Strategist
Stay informed on Credit investing
Stay ahead with our newsletter on the latest in credit investing.
• Insight
Central bank watcher: Trade-offs
Headlines around US import tariffs have kept market volatility elevated. One thing is clear, however: tariffs for trade with the US will be higher than they were before 2 April.
Authors
Strategist
Strategist
Summary
- The Fed is waiting for the fog to clear
- The ECB stays flexible as it eases policy
- For the PBoC timing is everything
Business conditions have become more uncertain, regardless of the outcome of current trade negotiations. This puts the Fed in a situation where they will be forced to choose between higher tariff-induced inflation and weaker growth.
The ECB faces a different dilemma. For now, with policy rates not yet expansionary, there is a clear case for continuing to cut rates. Inflation has come down and growth is very likely to be hurt by trade tariff uncertainty. Looking beyond the next one to two quarters, things may be different. As we approach the end of this year, the announced large German fiscal stimulus and defense spending might play a more prominent role in supporting growth. At that point, the ECB may face a trade-off between implementing further monetary stimulus or allowing fiscal stimulus to run.
The PBoC remains in a very different monetary policy cycle. It has been easing policy for most of the past seven years and a new stimulus package was announced recently. There is probably more to come, though not in the immediate term.
The Bank of Japan is still in the process of hiking rates, given the resurgence of inflation, but it now also faces an economic environment where growth will be hurt by trade uncertainty. While this clouded outlook has slowed the pace of hikes, we don’t think it has derailed it. In our view, more rate hikes are still likely to come.
Figure 1 – Outlook for central banks’ policy rates
Source: Bloomberg, Robeco, based on money market futures and forwards, 12 May 2025
Discover credits
Important information
THIS WEBSITE IS SOLELY INTENDED FOR PROFESSIONAL INVESTORS, WHICH HAS THE MEANING ASCRIBED TO IT IN THE SECURITIES AND FUTURES ORDINANCE (CAP. 571 OF THE LAWS OF HONG KONG) AND ITS SUBSIDIARY LEGISLATION. Investment involves risks. Past performance is not indicative of future performance. The information contained in this website is provided for reference only and does not constitute investment advice or an offer or solicitation to buy or sell in any securities or to adopt any investment strategy. Investors should not base their investment decisions solely on the information provided on this website and are advised to seek independent advice (including advice on tax implications) before making any investment decisions. Investors should ensure they fully understand the risks associated with the investment products and should also consider their own investment objectives and risk tolerance level. The investment decision is yours. You should not invest unless the intermediary who sells you the investment products has advised you that it is suitable for you and has explained how it is consistent with your investment objectives. Please refer to the relevant offering documents or other legal documents for further details including the risk factors. This website is published by Robeco Hong Kong Limited which is regulated by the Hong Kong Securities and Futures Commission (“SFC”) (CE No. APU851). This website has not been reviewed by the SFC. No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of investments may fluctuate. Past performance, projections, or forecasts included in this website should not be regarded as guarantees or indications of future performance, and no express or implied warranty is provided. The contents of this website are based on sources believed to be reliable, but due to the nature of information delivery technology and the necessity of using multiple data sources, including third party content, their accuracy is not guaranteed. The opinions expressed are as of the date shown above and may change as market conditions evolve, and are subject to change without notice. These opinions may differ from those of other Robeco investment professionals. Robeco accepts no liability for any direct, indirect, or consequential loss arising from the use of this material or any comments, opinions, or estimates contained herein. Robeco has no duty to update this website or any website content. Materials on this website may not be reproduced, distributed, or published without prior written permission from Robeco. Unless otherwise specified, Source: Robeco.
