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What the World’s Top Central Banks Will Do Next Year


It was the year central banks jumped back into the fray, cutting interest to deal with a slowdown driven by a trade war and subsequent decline in manufacturing.


Some, like the Federal Reserve, had at least made some headway on rate hikes before 2019, creating room to loosen amid the weakest growth since the financial crisis. But others, like the European Central Bank, found themselves in a more difficult position and had to cut benchmarks further below zero, stoking resentment about subzero rates.


2020 looks like it might be a quieter year for monetary policy. Fiscal may take up some of the lifting work, and growth prospects are looking a little brighter.


The economic numbers are mostly mixed rather than positive, though. On balance, the monetary policy bias still leans to the dovish side. While the big guns are set to hold fire, others, especially in the emerging markets, are projected to cut again.


What Bloomberg’s Economists Say: “A moment of calm in the global economy is obscuring a serious challenge for the world’s central banks. Low rates for most and negative for some means policy space is severely depleted. We don’t think the next downturn is coming in 2020. When it does come, central banks won’t have all the answers.” — Tom Orlik


Here is Bloomberg Economics’ quarterly review of 23 of the top central banks, which together set policy for almost 90% of the global economy.


U.S. Federal Reserve


Current federal funds rate (upper bound): 1.75% Forecast for end of 2020: 1.75%


Fed Chairman Jerome Powell has left no doubt that interest rates are on prolonged hold, saying Dec. 11 the current stance “likely will remain appropriate” unless the Fed’s favorable outlook for the economy sees a material reassessment. He spoke after policymakers kept interest rates steady in a 1.5% to 1.75% target range following three consecutive cuts, and published forecasts showing 13 of 17 officials projecting no change in rates through 2020. That would keep them on the sidelines during a presidential election year.


That said, the U.S. central bank isn’t entirely fading into the background. Strain in money markets has pushed it to buy Treasury bills to restore ample reserves in the banking system. Some investors argue it will need to broaden the scope of those purchases to short-dated coupon-bearing securities. Powell said they were not ready to take such a step, but would do so if necessary.


What Bloomberg’s Economists Say: “The Fed is comfortably on hold for the foreseeable future, as policymakers are less concerned by the risks which justified their ‘insurance cuts’ in the latter half of 2019 — trade tensions, below-target inflation, and sluggish global growth. The threshold is high for policy adjustments in the near term, particularly for rate hikes, and the impetus to stand pat will increase as the U.S. election draws nearer.” — Carl Riccadonna


European Central Bank


Current deposit rate: -0.5% Forecast for end of 2020: -0.5%


The ECB has pledged to step up stimulus again if needed,