Global Central Banks End Turbulent Year Marked by Tariffs, Geopolitics, and Inflation Risks

The world’s central banks are closing out a year marked by heightened uncertainty stemming from US tariff policies, geopolitical tensions, and major political developments, with inflation-related risks sharply limiting room for monetary easing. Washington’s protectionist trade measures intensified global uncertainty after US President Donald Trump’s tariff decisions in March and April, directly affecting China, Japan, the European Union, Canada, and Mexico.

Although trade tensions eased somewhat in the second half of the year amid new agreements, markets remained cautious due to the 12-day air Zionist strikes on Iran, stalled efforts to end the Russia-Ukraine war, and the 43-day US federal government shutdown that began on October 1—the longest in US history—which disrupted economic data flows in the third quarter.

Against this backdrop, central banks followed diverging policy paths. The US Federal Reserve cut rates by a total of 75 basis points, bringing the policy rate to 3.5–3.75%, with 25-basis-point cuts in September, October, and December, as officials debated how to balance inflation risks against employment concerns. Markets expect two additional 25-basis-point cuts in March and July 2026, while uncertainty remains over who will succeed Fed Chair Jerome Powell.

The European Central Bank cut rates by 100 basis points, as eurozone inflation fell to 2.1% in November, close to its target, though ECB President Christine Lagarde warned of persistent risks from supply chain disruptions, wage pressures, and extreme weather. The Bank of England also cut rates by 100 basis points to 3.75% amid 3.2% inflation, maintaining a tight stance, while the Bank of Japan raised rates by 50 basis points to 0.75%, the highest level in 30 years, citing rising wage and inflation pressures.

Elsewhere, monetary easing dominated. The Reserve Bank of Australia cut rates by 75 basis points to 3.6%, though markets now see a possible return to tightening in May next year, while the Reserve Bank of New Zealand slashed rates by 200 basis points to 2.25%. The Bank of Korea ended the year with a 50-basis-point cut, bringing its rate to 2.5%. Türkiye stood out with aggressive easing, as its central bank cut rates by a cumulative 950 basis points to 38% across multiple meetings.