Editorial | Hong Kong interest rates volatility price to pay as spectre of Trump tariffs looms
Uncertainty over when next US cuts will come in 2025 prompts Hong Kong Monetary Authority chief to send out warning
The return of Donald Trump to the White House has injected uncertainty into anticipation of falling interest rates in the coming year. As expected, the US Federal Reserve has just cut its benchmark lending rate by 25 basis points.
It was quickly followed by the Hong Kong Monetary Authority (HKMA), easing the burden on mortgage borrowers and companies. But the Fed tempered hopes this would be the first of several cuts with a hawkish forecast of only two more reductions next year.
Fed chairman Jerome Powell said a slower pace of rate cuts reflected recent stubborn inflation and expectations that it would be higher than targeted in 2025. The latter is interpreted as inflationary pressure that would be unleashed by Trump’s proposed tariff increases on imports after he takes office on January 20.
This prompted a warning from the HKMA that the interest rate environment would remain volatile. “The US next year will continue to cut rates, but the pace and frequency of rate cuts may be less than initially expected,” chief executive Eddie Yue Wai-man said.
The question now becomes whether the two more rate cuts telegraphed by the Fed come early next year, ahead of the tariffs, or later when their inflationary impact is assessed. Right now, based on the way futures contracts are transacting, most traders appear to bet on early rate cuts.
