Central Banks Face Challenges as Trump’s Policies Fuel Uncertainty, BIS Warns

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The Bank for International Settlements (BIS), the leading global body for central banks, has issued its first public caution regarding the potential risks associated with U.S. President Donald Trump's trade policies and deregulation efforts.  

BIS chief Agustin Carstens highlighted trade issues as a major concern, alongside fiscal policy, regulatory changes, immigration policies, and broader geopolitical uncertainties. Speaking in Mexico City, Carstens emphasized that such widespread policy uncertainty could significantly impact central banks.  

He warned that economic growth might slow as businesses delay investments and consumers hold off on major purchases. Additionally, financial markets could experience heightened volatility, as recent fluctuations in currencies and assets have shown, driven by investor uncertainty over U.S. tariff measures targeting Canada, Mexico, and China.  

Carstens noted that these market movements, particularly currency depreciations, could contribute to inflation. He urged central banks to stay focused on their core mandate of controlling inflation despite external pressures.  

As a key forum for central banks worldwide, the BIS manages foreign exchange reserves and hosts the Basel Committee on Banking Supervision. However, Trump's re-election has raised concerns about a potential breakdown in global financial regulations, sparking fears, particularly in Europe, of a regulatory race to the bottom.  

Carstens also cautioned that loose fiscal policies and rising debt levels could drive inflation and destabilize currencies. In extreme cases, he warned, a sudden shift in public debt pricing could threaten financial stability.  

Moreover, he pointed out the risk of a growing gap between U.S. interest rates and those of other major economies. With U.S. economic growth outpacing much of the world, he warned that diverging central bank policies could lead to fluctuations in capital flows, exchange rates, and global financial conditions.

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.