Central Banks In the Forefront
December 9, 2025
The Federal Open Market Committee’s two-day policy review begins today and is widely expected to cut the federal funds target interest rate by 25 basis points, matching the previous decisions in September and late October. A scheduled quarterly update of Fed forecasts and Chairman Powell’s press conference will be carefully gleaned for clarifying guidance to policy in 2026. It has taken longer than initially signaled for President Trump to reveal his appointment selection of Powell’s successor. Powell’s term as Fed Chairman ends in May, and he hasn’t yet indicated whether he is inclined to stay on the Board of Governors. In that capacity, his term doesn’t end until January 31, 2028.
2025 is winding down, but investors still have policy decisions from central banks in the U.K. and Japan that are scheduled for next week. Regarding the Bank of Japan, the market’s consensus appears to be leaning toward an interest rate hike to 0.75%, although a surprise further extension of the current pause in rate normalization cannot be ruled out. A speech today by BOJ Governor Ueda observed rising price expectations but played down the possibility of a significant acceleration of Japanese inflation At the Bank of England, the decision next week is even less clear. The Monetary Policy Committee there remains widely split over policy, voting 5-4 at early November’s review to leave the Bank rate unchanged at 4.0%.
The next scheduled European Central Bank Governing Council review of policy doesn’t happen until early February, but officials there have lately expressed mounting comfort with the view that sufficient easing has now been provided, and markets have been guided to accept the possibility that 2026 may see no changes in the policy rate, or even a rate hike if inflation follows a somewhat higher path than now envisaged.
Meanwhile today came announcements that officials at the Reserve Bank of Australia had left the Official Cash Rate unchanged at 3.60%, and of a cut of 25 basis points in the key interest rate of the Central Bank of Kenya to 9,0%. Australia’s policy rate has been unchanged since a trio of 25-basis point cuts last February, May and August. Inflation has recently ticked higher in Australia, partly due to factors that are not expected to persist but which have persuaded officials to pause at least until the upturn is more fully understood. From 13.0% maintained during February-August 2024, Kenya’s central bank interest rate has been reduced after nine consecutive policy reviews by a total of 400 basis points so far. CPI inflation had crested last September-October at 9.6% and has decelerated five percentage points to 4.5% last month.
In overnight market action through the morning session of North American trading, the dollar had risen 0.6% against the Japanese yen, held steady on net versus the euro, but fell by 0.4% and 0.2% relative to the Australian and Canadian dollars. Ten-year sovereign debt yields were narrowly mixed, edging up a basis point in the United States but easing two basis points in Spain, France and the U.K. and a single basis point in Germany Japan and Italy. Bitcoin’s price has jumped around 3%. Gold had risen 0.7%, but oil was 0.7% softer in price. Stock markets in Asia had mostly lost ground, led by a 1.3% drop in Hong Kong. Equities made gains in Italy and Spain but not in the U.K. or France, where political concerns persist. A 0.8% rise in the Russell 2000 outpaced improvements in other major U.S. stock indices.
“Affordability” has emerged as the buzzword of U.S. politics. The rallying call merely confirms that excessive inflation is a more keenly felt political albatross than high unemployment or weak GDP expansion. It was true under former Presidents Carter, H.W. Bush and, most recently, Biden, and the inflation triggered initially by Covid-related supply disruptions is now eroding support for President Trump. America experienced a sharp recession in the first term former President Reagan, but he was easily reelected under the backdrop of a rapid deceleration of U.S. inflation and eventual economic recovery. It also hurts Trump that key policy initiatives by him in this second tour of duty such as big tariff hikes and the crackdown on the U.S. labor force through deportations and a full-court press against both legal and illegal immigration are linked to the current persistence of above-target inflation.
U.S. tariff’s aren’t really hurting other countries’ trade surpluses. Yesterday delivered news of China’s third largest monthly trade surplus, $111.68 billion in November, pushing America’s main economic and geopolitical rival’s year-to-date surplus to a whopping $1.08 trillion, 22% larger than in the first 11 months of 2024. Today, Germany announced a larger-than-forecast EUR 16.86 billion trade surplus in October, which in seasonally unadjusted terms (EUR 17.3 billion) was 14.6% wider than the year-earlier surplus.
Among reported price figures today,
- Mexican CPI inflation of 3.8% last month was at a 5-month high of 3.8% but not far from July’s 54-month low of 3.5% and down from the peak of 8.7% in 2022.
- Greek CPI inflation, which had receded from 12.6% in mid-2022 to 1.6% by September 2023, printed at a 3-month high of 2.4% last month.
- The original measurement of Dutch consumer price inflation in November, a 3-month low of 2.9%, was confirmed at that level in a second estimate.
- Hungarian CPI inflation slowed a full percentage point to 3.8% last month from 4.8% in October.
- Croatian producer price inflation rose to a 27-month high but of just 2.0% in November. Such had imploded from 24.0% in mid-2022 to -9.4% by September 2023.
- Norwegian PPI inflation of -8.1% last month was its most deflationary in 21 months and below zero percent for a seventh straight time.
- Lithuanian PPI inflation of -0.9% in November matched October’s result. Such has been in sub-zero territory for all but four of the past 32 reported months.
U.S. economic data releases today showed 1) a slight uptick in small business sentiment to a reading of 99.0 in November from 98.6 in the prior month, a 2025 low of 95.8 right after “Liberation Day” in early April, and 105.1 one month after the 2024 national election; 2) fewer job quits in October than September but also a slight rise in job openings; and 3) a 0.3% month-on-month drop in the U.S. index of leading economic indicators, matching September’s result and analyst expectations.
Ireland’s construction purchasing managers index fell back to a 2-month low of 46.7 in November and was below the 50 threshold for a seventh straight month.
Japanese machine tool orders were 14.2% above a year earlier in November. The stock of M2 money in Japan exceeded the level a year earlier by 1.7% in October-November versus on-year expansion rates of 1.3% in the third quarter, 0.9% in the first half of 2025, and 1.7% in full 2024.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Bank of England, Bank of Japan, Central Bank of Kenya, FOMC, German trade surplus, Reserve Bank of Australia
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