Monetary Policy

In the US and Japan, monetary policy is expected to support fiscal policy, even when central banks have other plans. Federal Reserve “Fed” Chair nominee Kevin Warsh's reform plans conflict with US President Donald Trump's preference for low rates, and the Bank of Japan's efforts to normalize policy clash with Prime Minister Sanae Takaichi's economic agenda.

With no end in sight to the US-Israeli war with Iran, and tensions escalating once again over the weekend, investors are bracing for more volatility. Inflation fears have ramped up significantly, reflected clearly in government bond markets where rising yields show rate cuts being priced out and rate hikes increasingly being priced in.

Recent developments involving Federal Reserve (Fed) Chair Jerome Powell have raised fresh questions around central bank independence, the politicisation of monetary policy, and the future of Fed leadership, particularly with his term as Chair due to expire in May 2026.

For global bond investors, predictable central bank activities are an important component of long-term strategy. But the Trump administration’s unprecedented pressure on the Fed, including a criminal probe of Chair Jerome Powell, is driving investor fears about the independence of the world’s most important central bank and the reliability of monetary policy.

Explore the Global Credit Outlook 2026: A concise overview of key trends in global credit markets, from macroeconomic shifts and corporate fundamentals to AI-driven investments and market opportunities. Gain insights to navigate the year ahead effectively.

In a K-shaped economy, high-income earners and large corporations thrive while low-income groups and small businesses struggle. This divergence challenges the Fed, as its policy decisions traditionally rely on GDP, unemployment rates, and inflation. However, K-shaped dynamics are often hidden behind these aggregate measures.

After solid stress test results from UK insurers last week, on Tuesday it was the banks’ turn as the Bank of England (BoE) published its 2025 stress test results along with December’s Financial Stability Report.

The wait is over. UK Chancellor Rachel Reeves delivered her much anticipated November Budget on Wednesday, ending weeks of rumours and leaks that had created a general feeling that all measures were on the table – now investors, businesses and taxpayers alike can fill in the empty cells on their spreadsheets and calculate what’s left.

You can now watch the replay of our webinar “Under Pressure: Checks and balances in central banks”

In 2017, when the Federal Reserve (Fed) was preparing to shrink its balance sheet, then-chair Janet Yellen famously described the process of quantitative tightening (QT) as being "like watching paint dry."

Political influence over monetary policy can undermine long-term economic stability, with a potential impact on investor confidence, bond markets, and the broader economy. This article explores scenarios ranging from zero influence to a mild erosion of US Federal Reserve independence to outright political capture.

Jerome Powell and his Federal Reserve (Fed) colleagues decided to cut the Fed Funds rate by 25bp to 3.75-4% at last week’s policy meeting, marking 150bp of cuts since the cycle began in September 2024.