Global central bank officials have sung a common tune in recent weeks: Uncertainty is intensifying, and trade wars could lead to higher inflation and lower growth.
And that uncertainty may only grow as countries prepare to see how far President Trump will go in imposing global reciprocal tariffs (“the big one,” Trump says) on April 2 (“Liberation Day”).
On Wednesday, Fed Chair Powell said that the “arrival of the tariff inflation” may delay progress toward the Federal Reserve’s 2% inflation goal. Yahoo Finance’s Ben Werschkul has a nice recap of Powell’s comments on tariffs, which contrasted with his statements at previous meetings.
On Thursday, European Central Bank President Christine Lagarde also underscored the potential impact of tariffs on inflation and growth, stating that a 25% tariff on European imports to the US would lower eurozone growth by about 0.3 percentage points and up to half a percentage point if retaliatory measures are taken, Reuters reported.
Also on Thursday, the Bank of England kept rates unchanged as Governor Andrew Bailey warned rising tariffs could pose a significant threat to the UK economy. “There’s a lot of economic uncertainty at the moment,” Bailey said.
The alerts this week come after the Bank of Canada trimmed its policy rate by 25 basis points last week and said the central bank would need to “proceed carefully” due to upward pressures on inflation and downward pressures on growth from tariffs.
“We ended 2024 on a solid economic footing, but we’re now facing a new crisis,” Governor Tiff Macklem said in a press conference, referring to the escalating trade war between the United States and Canada.
