Central bankers worry about the inflation impact of Trump's policies

After Donald Trump's landslide win, Global central bankers are preparing for their worst fears to materialise. Trump's campaign promises suggest inflationary risks will rise. The rising cost of living is what major central banks have been fighting since the pandemic-led surge in inflation.

Will global inflation surge its ugly head again? That is the question on major central banks' minds. The reason is Trump's policy pledges during the run-up to the presidential race. Tax cuts would further strain the USbudget, tariffs on US imports would disrupt global trade, and deportations might reduce the availability of cheap labour.

The Federal Reserve may be less reluctant to cut interest rates in response to rising inflation. That is the most significant concern posed by Trump's policies. As a result, the Dollar is likely to strengthen and weigh on developing countries.

South Korea's finance minister, Choi Sang-Mok, said, "If the policy stance that's been stressed by president-elect Trump becomes realised, the impact on our economy is expected to be significant."

With the wars in West Asia and Europe already hurting disrupted supply chains, Trump's global tariffs come as a fresh threat. The risks are acute because inflation is already proving a challenge for many countries —even before any potential tariffs.

Over a third of major central banks are yet to bring inflation down to their targets. And just when everyone thought inflation risks were in the side-view mirror, Trump poses a new risk.

Alicia Garcia-Herrero, Chief Asia Pacific Economist at Natixis, said, “US markets may be cheering, but economies across Asia could be big losers.” She added, "Trump's policies would mean less room to cut just as central banks need it the most."

In response to the tariff threat, China's central bank fixed the Yuan at its lowest level since 2023 on Thursday. Even the FED is unclear about the economic impact. The risk now is that the shadow of tariffs complicates the central bank's efforts to tame inflation without hurting economic growth.

Separately, US labour costs surged more than expected in the September quarter. Those costs were also marked up for recent quarters, which risks fanning inflationary pressures. For now, bets on the lock-step global easing over the coming year are soon fading.