The Interest in Economies

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After three years of aggressive tightening, the global interest‑rate cycle is showing its first signs of divergence. Inflation has eased across many advanced economies, growth has cooled, and several central banks have begun edging away from the “higher for longer” stance that defined the post‑pandemic period. But the picture is far from uniform - and the signals are more nuanced than the headlines suggest.

Changing policies

The clearest indication of change comes from the United States. In late 2025, the Federal Reserve delivered three consecutive 25‑basis‑point cuts, bringing the federal funds rate down to a range of 3.50 to 3.75 per cent - its lowest level in nearly three years. The cuts reflected slowing job growth and a gradual easing of inflationary pressure. Yet the Fed’s communication remained cautious: policymakers signalled no appetite for a rapid easing cycle, emphasising data dependence and the limits of future cuts. Markets initially rallied but quickly turned volatile as investors reassessed the Fed’s guarded tone.

Elsewhere, the shift has been more abrupt. In Europe, three central banks - Switzerland, Sweden, and Norway - cut rates almost simultaneously in mid‑2025, surprising markets and signalling concern about weakening growth momentum. Switzerland’s inflation had effectively vanished, falling 0.1 per cent year‑on‑year, giving policymakers room to ease. Sweden’s surging krona helped tame imported inflation, while Norway opted for its first cut since the pandemic despite lingering price pressures. Taken together, these moves point to a broader recognition that post‑pandemic stimulus has faded and economic activity is softening.

Visible patterns

But the global picture is not one of uniform easing. According to analysis from KPMG Economics, global interest rates have undergone a structural upward shift since 2021, reversing decades of decline. Long‑term rates have risen more sharply than short‑term policy rates alone would suggest, driven by ballooning government debt, higher inflation expectations, and geopolitical uncertainty. The yield on the US 10‑year Treasury, for example, has averaged 4.3 per cent over the past 18 months - nearly double its pre‑pandemic norm - and briefly touched 4.8 per cent in early 2025. Similar patterns are visible across advanced and emerging markets.

This structural shift matters because it limits how far central banks can cut without reigniting inflation or destabilising currencies. It also raises the risk of sovereign defaults, particularly in emerging markets where debt burdens have grown and borrowing costs remain elevated. Even as some central banks ease, the global financial system remains vulnerable to shocks, especially given the proliferation of opaque private‑credit markets.

New directions

Looking ahead, the most plausible scenario is not a return to the ultra‑low rates of the 2010s but a more fragmented landscape. The Fed, Bank of England, and European Central Bank may continue cautious easing if inflation remains contained. The Bank of Japan, having only recently exited ultra‑loose policy, is moving in the opposite direction, while China faces deflationary pressures that may require further stimulus.

In short, the global rate cycle is no longer synchronised. Some economies are easing, others are pausing, and a few are tightening. The shift is real - but it is uneven, fragile, and constrained by deeper structural forces. The era of cheap money is over; what comes next is a more complex, multi‑speed world of monetary policy.