Global policy makers find themselves in a fog of uncertainty as a sweeping April tariff package ripples through every major economy. Business-confidence gauges and the Economic Policy Uncertainty Index have surged to record highs, while the IMF is preparing to mark down 2025 growth projections for the second time this year. Central banks—from the Federal Reserve to the European Central Bank—see weaker demand ahead, but any instinct to cut rates is checked by the risk that tariff-driven price increases will keep inflation from falling back to target.

Against that backdrop, most institutions are taking a wait-and-see stance. Officials want harder data—purchasing manager surveys, consumer confidence readings, and the Fed’s Beige Book—before committing to broad stimulus. How quickly policy makers move, and whether their efforts blunt the blow or simply run into higher inflation, will shape the outlook for the rest of 2025.

Record-High Policy Uncertainty

The Economic Policy Uncertainty Index has hit new peaks in both the U.S. and globally, reflecting the daily flux of tariff announcements, tax debates, and spending fights. Companies are postponing capital-investment plans; an executive order can upend cost structures overnight. Economists warn that this “policy fog” could curb investment and hiring even more than the tariffs’ direct drag on GDP.

Central-Bank Balancing Act

Major central banks see softer demand ahead, yet the tariffs that slow growth also push import prices higher. TheFed, ECB, BoE, and BoJ have all discussed support but remain wary of cutting too fast and reigniting inflation. Markets now price deeper easing than officials publicly endorse, underscoring the tightrope between cushioning growth and containing prices.

Central-Bank Balancing Act

Finance ministers and central-bank chiefs are using every forum available to cool trade tensions. Their aim is to prevent a tariff dispute from spiraling into broader financial-market stress. Whether diplomacy can outpace escalation will determine how long the current standoff drags on growth.

IMF Outlook

The Fund will publish downgraded growth projections this week, paired with modest upticks to some inflation forecasts. History shows the IMF’s first cut often understates the eventual damage—previous crises saw initial estimates miss the final growth hit by about 0.5 percentage points. Further downward revisions are likely if policy uncertainty and price pressures persist.

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Summary

Tariffs have sent policy uncertainty to all-time highs, forcing central banks, the IMF, and the G-20 onto a tight rope between growth support and inflation control. How quickly diplomacy cools tensions—and what the next data wave shows—will set the course for 2025.