Global central bankers are poised to cut borrowing costs further in 2025, but only warily — and with a keen eye on the policies of incoming US President Donald Trump.

While almost all major economies should see monetary easing during the coming year, the pace is likely to slow.

Bloomberg Economics projects its aggregate measure of advanced-world interest rates to drop just 72 basis points in 2025, less than it did in 2024.

The shifts in that gauge tell a tale both of easing cycles that have already progressed, of lingering caution about inflation pressures that might yet need to fully dissipate, and of the unknowns posed by the impending second era of Trump.

The next US president is a haunting presence for central bankers around the world. If enacted, his threatened trade tariffs could hurt economic growth, and stoke consumer prices too in the event of retaliation.

In the US itself, the Federal Reserve has already switched its attention to the danger of resurgent inflation, curbing the prospect for much easing for now. Other major counterparts, from the euro zone to the UK, are poised to keep lowering borrowing costs to aid economic growth, but with no sign of a hurry.

What’s Set to Happen With Interest Rates in This Year

Out of 23 central banks focused on in this quarterly guide, just two may end the year with higher rates. Japan’s hiking cycle is likely to continue, while Brazilian officials remain set on action to contain fiscally driven inflation.

What Bloomberg Economics Says:

“For central banks on the path to policy normalization, the last mile won’t be smooth. Uneven progress toward 2% inflation, shocks from the incoming Trump administration, and uncertainty about neutral rates all add to potential for surprises. Bloomberg Economics sees the average advanced-economy central bank rate headed from 3.6% at end 2024 to 2.9% at end 2025. Sometimes even short distances are hard to travel.”

—Tom Orlik, global chief economist

Here is Bloomberg’s outlook for the coming year in monetary policy, encompassing central banks that set rates for a combined 90% of the global economy.

GROUP OF SEVEN

US Federal Reserve

• Current federal funds rate (upper bound): 4.5%
• Bloomberg Economics forecast for end of 2025: 3.75%
• Market pricing: Markets are evenly split on a quarter-point cut by March with a move fully priced by June and an almost 70% chance of a second reduction by year-end.

The Fed delivered one more quarter-point cut in December, but new forecasts showed many policymakers had seen enough – at least for a couple months — and are pushing the pause button. Policymakers signaled just a half-percentage point of reductions for 2025.

Just a few months after the US labor market appeared dangerously close to tipping over, the Fed’s focus is now firmly back on inflation, which appears to have stalled above their 2% target. Chair Jerome Powell made clear officials will have to see renewed progress on that front before they move again.

Powell expressed a fair amount of confidence that monetary policy remains meaningfully restrictive and inflation will continue moving down. But based on new inflation forecasts and projections of the so-called neutral rate – where policy is neither helping nor hurting the economy – many of his colleagues appear more skeptical.

That sets up a heightened level of tension on the committee heading into 2025, with one other source of stress looming in the background: Donald Trump.

The president-elect likes low rates and soaring stock markets, each of which took a hit after the recent Fed decision. He may be further provoked, as he has been in the past, by the gap between US and euro-zone benchmark rates, which is expected to widen in 2025.

What Bloomberg Economics Says:

“The FOMC struck a hawkish posture at the last meeting of 2024, disappointing market expectations with only 50 basis points of anticipated 2025 cuts. Justifying that stance, inflation data early in 2025 will likely be solid due to residual seasonality. Even so, we think the Fed ultimately will have to cut by 75 bps in each of 2025 and 2026, as the unemployment rate continues to climb, ending 2025 at 4.7% and 5.0% in 2026.”

—Anna Wong

Fed Sees Only 50 Basis Points of Cuts in 2025 and 2026

European Central Bank

• Current deposit rate: 3%
• Bloomberg Economics forecast for end of 2025: 2%
• Market pricing: Traders expect a 25-basis-point cut this month followed by three more by the end of June and a 25% chance of a fifth by the end of the year.

After a slow start, the ECB has embarked on a steady path of rate cuts that will likely take the deposit rate to 2% by the middle of this year in a series of back-to-back quarter-point steps. While the option of larger moves has been brought up by some officials, the majority sees no urgency to increase the pace.

While headline inflation is expected to settle at the ECB’s 2% target in the course of 2025, services prices are still rising at nearly twice that rate, adding to lingering concerns over wages that have prevented policymakers from sounding the all clear. Economic growth is seen picking up after a winter lull, bolstered by a rebound in private spending.

What Bloomberg Economics Says:

“Signs have emerged of a slowdown in GDP growth and we expect the threat of tariffs to weigh on activity as investment decisions are put on hold. Headline inflation will move below the 2% target in early 2025, wage growth is slowing and profit margins have stopped expanding. Restrictive policy has become hard to justify and we expect back-to-back rate cuts until March, followed by quarterly moves, until the deposit rate hits 2%. That’s our estimate of neutral.”

—David Powell

Bank of Japan

• Target rate (upper bound): 0.25%
• Bloomberg Economics forecast for end of 2025: 1%
• Market pricing: Money markets are betting on a gradual pace of tightening, pricing a quarter-point hike by May followed by another toward year-end.

Bank of Japan Governor Kazuo Ueda faces a tough decision on the timing of his next rate hike.

Inflation has continued at or above the BOJ’s 2% target for more than 2 1/2 years. With the economy growing, that seems a long enough stretch to raise rates from a very low level. A hike would also help support the embattled yen.

But the January meeting comes just four days after Trump’s inauguration. Ueda has cited his policies among key uncertainties warranting caution. Waiting until March would give Ueda more clarity on the US economy and on the domestic wage trend. It would also give Prime Minister Shigeru Ishiba’s minority government more time to pass a budget.

Ultimately the yen may serve as the deciding factor.

What Bloomberg Economics Says:

“We expected Ueda to lay the groundwork for a rate hike in January at the December meeting. Turns out, he didn’t — his cautious approach suggests the BOJ wants to keep some leeway to move when market and political conditions are conducive. We still have high conviction that it will hike rates in January. The reason — inflation looks increasingly likely to stay around the BOJ’s 2% target. The yen’s tumble will also add upside risks.”

—Taro Kimura

Bank of England

• Current bank rate: 4.75%
• Bloomberg Economics forecast for end of 2025: 3.75%
• Market pricing: Money market wagers favor policymakers to deliver a quarter-point cut in February and fully price a second reduction by November, with a 30% chance of a third in December.

The BOE signaled it plans to stick with its once-a-quarter pace to rate cuts for now, even as domestic price pressures and uncertainty abroad build. Markets see a third reduction of the cycle as more likely than not in February, when the UK central bank will also deliver new forecasts and their annual stocktake of the economy’s growth capacity.

Governor Andrew Bailey doubled down on the need for “gradual” cuts at the December meeting, largely dismissing a surprise jump in wage growth and pickup in inflation in the days before.

The outlook for rates beyond February is likely to depend on the fallout from the Labour government’s first budget and any impact from the resurgence of global trade tensions.

What Bloomberg Economics Says:

“The BOE has indicated it intends to lower borrowing costs gradually. We expect it to ease at a quarterly pace in 2025 with rates ending the year at 3.75%. That would bring them to a more neutral level as the BOE balances above target inflation with a labor market that is tight but cooling. We think there’s limited room to cut rates much further without stoking inflationary pressure.”

—Dan Hanson

Bank of Canada

• Current overnight lending rate: 3.25%
• Bloomberg Economics forecast for end of 2025: 2.5%
• Market pricing: Markets anticipate a 25-basis-point reduction later this month with a second cut fully priced by June and favor a third decrease in the second half of the year.

After leading the Group of Seven central banks into easing monetary policy and delivering two back-to-back half percentage point cuts, the Bank of Canada is now eyeing a more gradual pace of interest rate reductions. With inflation expected to hover around the central bank’s 2% target over the year and borrowing costs normalized from restrictive territory, Governor Tiff Macklem can now focus on fine tuning policy to engineer a soft landing.

Despite rapid population increases, Canada’s economic growth remains sluggish, and while the central bank has largely succeeded at bringing price pressures to heel without a major correction, concerns are mounting over the potential for a trade battle with the country’s largest trading partner. Trump has threatened to place 25% tariffs on goods imported from the northern nation, which Macklem has called “a major new uncertainty” that’s already likely hurting the country’s weakened business investment.

What Bloomberg Economics Says:

“Temporary fiscal stimulus measures will likely support growth in 1Q, encouraging a slower rate-cut pace. Headline inflation is already at the 2.0% target, and unemployment is likely to exceed 7.0% around mid-year. Mounting trade tensions with the US, and October 2025 elections, add uncertainty. Though the Bank of Canada is approaching a neutral policy stance, we expect the Governing Council to lower its overnight-rate target further — reaching 2.5% in 2Q — before an extended pause.”

—Stuart Paul

Bank of Canada Rushing Toward Neutral

BRICS CENTRAL BANKS

People’s Bank of China

• Current 7-day reverse repo rate: 1.5%
• Bloomberg Economics forecast for end of 2025: 1.2%

China’s top leaders pledged to adopt a “moderately loose” monetary policy in 2025, in the first shift of stance after 14 years of upholding a “prudent” policy.

Greater monetary stimulus would help the economy counter headwinds from a looming trade war with the US. At a key meeting in December, officials made an unusually direct vow to deliver cuts to rates and the reserve requirement ratio for banks, which would lower the amount of cash they must hold in reserves.

The PBOC’s space for easing policy is still constrained though, as it needs to prevent a rapid depreciation of the yuan. Commercial banks’ narrowing profit margin is another factor that may limit the PBOC’s room for maneuver.

What Bloomberg Economics Says:

“As stated by the Politburo at early December, the PBOC shifted to a ‘moderately loose’ monetary policy — a stance once employed over 2008-2010, suggesting there’s stronger easing to come after the unprecedented moves in late September. For 2025, we see 100 bps of RRR cuts and 30 bps of rate cuts.”

—David Qu

Reserve Bank of Australia

• Current cash rate target: 4.35%
• Bloomberg Economics forecast for end of 2025: 3.35%

The New Year will likely mark the start of the RBA’s long-awaited easing cycle after Governor Michele Bullock made a surprising dovish tilt in December.

Many economists including those at Goldman Sachs believe a cut can come as soon as February while others including Westpac have picked May. The RBA has left its key rate at a 13-year high of 4.35% since November 2023 citing sticky inflation.

Before its next meeting on Feb. 17-18, the RBA will have seen a key fourth-quarter inflation reading; a faster than forecast decline in prices could finally force its hand.

Irrespective of when the cuts begin, any easing cycle is expected to be short and shallow as consumption is expected to lift in the run-up to an election due by May and the jobs market remains sturdy.

What Bloomberg Economics Says:

“The RBA’s dovish tilt at the end of 2024 paves the way for it to start cutting rates in early 2025. How soon and how deep it goes will be determined by the strength of the consumer – a downturn in migration will put a heavy downdraft on aggregate spending. A new monetary policy board, and a federal election in 1H25, will muddy the waters a little but we expect a cut in February, with 100 basis points of easing in 2025..”

—James McIntyre

Reserve Bank of New Zealand

• Current cash rate: 4.25%
• Bloomberg Economics forecast for end of 2025: 2.5%

After starting its easing cycle in August, the RBNZ became one of the most aggressive rate cutters of 2024, slashing its Official Cash Rate by 125 basis points in the space of three months. That included two 50-point moves, and Governor Adrian Orr said a third is likely when policymakers next meet on Feb. 19. After that, the central bank’s forecasts suggest it will slow down and trim the cash rate to 3.5% by the end of the year.

That outlook may need to be reassessed after data showed the economy sank into a much deeper-than-expected recession in the second and third quarters of 2024. Investors are now betting the RBNZ will cut rates to a less restrictive level of about 3%.

What Bloomberg Economics Says:

“The RBNZ will need to cut rates by more than its latest projections currently suggest. The economy is in recession, monthly price indicators suggest downside risk to the RBNZ’s inflation outlook, and the labor market looks to be weakening faster than expected. We see the RBNZ delivering a 50-basis-point rate cut in February, with further easing taking the official cash rate to 2.50% – 40 basis points below their estimate of neutral – in 2H25.”

—James McIntyre