Global Central Banks Tackle Inflation and Growth in Diverging Paths 

In a week marked by significant monetary policy decisions, major central banks demonstrated a cautious approach to balancing inflation targets and economic growth. The Federal Reserve lowered its federal funds target rate to 4.25%–4.5%, signaling measured adjustments amid strong economic growth and persistent inflation. The Bank of Japan held its policy rate at 0.25% while emphasizing a moderate recovery and inflation alignment with its 2% target. Meanwhile, the Bank of England maintained its rate at 4.75%, addressing elevated inflation and a weakening growth outlook. These decisions underscore the ongoing complexities faced by policymakers in navigating global economic uncertainties.

On December 18, 2024, the Federal Reserve announced a 0.25% reduction in the federal funds target rate to a range of 4.25%–4.5%, citing solid economic growth, a slightly elevated inflation rate, and a still-strong labor market. While inflation is progressing toward the Fed’s 2% target, it remains above the goal, necessitating cautious adjustments to monetary policy. The Fed reaffirmed its commitment to achieving maximum employment and stable inflation, with flexibility to adapt if risks emerge. The decision saw broad support among voting members, though one dissenting vote favored maintaining the previous rate. The Fed also outlined plans for continued asset rollovers and reinvestments to support policy goals.

On December 19, the Bank of Japan (BOJ) maintained its policy of targeting an uncollateralized overnight call rate of around 0.25%, as decided in an 8-1 vote at the Monetary Policy Meeting (MPM). Japan’s economy continues a moderate recovery, with improvements in corporate profits, business sentiment, and private consumption, though housing investment and public investment remain weak. Inflation, driven by wage growth and rising service prices, is expected to gradually align with the BOJ’s 2% stability target.
The BOJ also completed a review of 25 years of monetary policy, assessing its effects and side effects. Looking forward, it emphasized a balanced approach to achieving sustainable inflation, considering uncertainties such as global economic trends, commodity prices, and domestic wage and price-setting behaviors. The BOJ remains attentive to foreign exchange developments and their impact on Japan’s economy.

The Bank of England’s Monetary Policy Committee (MPC) voted on December 19, 2024, to maintain the Bank Rate at 4.75% by a 6-3 majority, with dissenters favoring a 0.25% cut. CPI inflation rose to 2.6% in November, exceeding expectations due to stronger core goods and food prices. While disinflationary progress continues, domestic inflationary pressures are resolving more slowly. UK economic activity indicators have weakened, and GDP growth is expected to stagnate in Q4.
The MPC remains focused on achieving its 2% inflation target sustainably and balancing risks between inflation persistence and economic slack. It reaffirmed the need for a gradual and restrictive monetary policy stance while closely monitoring evolving economic data and uncertainties, including wage growth and global developments.

This week’s monetary policy decisions by the Federal Reserve, Bank of Japan, and Bank of England reflect a shared commitment to balancing inflation control with economic growth amid persistent global uncertainties. While the Fed opted for cautious rate easing, the BOJ and Bank of England maintained their respective stances to address domestic economic conditions and inflation dynamics. These actions underscore the complexity of navigating diverging economic landscapes and the need for adaptive, data-driven policy approaches in an evolving global economy.