"Trump variable" has turned the financial markets upside down, with the policy paths of the Federal Reserve and global central banks becoming increasingly divergent.

As President Trump enters the second year of his return to the White House, he has made significant changes to fiscal policy and trade patterns. He has frequently threatened the independence of the Federal Reserve and continuously demanded rate cuts. The interest rate paths of central banks around the world are beginning to diverge, with each major central bank taking different monetary policy measures to promote economic growth in response to the economic uncertainty and market volatility caused by Trump's leadership in the US. According to Bloomberg Economics' latest economist forecasts, the monetary policies of major economies, whether advanced or developing, may no longer be as synchronized over the next two years as they have been in recent years. With the easing after the global pandemic and the end of the tightening cycle in monetary policy, the interest rate paths of the major currency economies across the globe are becoming more diverse. As shown above, the monetary policies of G-10 developed countries will see significant divergence. Trump Factor Since early 2025, Trump, who won the US presidential election once again, has officially returned to the White House. The "Trump factor," the core influencing factor, which involves the Trump administration's policies towards foreign countries such as imposing tariffs and influencing the monetary policies of the Federal Reserve, has become the main factor affecting global central bank policy space and the global stock market trends. Trump's policies and the direction of the US economic politics are influencing expectations for central bank decisions, especially regarding the future direction of the Federal Reserve's monetary policy, rate cut expectations, and political pressure. These issues undoubtedly have a significant impact on the interest rate paths of the global central bank system. It is the economic uncertainty and "economic haze" brought about by Trump's re-election that have led major central banks across the globe to adopt more cautious monetary policies to ensure their own currency exchange rates and long-term economic growth, resulting in a continued divergence in monetary policy paths among different central banks. Bloomberg Economics forecasts show that over the next year, central banks of sovereign currencies with the largest scale of transactions will have various interest rate paths, and the uncertainty of US policy and the intense pressure from Washington will continue to test central bank decision-makers' confidence in monetary policy. Excluding the US, Bloomberg Economics' composite index of interest rates of developed economies is expected to remain largely unchanged by the end of the year, highlighting how divided monetary policies among developed economies are becoming, with these economies no longer following the changes in Federal Reserve monetary policy. Although major central banks are no longer blindly following the Federal Reserve, the Fed's monetary policy may become more prominent than usual. Policy makers will carefully weigh the mixed signals coming from the US economy and face the prospect of selecting a new chairman amid criticism from a president who openly calls for significant interest rate cuts. It is understood that the ongoing battle between Trump and Fed Chairman Powell over rate cuts has escalated. Fed Chairman Jerome Powell stated that the US Justice Department had issued a grand jury subpoena to the Fed, threatening criminal prosecution for what he mentioned during his testimony before Congress in June 2025 regarding the renovations at the Fed headquarters. "All of this is a pretext," Powell said in a statement on the Fed's official website. "The threat of criminal charges is because the Fed sets benchmark rates based on our professional judgment of serving the best interests of the American public, not following the preferences of the US president." This unprecedented action by the Trump administration marks the escalation of a long-standing dispute and tug-of-war over rate cuts between Trump and the Fed Chairman. Trump has long been calling for significant rate cuts, even suggesting rates should be reduced to 1% or lower. Currently, the US benchmark interest rate is in the range of 3.5% to 3.75%. Additionally, the Trump administration has also attempted to dismiss another Fed governor, a move that is currently being litigated in US courts. Trump stated in an interview with The New York Times last week that he had decided on a replacement for Powell as Fed Chairman. It is expected that he will announce his decision soon. Kevin A. Hassett, Trump's chief economic adviser who also advocates for significant rate cuts, is a leading candidate for this position. While Powell's term as chairman ends in May, his term as a Fed governor will continue until January 2028. Powell has not yet disclosed whether he plans to remain at the Fed beyond this year. The investigation of Powell by US prosecutors highlights the broader conflict between Trump and the Fed. Other attacks include attempts to oust Fed governor Lisa D. Cook on grounds of mortgage fraud. The president can only dismiss Fed officials for "good cause," which typically implies malfeasance or neglect of duty. It is understood that the Supreme Court will hear arguments in Cook's case on January 21. Congress has granted the Fed the power to set benchmark rates independently in order to avoid interference from the president, as the political fate of the US president is often closely tied to the actual economic conditions in the US. Global Central Bank "Monetary Policy Melee": Rate cuts, rate increases, and long-term status quo Economists at Bloomberg Economics generally predict that the Fed's accommodative policy will exceed the market's expectations of two cautious rate cuts through 2026. Overall, the Fed will continue to maintain policy flexibility in an uncertain economic environment. The latest December non-farm payroll data was just right, the kind of data the market wanted to see. It indicated that the US economy remains resilient without any negative disturbances to the expectation of a "soft landing" for the US economy. This data is unlikely to change market expectations for Fed rate cutsrate futures markets are currently pricing in the possibility of two to three rate cuts in 2026, higher than the median expectation of just one rate cut shown in the FOMC dot plot. In addition, economists expect that Canada, Japan, and Switzerland may announce a continued path of rate hikes, while the Eurozone is more likely to keep its benchmark monetary policy rate unchanged for the long term. Australia and New Zealand may announce further significant rate cuts, leading to a significant divergence in global monetary policy trajectory that was once highly aligned. Furthermore, emerging market countries from Brazil to Nigeria are expected to make substantial rate cuts. Bloomberg Economics economists unanimously believe that the most important global central bankthe Federal Reservemay announce a larger scale of rate cuts than expected by the market. This is mainly because the non-farm data indicates that although the US labor market has not entered a long-term contraction, it is showing signs of weakness, which could erode the hawkish monetary policy sentiment of the Fed. However, other major central banks are less likely to follow the potential large rate cuts of the Fed, as they have had much more aggressive rate cut cycles in the past and inflation could potentially heat up at any time. For example, the Bank of England's rate cuts will likely be much smaller, the European Central Bank may maintain a long-term status quo in rate cuts, and the Bank of Japan may move in the opposite direction with its monetary policy.