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Trying to keep track of every tariff announcement and retaliation is enough to make your head spin – and send markets into chaos. But behind the trade war drama, one thing is clear: most central banks are more concerned with slowing economic growth than rising inflation.

That is except for the Fed – so far.

Central Banks on the Move

Today, the Bank of Canada cut rates by 25 basis points to 2.75%. The central bank, formerly led by Canada’s newly appointed Prime Minister, Mark Carney, cited inflationary pressures and weaker growth from trade uncertainty and Trump’s tariffs.

Last week, the European Central Bank (ECB) cut rates from 2.75% to 2.5% and downgraded eurozone growth forecasts – yet again.

Next up is the Bank of England (BOE). When its Monetary Policy Committee meets on March 20, the swirling question is whether it will hold at 4.50% or cut. After a long pause, the BOE already lowered rates to 5% in August 2024, 4.75% in November, and 4.5% on February 6.

According to the BOE’s website, the central bank is “monitoring the British economy and global developments very closely” and taking a “gradual and careful approach” to further cuts.

For Prinsights Pulse Premium readers, be sure to check out our latest dispatches from Spain, Austria and Switzerland. All are filled with actionable analysis, exclusive insights and behind the scenes details. You won’t want to miss it!

Yet, there is another wrinkle unfolding. On February 6, the BOE slashed its 2025 growth forecast from 1.5% to 0.75% – adjusted for inflation, that’s negative growth. The UK Office for Budget Responsibility (OBR) is set to revise its long-term outlook on March 26.

Based on my analysis, I’m forecasting a 25-basis point cut.

Meanwhile, the Bank of Mexico cut its benchmark rate 50bps to 9.50% on February 6. Some of its board members expect another 50-basis point cut at the March 27 meeting if disinflation continues.

All this central bank re-contextualizing of the economy against inflation, is signaling one thing. The current easing cycle that began last year will accelerate this year.

The Fed: Still Playing It Cool – For Now

Federal Reserve Chair Powell, in a recent PBS NewsHour sit down, went so far as to downplay tariffs as a “one-time” price increase rather than a cause of persistent inflation. In other words, the Fed could ignore their short-term impact.

History tells the same story. When Trump imposed tariffs during his last administration, the Fed cut rates. This was after it cited tariff related reservations to doing so – because growth weakened so much.

So, welcome to Groundhog Day once again. Bill Murray is smiling. Here we are again. The Atlanta Fed’s GDP Now model projects Q1 2025 growth at -2.4% as of March 6. That signals negative growth ahead.

After three rate cuts last year to 4.25% Powell indicated in January that the Fed would pause as inflation remained sticky. But, as Ferris Bueller quipped, life moves pretty fast. Now, it seems the Fed could be coming around. The Fed previously forecast a 50-basis point cut for 2025, but as growth slows, it may have to go further – and faster.

Maybe not at its March 19^th FOMC meeting, but chances are growing for the following one.

And if the Fed does cut and roll the dice next week or the following meeting, the markets will applaud.

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