectations that interest rates would be cut by 50 basis points in 2025. Due to seasonal factors, inflation data in early 2025 may remain strong. Nevertheless, it is believed that as unemployment continues to rise, the Federal Reserve will eventually have to cut rates by 75 basis points in both 2025 and 2026, reaching an unemployment rate of 4.7% and 5.0% by the end of 2025, respectively.

European Central Bank

The European Central Bank's interest rate on current deposits is 3%, and Bloomberg Economics predicts it will reach 2% by the end of 2025. Traders expect a 25 basis point cut this month, with three more cuts by the end of June and a 25% chance of five cuts by year-end.

After a slow start, the European Central Bank has begun to steadily cut interest rates, possibly reducing the deposit rate by 25 basis points consecutively by mid-year to 2%. Although some officials have raised the option of larger-scale actions, most believe there is no need to speed up.

While the overall inflation rate is expected to stabilize at the European Central Bank's target level of 2% by 2025, the increase in service prices remains nearly twice this level, exacerbating concerns about wages, which hinders policymakers from sounding the alarm. Supported by a rebound in private spending, economic growth is expected to recover after experiencing stagnation during the winter.

Bloomberg Economics Analyst David Powell stated, "Signs of slowing GDP growth in Europe have already appeared, and we expect that as investment decisions are postponed, tariff threats will put pressure on economic activity. By early 2025, the overall inflation rate will fall below the 2% target, wage growth is slowing, and profit margins have stopped expanding. Restrictive policies have become difficult to justify, and we expect consecutive rate cuts until March, followed by quarterly cuts until the deposit rate reaches 2%. This is our estimate of neutrality."

Bank of Japan

The Bank of Japan's target interest rate (upper limit) is 0.25%, and Bloomberg Economics predicts it will reach 1% by the end of 2025. The money markets are betting on a gradual tightening of policy, expecting a 25 basis point increase before May, with another increase before the end of the year.

Bank of Japan Governor Ueda Kazuo faces a difficult decision regarding the timing of the next interest rate hike. Inflation has remained at or above the Bank of Japan's 2% target for more than two and a half years. Given the growth of the economy, this appears to be a sufficiently long period to raise interest rates from lower levels. A rate hike would also help support the struggling yen.

However, the January meeting will be held four days after Trump's inauguration, and Ueda Kazuo has also listed Trump's policies as one of the major uncertainties that require caution. By March, Ueda Kazuo will have a clearer understanding of the trends in the US economy and domestic wage trends. This will also give Prime Minister Ishiba’s minority government more time to pass the budget.

Ultimately, the yen may become a decisive factor.

Bloomberg Economics Analyst Taro Kimura commented, "We expect Ueda and his team to lay the groundwork for an interest rate hike in January during the December meeting. It turns out he did not do so, and his cautious attitude indicates that the Bank of Japan wishes to retain some flexibility for action when market and political conditions are favorable. We still firmly believe that the Bank of Japan will raise interest rates in January, as inflation increasingly looks likely to remain near the Bank of Japan's 2% target, and the sharp decline of the yen will also increase the upside risks."