Fed to lead rate-cutting wave as global monetary policy diverges

Central banks to extend rate-cutting cycle through year-end: The Federal Reserve and several major central banks are expected to continue lowering interest rates for the remainder of 2025, according to Bloomberg Economics. Some 15 banks are projected to cut borrowing costs, while most of Western Europe pauses to gauge inflation trends. Only the Bank of Japan is expected to raise rates.

The drivers: Common factors influencing these decisions include persistent inflation concerns, the economic impact of US trade tariffs under President Trump, and domestic political pressures. While the overall direction is toward lower borrowing costs, the pace is tempered by economic resilience and lingering price pressures, Bloomberg’s analysts say.

#1- Fed to deliver two more cuts amid political pressure: The US Federal Reserve is forecast to reduce rates twice more this year after its September cut, bringing the federal funds rate down to 3.75% by year-end from its current 4.25%. Markets expect quarter-point cuts at each of the two remaining 2025 meetings, as officials aim to balance labor market support with inflation risks tied to Trump’s tariff. “The Federal Open Market Committee is in a bind — cut too fast and tariffs could fuel inflation; move too slowly and the labor market weakens,” Bloomberg Economics’ Estelle Ou said.

#2- ECB, BOE hold steady as inflation lingers: The European Central Bank is expected to keep its deposit rate at 2% through next year, with policymakers signaling comfort with current levels as inflation steadies near target. The Bank of England is also expected to hold its 4% rate amid renewed inflation concerns, with Governor Andrew Bailey warning of caution ahead of November’s budget. Bloomberg Economics’ Dan Hanson sees the BOE’s terminal rate at 3.5%, noting cuts may resume only after clearer disinflation signs emerge.

#4- Japan set to tighten policy amid rising prices: The Bank of Japan could raise its benchmark rate to 0.75% this year from 0.5%, as inflation stays near 3%. Governor Kazuo Ueda’s hawkish tone and dissent within the board have strengthened expectations for a hike, possibly in October. “Even dovish board members now see a case for tightening — the BOJ probably thinks it’s safe to move,” said Bloomberg Economics’ Taro Kimura.

#5- Asia’s outlook is mixed: The People’s Bank of China is expected to deliver limited 4Q easing, trimming its 7-day reverse repo rate to 1.3% from 1.4% as it balances deflation risks with stock market stability. The Reserve Bank of India could cut rates twice before February, lowering its repo rate to 5.25% from 5.5% after a sharp downward revision to inflation forecasts. The Bank of Korea is also leaning toward further cuts, potentially reducing its policy rate to 2.25% from 2.5% as soon as this month or the next to support domestic demand.

#6- Canada, Australia to continue gradual easing: The Bank of Canada — which lowered its key rate to 2.5% in September — is expected to cut once more in December to 2.25% before pausing in 2026 as growth weakens under tariff pressures. The Reserve Bank of Australia is nearing the end of its easing cycle, with one final 25-basis-point cut expected in November to bring the cash rate to 3.35%, as policymakers assess inflation momentum, with Bloomberg projecting a gradual decline to 3.35% by the end of 2025.

MARKETS THIS MORNING-

Asian markets are mixed this morning, with both Japan’s Nikkei and the Shanghai Composite up over 0.5%, while Hong Kong’s Hang Seng is inching down 0.7%. Wall Street futures are indicating a slightly lower opening after record highs for the S&P 500 and Nasdaq.

THE CLOSING BELL-

The ADX fell 0.1% yesterday on turnover of AED 1.0 bn. The index is up 6.8% YTD.

In the green: Presight AI Holding (+6.8%), GFH Financial Group (+6.6%) and Abu Dhabi Ports Company (+6.0%).

In the red: Abu Dhabi National Takaful (-10.0%), Hily Holding (-6.9%) and Hayah Ins. Company (-2.9%).

Over on the DFM, the index fell 0.2% on turnover of AED 408.4 mn. Meanwhile, Nasdaq Dubai was down 0.1%.