Why Global Central Banks Are Resisting Rate Cuts After Fed’s Move

Source Credit : Portfolio Prints

What just happened

• On September 17, 2025, the U.S. Fed cut its benchmark interest rate by 25 basis points to a range of 4.00–4.25%, calling it a “risk-management cut,” citing a softening labour market but persistent inflation.


• However, many other major central banks have not followed suit immediately: the Bank of England held rates steady, the European Central Bank (ECB) is being cautious, and others are taking a “wait-and-see” approach.


• Some smaller or pegged-currency economies (e.g. Gulf states, Hong Kong) have moved more in line with the Fed.

Why central banks are resisting rate cuts for now

Here are the main reasons behind the caution:

• Inflation still stubborn / above target

  Even though inflation has moderated somewhat in many places, core inflation or persistent service-sector inflation (wages, rents, services) remains above many central banks’ targets. Cutting too soon risks letting inflation reaccelerate. The UK is a good example: inflation in August was around 3.8%, well above the BoE’s 2%.



• Uncertain economic growth / downside risks

  Growth is slowing in many advanced economies, but not collapsing. Some central banks are worried about weakening demand, supply chain shocks, or spillovers from global trade tensions. They are reluctant to ease policy until there is clearer evidence that the slowdown is persistent and that inflation won’t reverse.



• Labour market still relatively tight / risks of “lagging” inflation

  Where unemployment remains low, or labour markets still show strength, central banks fear that cutting too early might allow pressure from wages, services, or other sticky components to feed into inflation. The Fed explicitly noted that job gains have slowed but unemployment remains low.



• Global uncertainties and external risks

  Things like trade wars / tariffs, energy price volatility, geopolitical tensions, fragile financial conditions, currency depreciation risks — all these are making central banks more cautious. For example, the effects of import costs (tariffs or supply bottlenecks) can reintroduce inflation. Also, central banks want room to maneuver in case external shocks worsen.



• Maintaining credibility and anchoring inflation expectations

  Once public and market expectations see rate cuts, central banks need to be sure that inflation expectations won’t become unanchored. If people begin expecting inflation to stay high, that changes behaviour (wages, prices) and makes inflation harder to control. So they prefer to be sure before easing. Impulses from energy, food, imported goods or housing markets are watched closely.



• Different initial conditions / domestic constraints

  Not all countries are in the same position. Some already have relatively low inflation, or have less room in their monetary policy toolkit. Others have fixed‐or‐pegged currencies (e.g. Hong Kong), or are dealing with fiscal pressures, or have financial sectors more sensitive to interest rate changes. Each central bank has to weigh local conditions. For instance, China’s central bank held its policy rate steady after the Fed move — strong export performance and a booming stock market are among reasons.

Risks if they wait too long

If these central banks delay rate cuts too much, there are risks:

• Inflation could reignite, especially via supply shocks or imported inflation.


• Economic growth could weaken further, hurting employment, investment, households.


• Overly tight monetary policy might strain debt burdens (particularly where governments or firms have large borrowing) and financial stability.


• Currency over‐appreciation or volatility: in some emerging markets, if rates are much higher in the U.S. or relative to the Fed, capital flows could shift, putting pressure on local currencies.

Where central banks seem to be leaning

From recent news:

• Bank of England: Holding at 4% rate. Inflation remains a concern. QT (quantitative tightening / bond sales) is being slowed.


• ECB (Eurozone): Last meetings show rates unchanged, and markets are pushing back on expectations of large further cuts. Christine Lagarde and ECB officials have described risks as “balanced” or “more balanced” but warning that they are watching data carefully.


• China (PBOC): No rate cut following the Fed. Their domestic situation (exports, growth slowdown) allows them to delay easing.

What to watch next

These indicators will be key in determining when / how aggressively central banks may start easing:

• Inflation data, especially core inflation and services inflation, including wage growth.


• Labour market signals: unemployment, participation, wage pressures.


• Growth metrics: consumer spending, investment, PMI (manufacturing / services) surveys.


• External risks: commodity price swings (especially energy), trade‐policy developments (tariffs, supply chain disruptions), geopolitical events.


• Expectations & market signals: Yield curves, inflation expectations (from surveys, bonds), currency movements.

Conclusion

In short, while the Fed has made a move toward easing, many global central banks are hanging back — balancing on a tightrope between allowing enough monetary relief to support growth, and avoiding premature easing that could allow inflation to creep back or disrupt financial stability. The global economy is in a fragile stage, and central bankers are acting with caution.