Weekly economic and financial commentary: The balance of risks has shifted

United States: The balance of risks has shifted

• The steadiness in consumer spending has helped prevent widespread layoffs, but rising tariff-related costs have limited firms’ ability to expand payrolls or undertake major capital investments. These crosscurrents have curtailed job creation and kept inflation elevated. The FOMC responded this week by cutting its policy rate 25 bps, signaling that a deteriorating jobs market has overshadowed concerns about stubborn inflation.

• Next week: New Home Sales (Tue.), Durable Goods (Thu.), Personal Income and Spending (Fri.)

International: Central bank bonanza: Cuts, holds and surprises

• Central banks were in the spotlight this week—not only the Federal Reserve, but also counterparts across advanced and emerging markets. Rate cuts came from central banks in Canada, Norway and Indonesia, while the U.K., Japan and Brazil held rates steady—and there were plenty of surprises along the way.

• Next week: Eurozone PMIs (Tue.), Riksbank Policy Rate (Tue.), Banxico Policy Rate (Thu.)

Interest rate watch: A "risk management" cut

The FOMC cut the fed funds rate by 25 bps to 4.00%-4.25%, citing rising risks to employment despite persistent inflation, with most members signaling further easing ahead. Chair Powell emphasized a cautious, data-dependent approach, suggesting additional rate reductions are still likely but not guaranteed.

Credit market insights: Cautious households moderate credit card spending

Credit card spending growth has moderated as households faced scant income gains in 2024, with most increases concentrated among top earners. Lower credit uptake, combined with reduced discretionary outlays and rising delinquencies, reflects mounting financial pressure on consumers.

Topic of the week: From bipolar to tripolar?

We explore how global trade fragmentation could evolve beyond a U.S.-China split into a three-bloc system including the EU. Such a tripolar world would impose far greater costs on global growth.

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