Investors are pushing back their expectations of interest rate cuts around the world, as the US Federal Reserve’s battle with price pressures complicates other central banks’ loosening plans.

As the US reported the latest in a string of poor inflation figures, markets reined in their forecasts for rate cuts by the European Central Bank and the Bank of England, as well as by the Fed itself.

“The Fed’s inflation problems have a global dimension and other central banks cannot ignore them,” said James Knightley, chief international economist at ING in New York. “In particular, if the Fed can’t cut rates soon it could stoke up dollar strength, which causes stress for the European economy and constrains other central banks’ ability to cut rates.”

He added: “Plus there is a worry that what is happening on inflation in the US could surface in Europe as well.” 

Senior officials at the ECB and BoE argue they are not confronting the same inflation problems as the US, implying they have more scope to cut rates earlier.

But shifts in the futures market indicate the global impact of the persistent US inflation problem.

Traders now expect the ECB to cut rates by an average of about 0.7 percentage points this year starting at its next policy meeting on June 6, while two weeks ago they expected cumulative cuts of 0.88 points.

At the beginning of the year, when US inflation appeared on a firmer downward path, they expected cuts of 1.63 points.

Markets now anticipate BoE cuts of 0.44 percentage points this year compared with 0.56 points two weeks ago and 1.72 points at the start of the year.

The backdrop for the shift has been the market’s reduced expectations for the Fed, which is set to keep rates at their 23-year-high at its meeting next week. While at the start of the year investors had expected as many as six quarter-point cuts, this year, they now expect one or two.

The US and its European counterparts have diverged in the past. But if other regions cut rates more aggressively than the Fed, they risk harming their own economies because of the impact on exchange rates, import costs and inflation.

“There’s a good macro case for divergence, but ultimately there’s a limit on how far it can go,” said Nathan Sheets, chief economist at US lender Citi. He added that it was “more challenging” for the ECB to “cut aggressively in an environment where the Fed is waiting”.

Fed chair Jay Powell conceded this month that US inflation was “taking longer than expected” to hit its target, signalling that borrowing costs would need to stay high for longer than previously thought.

In figures on Friday, the Fed’s preferred inflation metric came in higher than expected at 2.7 per cent for the year to March, and a minority of traders are now even betting on Fed rate rises in the next 12 months.

Marcelo Carvalho, global head of economics at BNP Paribas, said the ECB was neither “Fed-dependent” nor “Fed-insensitive”.

Despite the market’s expectations that high US borrowing costs will limit their freedom of manoeuvre, top European central bankers insist their less serious inflation problem requires a different response.

“It is a different kind of animal we are trying to tame,” ECB president Christine Lagarde said this month in Washington.

She said the “roots and drivers” of the two regions’ price surges were different — with Europe affected more by energy costs and the US by big fiscal deficits.

BoE governor Andrew Bailey has also argued that European inflation dynamics were “somewhat different” from the US.

Top officials from the ECB and BoE have signalled rates will still be cut this summer, despite the inflation data that has led investors to price in the first Fed rate reduction in November.

The shift is a marked contrast to earlier this year when the Fed was seen as leading the way down.

“The ECB and BoE are operating in a much weaker growth environment, so I suspect they will have no compunctions about cutting rates earlier,” said Mahmood Pradhan, head of global macroeconomics at Amundi Asset Management.

But ECB policymakers have given divergent indications on how big a rate gap with the Fed they can tolerate.

Banque de France governor François Villeroy de Galhau told Les Echos that he expects continued cutting “at a pragmatic pace” after June. However, Austria’s central bank head Robert Holzmann warned: “I would find it difficult if we move too far away from the Fed.”

The euro has fallen 3 per cent against the dollar since the start of the year to just above $1.07, but investors have increased bets it could drop to parity with the US currency.

Such a fall would add about 0.3 percentage points to eurozone inflation over the next year, according to recent ECB research. The bank’s vice-president, Luis de Guindos, said this week it would “need to take the impact of exchange rate movements into account”.

The far-reaching impact of US policy is already highly visible in Japan, where investors are increasing bets that the Bank of Japan will need to keep raising borrowing costs as a weaker yen fuels inflation. The yen has dropped to 34-year lows against the dollar, pushing up the price of imported goods.

But some EU policymakers argue that if a more hawkish Fed leads to tighter global financial conditions, it could bolster the case for easing in the eurozone and elsewhere.

“A tightening in the US has a negative impact on inflation and output in the eurozone,” Italy’s central bank boss Fabio Panetta said on Thursday, adding that this was “likely to reinforce the case for a rate cut rather than weakening it”.

Tighter US policy also affects global bond markets, with Germany’s 10-year Bunds often mirroring movements by the 10-year US Treasury.

BNP Paribas estimates that if European bond yields were driven half a percentage point higher by the fallout from US markets, it would require an extra 0.2 percentage points of rate cuts by the ECB to offset the impact of tighter financial conditions. Similarly, it would require 0.13 points of extra cuts by the BoE.

Tomasz Wieladek at T Rowe Price in London argued that the ECB and BoE “need to actively lean against this tightening in global financial conditions to bring their domestic financial conditions more in line with the fundamentals in their own economies”.

Additional reporting by George Steer in London

Pro-abortion rights activists gathered April 13 at a rally in Orlando, Fla., to back a referendum in November that could increase access to abortion. Nearby were activists opposed to abortion.

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Pro-abortion rights activists gathered April 13 at a rally in Orlando, Fla., to back a referendum in November that could increase access to abortion. Nearby were activists opposed to abortion.

Chandan Khanna/AFP via Getty Images

TALLAHASSEE, Fla. – Every day when Dr. Chelsea Daniels goes into her job at Planned Parenthood in Miami it “feels like another punch to the gut.”

Daniels provides abortion care in Florida, where a ban on most abortions after six-weeks of pregnancy takes effect Wednesday.

“I’m in the clinic and seeing patients and having to inform them about this ban and just watch the panic on their face,” Daniels says. “It makes you realize how bans like this are so, so targeted and can change the trajectory of someone’s life.”

There are 14 states that ban nearly all abortions. A few others limit them to just the first six weeks of pregnancy. In Florida abortions are currently allowed up to 15 weeks until the law changes May 1.

The change has people on both sides of the issue scrambling.

Clinics in Florida work overtime as the stricter regulations loom

Florida requires people to wait at least 24-hours between their first consultation and an abortion – and sometimes they don’t even know they’re pregnant for weeks. In these last days before the six-week ban, appointments have been filling up and staff have been working overtime.

“We recognize as healthcare providers and medical professionals that this is essential medical care,” Daniels says. “So we’re going to do everything we can to provide that care for as long as we’re legally allowed to do so.”

The six-week ban will allow exceptions for rape, incest and human trafficking up until 15 weeks of pregnancy. It also includes exceptions for fatal fetal abnormalities. And like the current 15-week ban, it will allow abortion in order to save the life of the pregnant person. But some doctors have already been hesitant to provide that care and Daniels worries the new law will make that even harder.

“Every day I’m seeing someone who is, I’m trying to do the calculus of, I think this pregnancy is putting my patient’s life at risk, but they live in Florida, so what are my options?”

Daniels says there can be uncertainty about the threshold for when a pregnant woman’s life is at risk and some doctors are nervous to perform abortions even when they’re in danger. “Is the exception made for the health of the life of the mother, if the life of the mother is at 50% risk, or 51% risk, or 60% risk? It’s impossible to actually calculate,” Daniels says. “Then when you have a real patient with a real clinical scenario sitting in front of you, how are you supposed to know?”

President Joe Biden spoke at a pro-reproductive rights event in Tampa, Florida on Tuesday.

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Daniels worries that confusion will get worse once the six-week ban is in place — leaving patients with few options but to travel out of state.

“Our director of case management has kind of become a travel agent at this point,” says Tampa Bay Abortion Fund Board Member McKenna Kelley.

The Tampa Bay Abortion Fund, and others like it, help with things like hotel rooms, plane tickets and the cost of an appointment at an out-of-state clinic. With the new ban looming, they’re trying to raise money and expand their network of clinics.

“We’re not going to be able to help everyone,” Kelley says. “That goes for every fund and that’s really unfortunate and that’s something we want people to understand.”

When choices are limited, one adoption agency worker says she hopes to help

Meanwhile, people on the other side of the issue are also preparing for the six-week ban, like at Bundle of Hope Adoption Family Services in North Florida.

Founder and CEO Glenda Richardson Carr says in her line of work she never knows “what to expect from day to day so we’re always on our toes ready to go.”

She considers herself “pro-life” and agrees with the six-week ban. But she says her goal is to support and empower birth mothers who are trying to figure out their options under the new law.

“I would ask them to give me a chance to show them an option of how parenting would look in their future and how adoption would look in their future and we work it out together,” she says.

Since the U.S. Supreme Court’s overturned federal rights to abortion in Roe v. Wade, Richardson Carr says she’s seen more birth mothers seeking help with adoption and she expects to see even more once the ban goes into place. That’s although experts say many women who are prevented from terminating a pregnancy do not choose adoption and instead decide to parent themselves.

But for any birth mothers who do want to consider adoption, Richardson Carr says she’s ready to help.

“I have no doubt that we could take every birth mom that would like to place a child for adoption and find them a family,” Richardson Carr says. “Absolutely!”

Florida voters will get to decide on abortion this November

Florida’s abortion battle will not end when the law takes effect Wednesday.

Andrew Shirvell, executive director of Florida Voice for the Unborn, says he’d like to see an end to all abortion in the state and sees the six-week ban as a step in that direction.

“I’m hoping and praying that at least half the abortion centers in Florida will effectively shut down,” Shirvell says.

But Shirvell says his focus is the ballot question facing voters in November on whether to enshrine abortion rights into the state constitution. He calls it a “preeminent threat” against any future legislature’s ability to pass a total ban on abortion.

Meanwhile, others like Daniels at Planned Parenthood in Miami, see the proposed amendment as a source of hope.

“I can’t wait for November and hope everybody feels really motivated to go out and we’ll show them who is boss in just a few months,” Daniels says.

To pass, the amendment will need approval from 60 percent of the people who turn out at the polls. If the proposal passes, it’s expected to take effect in January – increasing access to abortion.

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The head of Chrysler has warned that tampering with the US-Mexico trade agreement risked making pick-up trucks unaffordable for Americans, after a suggestion from Donald Trump that he could curtail imports across the southern border if re-elected. 

Trump hinted he would prevent cars built by Chinese companies coming in from Mexico if he became president again, in response to China’s BYD planning a new electric vehicle plant south of the US border. 

“You’re not going to be able to sell those cars if I get elected,” Trump told a rally last month in Ohio. He has separately suggested imposing tariffs of 50-100 per cent on Chinese models coming into the US. 

Carlos Tavares, who heads Stellantis — the owner of the Chrysler, Jeep and RAM brands — said breaking the US-Mexico-Canada Agreement would be a “lose-lose” scenario. He said that on top of higher car prices, such a move would flood the US with even higher numbers of Mexican immigrants.

“The first obvious consequence is huge inflation . . . because if you stop the sourcing of the most cost-competitive products . . . your costs go through the roof, and then your price goes through the roof,” he said. “Then the middle class cannot buy pick-up trucks anymore.” 

The second issue, he added, was “what you do with the Mexicans that have no more jobs”. 

The USMCA trade deal between Canada, the US and Mexico is due for a “review” in 2026 that may lead to new terms. However, some western automotive executives now privately believe that if Trump were to be re-elected in November, he would overhaul, or even scrap, the agreement.

Several auto groups have begun contingency planning around plants and investments. “Our expectation is that the border effectively closes,” said one senior executive. “We have to plan for that.”

Though Tavares declined to name Trump, he said: “It seems that the leader that you mention has a clear view on what you should do with immigration”. 

Mexico’s car and auto parts industries employ almost 1mn people, and are heavily reliant on access to the larger US market. 

Two-thirds of Mexico’s car production is exported to the US, while many US auto factories are reliant on Mexican component plants for lower-cost parts. 

The country’s vehicle industry only started growing after the introduction of the North America Free Trade Agreement in 1994, which allowed parts and cars to travel between the US and Mexico without tariffs. 

During Trump’s first period in office, the deal was revamped as the “USMCA”.

BYD, which already sells cars in Mexico, is planning to build a car plant in the country, which would give it a foothold to begin supplying the lucrative US market. 

Tavares also warned that US buyers would be willing to switch to Chinese car brands, despite geopolitical tensions between the nations. 

“If I look at the US, everybody tends to think the US is protected, [the Chinese] will not come in,” he said. “But in the 1970s the Japanese came, in the ’90s the Koreans came, and if you cannot make your pick-up trucks affordable, you have a problem.”