Rate cuts in US and Europe: the Federal Reserve (Fed) cut interest rates by 25 basis points in December, following earlier cuts in September and November, taking the key federal funds rate to a range of 4.25% to 4.5%. The rate of consumer price inflation rose from 2.6% to 2.7% in November and Fed Chair Jerome Powell commented: “From this point forward, it’s appropriate to move cautiously and look for progress on inflation.” The European Central Bank (ECB) also cut interest rates in December, reducing its deposit rate by 25 basis points to 3%. News of the cut pushed the pound to its highest level against the euro since the Brexit vote in 2016. ECB President Christine Lagarde stoked expectations of further cuts to come, saying: “The direction of travel is clear and we expect to lower rates further.”
Lacklustre outlook for Germany: Germany’s economy is predicted to struggle this year: the Bundesbank warned that the global rise in protectionism is set to be a key source of uncertainty. Germany’s Dax Index rose by 1.4% in December and increased by 18.8% over the year, boosted by a strong contribution from its largest constituent, software company SAP. In France, however, the CAC 40 Index rose by 2% in December but declined by 2.2% over 2024, reflecting the country’s recent political upheaval.
Uncertainty in Japan: policymakers at the Bank of Japan (BoJ) voted by eight to one to leave its key interest rate unchanged at 0.25%. In a speech during December, BoJ Governor Kazuo Ueda warned of “high uncertainties surrounding future developments” in the US and elsewhere, citing the potential economic impact of the incoming Trump administration. The Nikkei Index rose by 4.4% in December and by 19.2% over 2024.