Schroders: The Federal Reserve may continue to pause interest rate hikes in the coming months to assess the impact of Trump's policies

According to Zhitong Finance APP, Schroders stated that following the astonishing inflation data released in January, the core Consumer Price Index (CPI) in the United States is expected to remain around 3% in 2025 and 2026. Schroders is concerned about the trend of inflation, believing that central banks have limited room for further easing policies. The Federal Reserve may continue to pause interest rate hikes in the coming months to assess the impact of Trump’s policies, but it still expects the Fed to begin raising rates again in 2026.

Schroders indicated that the first 100 days of Trump’s presidency will still be filled with various voices, as the new government will gradually push forward on key policy objectives. However, early signs align with its basic assumption that major economic policies will be more moderate than what Trump promised during his campaign, paving the way for robust global economic growth of 2.5% and 2.8% in 2025 and 2026, respectively. Due to the contrast between the exceptionalism of the United States and weaker economic growth in other regions, global differentiation will continue in 2025. Although there is little evidence that products exported to the U.S. will be affected by potential tariffs, the upcoming trade cycle recession seems likely to become a headwind for export-oriented economies (such as the Eurozone).

The United States will continue to lead the global economy. Consumer spending continues to exceed expectations, coupled with a robust labor market, stable real wage growth is expected to drive demand in the near term. The GDP growth rate for 2025 could reach 2.5%, while in 2026 it could be 2.7%, showing strong performance, but this growth may lead to rising inflation.

Inflation Remains a Concern in Europe

As the political clouds in the Eurozone begin to dissipate and looser financial conditions drive economic activity recovery, the economic growth in the region should improve. Consumption is expected to dominate growth, while fixed asset investment will still contribute relatively little to economic growth in 2025.

However, inflation remains a worrying issue, as wage growth continues to exceed general expectations, inflation may remain high. Therefore, interest rates are unlikely to decline significantly as widely expected. Schroders anticipates that the European Central Bank will only cut rates two more times, each by 25 basis points, keeping the deposit rate at 2.25% in 2025.

Limited Room for Rate Cuts in the UK

Supply-side constraints in the UK limit the space for faster growth, thus the local economy also seems to face stagflation. Schroders expects that inflation will rise above 3% later in 2025 and exceed the 2% target throughout the forecast range, which will significantly restrict the Bank of England's room for monetary policy easing. In fact, even though Governor Andrew Bailey stated that the Bank of England's Monetary Policy Committee will act cautiously, Schroders still expects rates to only decrease by 25 basis points to 4.25% in May.

Mixed Forecasts for Emerging Markets

In other major emerging markets, the decline in inflation and interest rate cuts have made the economic outlook for India clearer. Schroders expects growth to begin accelerating in mid-2025. The recovery momentum in China is budding, but it may not become more apparent until later in 2025 High Uncertainty of U.S. Policies

Due to the uncertainty of U.S. policies, the risks associated with forecasts remain exceptionally high. Schroders anticipates that in a scenario where Trump adopts aggressive policies, such as implementing high trade tariffs and mass deportation of illegal immigrants, it would lead to stagflation in the U.S. economy and potentially push other regions of the world into recession. Meanwhile, Schroders is concerned that rising U.S. Treasury yields may expose the fiscal weaknesses of other weaker sovereign nations, such as the United Kingdom.

However, upside risks are also emerging. DeepSeek may accelerate the application of artificial intelligence (AI), and macroeconomic reforms have returned to the government agenda eager for growth, with bank loans also showing signs of recovery. A significant drop in oil prices may alleviate inflationary pressures later in 2025.

A robust global economic environment should benefit the stock market and promote the development of stock markets in multiple regions throughout the year