Finance
As war and tariffs fog the outlook, some central banks trim rates
Published by Global Banking & Finance Review®
Posted on June 19, 2025
4 min readLast updated: January 23, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on June 19, 2025
4 min readLast updated: January 23, 2026
Central banks in Europe cut rates due to trade and conflict uncertainties, while the Fed warns of U.S. inflation. Global trade tensions impact economic policies.
By John Revill and Terje Solsvik
ZURICH (Reuters) -The Swiss and Norwegian central banks became the latest European rate-setters to ease monetary policy on Thursday, citing a weaker inflation outlook that contrasted sharply with the Federal Reserve's warnings about higher U.S. prices.
The Bank of England kept rates on hold as expected, while flagging that they would remain on a "gradual downward path" in a finely balanced statement that also acknowledged "heightened unpredictability" in the global environment.
U.S. President Donald Trump's haphazard threats of heavy trade tariffs and an escalating Israel-Iran conflict have left top central banks trying to steer policy in conditions of near-unprecedented uncertainty for the global economy.
Speaking after a two-day meeting where Fed policymakers kept rates on hold, the U.S. central bank's chair Jerome Powell on Wednesday laid out how import tariffs imposed on America's trading partners will drive up prices for U.S. consumers.
Trump is due in coming days to say whether tariffs currently pegged at a 10% baseline will rise - in some cases to more than double that level - in a move seen weakening the global economy and so keeping a lid on inflation pressures in many countries.
"Inflationary pressure has decreased compared to the previous quarter," the Swiss National Bank said as it cut rates by 25 basis points to zero and did not rule out returning to negative rates.
In a move that took most analysts by surprise, even Norway's central bank - long the most hawkish of major central banks - also cut its policy rate by 25 basis points said there were more cuts to come due to a more benign outlook for prices.
"Inflation has declined since the monetary policy meeting in March, and the inflation outlook for the coming year indicates lower inflation than previously expected," Governor Ida Wolden Bache said of inflation which slowed to 2.8% in May.
That mirrored the view taken by Sweden's central bank, which cut its key interest rate to 2.00% from 2.25% on Wednesday and said that, with price pressures weak, it may ease further before the end of the year to boost sluggish growth.
On June 6, the European Central Bank cut its main interest rate for the eighth time in the past year and signalled a pause in policy easing at least next month because inflation was now safely back at its 2% target after three years of overshooting.
CAUTION, LITTLE CONVICTION
Earlier this week the Bank of Japan kept interest rates steady and said it would move cautiously in removing remnants of its massive, decade-long stimulus. Governor Kazuo Ueda said the BOJ's near-term focus was on downside risks, notably the hit from U.S. tariffs.
The latest set of central bank decisions, covering most of the Group of 10 major currencies and their economies, gives a snapshot of the impact policymakers expect significantly less free global trade to have.
For the U.S. economy, the Fed sketched a modestly stagflationary picture, with growth in 2025 slowing to 1.4%, unemployment rising to 4.5%, and inflation ending the year at 3%, well above the current level.
Fed policymakers signalled borrowing costs are still likely to fall in 2025, but chair Powell cautioned against putting too much weight on that view.
"No one holds these ... rate paths with a great deal of conviction, and everyone would agree that they're all going to be data-dependent," he said.
For other economies, the consensus for now is that the tariffs will inevitably hit their local industries and so weaken growth and jobs - but at least their consumers will be spared the inflationary hit coming for their U.S. counterparts.
That all could change, depending on whether the escalation of conflict in the Middle East drives oil prices substantially higher than the gains seen so far and whether America's trading partners end up retaliating with tariffs of their own.
That will become clearer from July 9, when Trump has said countries will face higher tariffs across the board unless they reach a deal with him.
(Additional reporting by Howard Schneider in Washington; Leika Kihara in Tokyo; Simon Johnson in Stockholm; Writing by Mark John; Editing by Catherine Evans)
The Swiss National Bank and Norway's central bank are among the latest to ease monetary policy.
Central banks are responding to a weaker inflation outlook and the unpredictability caused by trade tariffs and geopolitical conflicts.
The Swiss National Bank noted that inflationary pressure has decreased compared to the previous quarter.
The Fed predicts a modestly stagflationary picture for the U.S. economy, with growth slowing and inflation remaining above current levels.
The Bank of England kept rates on hold but indicated they would remain on a gradual downward path, acknowledging heightened unpredictability.
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