WASHINGTON/LONDON, March 21 — Slowing economic growth mixed with a bout of renewed inflation risks moving the US from global overachiever to a drag on the rest of the world as foreign central banks and others confront the spillovers from President Donald Trump's fast-moving effort to rewire international trade.
With analysts in the US noting the stagflationary direction of the US outlook — weaker output and higher prices — central banks globally are parsing what the fallout may mean for them.
When the Bank of England held its policy rate steady yesterday it pointed specifically to Trump's tariff moves as clouding the global outlook. "Other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally," it said in a statement.
Similar warnings came from the Bank of Japan, which held its policy rate steady and signaled future moves could be shaped by how Trump's plan to blanket the world with new tariffs plays out in practice.
European Central Bank President Christine Lagarde said yesterday that US tariff measures and likely European Union retaliation would be a blow to growth and tack perhaps half a percentage point onto inflation in the short-run at least.
Swiss National Bank governing board member Petra Tschudin said as the SNB cut its policy rate that "developments abroad continue to represent the main risk" in an economic climate that "has become considerably more uncertain".
Sweden's Riksbank held rates steady citing an "intact" local outlook, but still called recent global developments "dramatic".
The International Monetary Fund, which meets next month in Washington for the first time since Trump's inauguration, had previously warned of the blow a trade war could deal across the global economy.
Economists see a likely recession in Canada and Mexico, which depend mightily on exports to the US and have been particularly targeted by Trump, while shifts in global currency and capital flows and US foreign spending are already creating sets of winners and losers.
Trump has said he will follow through next month on twice-delayed plans to impose 25 per cent levies on goods from Mexico and Canada despite a regional trade agreement negotiated in his first term, and announce a tariff "number" for other countries based on taxes they impose on US goods. He has already boosted tariffs on goods coming from China and on steel and aluminium.
In new projections this week, Fed officials said they expect slower growth and higher inflation in the year ahead, with risks tilted to the upside, but perhaps more significantly feel the economic horizon is so obscured that the outlook for monetary policy has become a shrug of the shoulders.
— Reuters
