Discussion: Examining the Navigation Strategy for Central Banks in the Emerging Global System
In the bewildering economic climate, fueled by unpredictable US policy shifts, central bankers worldwide grapple with the daunting task of determining the impact of a global trade war on monetary policy. As stagflation fears mount, largely due to Donald Trump's tariffs, central banks strive to safeguard their independence amidst looming threats.
Join us for a live Q&A with Chris Giles, the shrewd minds behind the Central Banks newsletter, along with our stellar team of experts Elettra Ardissino, Joel Suss, and Andrew Whiffin from the FT's Monetary Policy Radar. Mark your calendars for Wednesday, May 7 at 10am ET/3pm BST. Don't forget to participate by leaving your questions in the comments section below this story. You can also endorse queries that you believe experts should address. Unravel the mysteries of this economic upheaval as our experts respond to your questions live in the comment field. Add the event to your calendar here.
As central banks tread this complex economic terrain, they encounter thorny challenges. The IMF's April 2025 World Economic Outlook predicts global growth at 2.8% for 2025, whereas UNCTAD foresees a steeper decline to 2.3%. At the same time, global headline inflation is decelerating more slowly than anticipated, making it difficult for central banks to balance growth support with price stability.
This economic environment breeds increased volatility. The Economic Policy Uncertainty Index hit record highs in early 2025, causing financial markets to experience significant corrections and volatility. Central banks are forced to take unpredictable exchange rate swings and risk-premium fluctuations into account when setting rates. Furthermore, some central banks may face pressure to delay rate cuts due to imported inflation from tariffs, while others could be compelled to ease prematurely to counter growth shocks from trade disruptions.
The independence of central banks is under siege as well. Governments may seek monetary financing of deficits, particularly in countries facing deteriorating fiscal positions due to trade shocks. The IMF asserts that unpredictable policy environments erode the credibility of inflation-targeting frameworks, potentially leading to politicized demands for accommodative policies despite price stability mandates. Additionally, US tariff actions and retaliatory measures are reshaping global trade patterns, compelling central banks to scrutinize trade policy analysis—a realm traditionally beyond their purview.
As the IMF and UNCTAD warn, the ability of central banks to maintain stability will be sorely tested without enhanced international coordination and predictable policy frameworks. Tune in to our live Q&A to gain insights into this precarious economic landscape and understand how central banks are navigating the storm.
- The upcoming live Q&A with Chris Giles and the FT's Monetary Policy Radar team will provide an opportunity to learn more about how central banks are coping with the unpredictable global trade environment and the impact of tariffs on monetary policy.
- Central banks, including the Federal Reserve, European Central Bank, and Bank of Japan, are grappling with the complexities of setting monetary policy in a world of increased uncertainty, decelerating global headline inflation, and the threat of stagflation.
- As central banks try to strike a balance between growth support and price stability, they are encountering challenges such as escalating global trade tensions, volatile financial markets, and the potential for politically motivated demands for accommodative policies.
- With the economic landscape expected to remain turbulent, understanding how central banks are navigating the storm will be crucial for businesses, finance professionals, and anyone interested in staying informed about global economic trends.
