In the coming week, a significant number of central banks across four major continents are preparing to make their final adjustments to benchmark interest rates for the year. This series of pivotal meetings is likely to shape the financial landscape as we approach the new year, particularly considering the varying inflation risks that different economies currently face. As we look ahead to the first scheduled policy meetings of 2025 in late January for central banks in Australia, Canada, Brazil, and the Eurozone, the potential for tariffs could create a tidal wave of challenges.

The Reserve Bank of Australia (RBA) is expected to maintain its interest rates during its meeting on Tuesday. In contrast, the Bank of Canada may cut rates by 50 basis points on Wednesday, a decision driven by growing concerns about border issues which could disrupt trade flows. Currently, the probability of a 50 basis point cut from the Bank of Canada stands at about 65%. This figure has increased from a previous estimate of 58% prior to last week’s employment data release.

Karl Schamotta, Chief Market Strategist at Corpay, highlights that the looming prospect of high tariffs may compel Canadian policymakers to consider larger-than-expected rate cuts. The uncertainty surrounding tariffs could lead to preemptive rate cuts as a safeguard against potential weaknesses in the economy. The rationale for aggressive rate cuts stems from a desire to bolster economic activity amidst these looming trade challenges.

Turning our attention to the European Central Bank (ECB), officials are shifting their focus from monitoring persistent consumer price index (CPI) risks to addressing sluggish economic growth. As global trade tensions mount, the ECB is poised to announce a 25 basis point cut during its meeting on Thursday. They will simultaneously release their quarterly economic forecasts, and it is anticipated that the ECB will downgrade its economic growth projections for 2025 while lowering inflation expectations for the current and upcoming year.

This meeting marks the first time since the breakdown of budget negotiations between the French and German governments that ECB officials will convene, and the ongoing political instability has certainly clouded their outlook on economic direction. The implications of these factors on the ECB's path remain uncertain; economists predict the ECB may reduce rates by 25 basis points at each meeting up to June of next year, while investors speculate on a potential acceleration of cuts in the coming months. Notably, if ECB President Christine Lagarde makes dovish comments during the post-meeting press conference, this could spark a fresh sell-off of the euro.

Switzerland, for decades closely aligned with the ECB's policy trajectory, is also expected to implement a rate cut in its quarterly meeting. Having already cut rates three times since March, the Swiss National Bank is acting as a primary country within the G10 to ease monetary policy. This week’s decision will be the first policy move made by the newly appointed Swiss National Bank President Martin Schlegel since he took office in October.

However, not all global central banks are leaning towards easing monetary policy. Brazil, for instance, is faced with a challenging situation as the Brazilian real has come under pressure due to threats of tariffs directed at BRICS nations. In response, Brazilian officials are preparing to increase borrowing costs to combat rising inflationary pressures, with market expectations leaning towards a potential rate hike of 75 basis points this week.

Meanwhile, the Federal Reserve in the United States finds itself within a mandated quiet period ahead of its December meeting, and the anticipation regarding its interest rate decision remains high. Investors will keep a close eye on the outlook for rate cuts, particularly with the critical release of November's CPI data scheduled for Wednesday. Recent labor market indicators suggest a more complicated path for the Fed as they approach their upcoming decisions.

Last week's labor market data provided insight into the state of the U.S. economy, with 227,000 new jobs added in November and an uptick in the unemployment rate to 4.2%. These figures underscore a decelerating labor market, yet overall resilience persists, a viewpoint shared by several Fed officials. After the release of nonfarm payroll data, investor expectations around a potential rate cut by the Fed in December have surged, with futures markets suggesting an approximately 85% probability of a cut.

Nonetheless, recent data raises questions about the progress the U.S. has made in combating inflation. This adds heightened significance to the upcoming CPI report. Economists surveyed expect the report to reveal that core inflation remained stubbornly high in November. Macro economist Anna Wong noted that, while November's jobs report does not guarantee a rate cut in December, it certainly does not eliminate that possibility. According to her, the CPI report scheduled for December 11 will be decisive in determining the Fed's actions this month.

Previously, a rate dot plot released by the Fed in September indicated expectations for a rate reduction of 100 basis points over the next two years. The Fed is slated to disclose the latest iteration of this dot plot in December. Thiery Wizman, an analyst with Macquarie Group, anticipates that, despite the persistent strength in the labor market, progress against inflation may be stalling, which could lead officials to anticipate fewer rate cuts next year.