Officials in some countries started cutting rates last year, but others, including those in Europe and the United States, have taken a more cautious approach.The New York Times reports that while some countries have been cutting interest rates since last year, others, such as those in Europe and the United States, have been more cautious. Two years ago, central banks around the world were focused on fighting high inflation and raised interest rates aggressively and in unison. However, as inflation has slowed at different rates in different countries, policymakers are now taking a more individualized approach.

Last year, central bankers in some emerging markets began cutting rates, while European officials only started easing rates a few months ago. The Federal Reserve, on the other hand, had kept rates high for over a year and throughout the summer. However, on Wednesday, the Fed joined the trend and made a significant rate cut for the first time since the start of the pandemic.

According to Katharine Neiss, an economist at PGIM Fixed Income, the U.S. had been seen as an exception to the global trend, with expectations that its strong economy would lead to higher rates for a longer period. This had caused strain for other countries, but the Fed’s rate cut on Wednesday is seen as a positive move for the rest of the world. It not only helps to bring down inflation without causing a severe recession, but it also eases global financial conditions and reduces pressure on currencies that were struggling against the strong U.S. dollar.

Currently, the dominant theme among central banks worldwide is to lower interest rates as inflation slows and economic growth weakens. However, policymakers are being cautious about moving too quickly and reigniting inflation. The Bank of Canada has already cut rates three times since June, while the European Central Bank made its second rate cut in three months last week. The Bank of England, on the other hand, held rates steady on Thursday after making only one cut last month.

In contrast, central banks in Norway and Sweden are expected to maintain their rates at their upcoming meetings in September, highlighting their gradual approach. Among emerging markets, the South African central bank made its first rate cut in four years on Thursday. However, there are still some outliers, such as Japan, which raised rates in July in response to rising inflation. Investors believe that the Bank of Japan may raise rates again in the near future. Similarly, Nigeria has been raising rates this year due to high inflation, and Brazil’s central bank also raised rates on Wednesday amid concerns of inflationary pressures from faster economic growth. 

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