Take Two: Fed keeps interest rates unchanged; China and Bank of England opt to cut
- 12 May 2025 (3 min read)
What do you need to know?
The US Federal Reserve (Fed) left interest rates unchanged at 4.25%-4.50% as expected but warned that inflation and unemployment risks had risen due to the US administration’s tariff hikes. While recent indicators suggest the economy has continued to expand at a solid pace, “uncertainty about the economic outlook has increased,” policymakers said. Fed Chair Jerome Powell ruled out any pre-emptive rate cuts and said policymakers will wait for data showing the impact of President Donald Trump’s policies before taking action. AXA IM now expects the Fed to cut rates in September, with successive cuts to 3.75% by year-end and to 3.25% by the end of 2026.
Around the world
China’s central bank cut interest rates and said it would reduce the reserve requirement ratio - the amount of money banks need to hold in reserve - to release RMB 1trn ($138bn) into the banking system to help stimulate the economy. China exports grew 8.1% year on year in April, substantially more than expected, but its exports to the US fell 21% amid tariff hikes. Elsewhere, the Bank of England cut interest rates by 25 basis points to 4.25%. AXA IM expects two further cuts to reach 3.75% at the end of this year and two more next year, to 3.25%.
Figure in focus: $324trn
Global debt rose to a record high of more than $324trn after increasing by $7.5trn in the first quarter (Q1) of this year, figures from the Institute of International Finance (IIF) revealed. The surge was partly due to the depreciation of the US dollar but was over four times the average quarterly increase seen since the end of 2022. China, France and Germany were the biggest contributors to the Q1 rise, the IIF said. Meanwhile, the global debt-to-GDP ratio edged down to just over 325%.
Words of wisdom
Microplastics: Tiny fragments of plastic that are manufactured or come from plastic waste as it breaks down. Microplastics can be harmful to animals, marine life and ecosystems, and have been linked to adverse health effects for humans. A new scientific study has found that microplastics are present at a range of ocean depths, which may have potential consequences for climate regulation. Last month, the European Parliament agreed new rules on preventing the loss of plastic pellets – the raw material used to make plastic products – into the environment, part of an effort to tackle microplastics pollution.
What's coming up?
On Tuesday, the latest Eurozone ZEW Economic Sentiment Index - which reflects expectations of the bloc's six-month economic outlook - is published, while the US announces April inflation figures. The Eurozone publishes a second estimate of Q1 GDP growth alongside employment data on Thursday, when the UK also reports Q1 GDP growth. Japan follows on Friday with its own Q1 GDP growth figures.
Disclaimer
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Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
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