The Fed opted to leave its benchmark interest rate unchanged at a 23-year high – its fourth straight decision to stick with the current 5.25%-5.5% range. The move was widely expected by traders, who are nonetheless wondering just when the Fed might start making the 0.75 percentage points in rate cuts it’s been hinting about for this year. The market odds for a cut at the next meeting in March had climbed to 1-in-2 in recent months, as inflation cooled toward the central bank’s target. However they plunged last week to just 1-in-3 after the Fed chair suggested those hopes were a bit too eager.The US economy, after all, is still going strong even with high rates, and the last thing this central bank wants is an inflation sequel.

The eurozone economy flatlined in the last three months of 2023, notching 0% growth over the three months before, and dodging a technical recession (defined as two consecutive quarters of contraction) by the slimmest of margins. Experts had expected the economy to shrink in the October-December period by 0.1%, matching the July-September period, mostly because of the drag created by high interest rates. But muscular growth in Italy and Spain helped offset feeble output in Germany and a flatlining in France. Germany, usually the bloc’s powerhouse, saw its economy shrink by 0.3% last quarter, bogged down by falling investment in construction, machinery, and equipment.

Overall inflation across the eurozone decelerated to 2.8% last month – in line with economist expectations. However core inflation, which strips out volatile energy and food prices, fell to just 3.3%, a little higher than the 3.2% the consensus was hoping for. Inflation in the labour-intensive services sector – a metric that the European Central Bank (ECB) watches closely – held steady at 4%.

Taken together, it’s not enough to cause a stir at the ECB. The Bank says it wants to see signs that pay growth is cooling before it lowers borrowing costs, and the elevated pace of price gains for labour-intensive services could be a sign that the job market is still running a bit hot, warranting a go-slow approach. This may mean traders need to temper their enthusiasm: they’re expecting the ECB to drop its 4% deposit rate to just 2.5% by the end of the year – with the first trim coming by April.

The BoE seemed to tear a page from the Fed’s book, holding its borrowing costs at 5.25% for the fourth consecutive meeting and hinting about interest-rate cuts later this year. After all, these rate hikes were all about combatting some super-high price rises, and the central bank has said it sees inflation dipping to its 2% target in the second quarter, thanks to tumbling energy prices. The problem is that it then expects inflation to bounce up to almost 3% as the impact of cheaper energy fades and underlying price pressures in services and wages continue. So traders who expect an aggressive run of interest rate cuts could find themselves disappointed. On the flip side, lower inflation and lower interest rates may well buoy the economy in 2025.

Finally, China hit some hurdles. Everyone expected it to overtake America sometime in the early 2030s in the race to become the world’s biggest economy. However this is looking more and more like a pipe dream, especially after the US widened its lead last year. The American economy grew by 6.3% in nominal terms – that is, unadjusted for inflation – in 2023, easily outrunning China’s 4.6% gain. Consequently, the size of China’s economy relative to the US fell to 65%, down from its peak of 75% at the end of 2021. Some of that outperformance is because of elevated inflation in the US, but the figures highlight a significant underlying trend: the world’s number one economy is emerging from the pandemic in a stronger position compared to China.