The Bank for International Settlements, the world's leading central bank umbrella group, has publicly warned of the risks associated with U.S. President Donald Trump's deregulation plans. BIS head Agustin Carstens expressed concerns about trade developments, fiscal policy, regulation, and broader geopolitical issues, citing "pervasive policy uncertainty" that will impact central banks in various ways. This uncertainty is expected to hinder economic growth, as companies delay investments and consumers postpone significant purchases.
Carstens highlighted the likelihood of increased financial market volatility due to recent substantial currency and asset price fluctuations, driven by uncertainties surrounding tariffs on Canada, Mexico, and China. He cautioned that some of these asset price movements, notably currency depreciations, could lead to inflation and advised central banks to focus on containing inflation.
The BIS serves as a platform for the top central banks globally, assisting in managing foreign exchange reserves and hosting the Basel Committee for Banking Supervision. Concerns were raised about the potential global race to the bottom in financial supervision due to the threat of Trump's re-election disrupting international financial rulemaking consensus, particularly worrying European nations.
Carstens also highlighted the risks of loose fiscal policies potentially leading to increased debt levels, which could trigger inflation and weaken currencies. He cautioned that a sudden repricing of public debt could jeopardize financial stability. Furthermore, he pointed out the risk of a growing divergence between U.S. interest rates and those of other major economies, emphasizing the potential ripple effects on capital flows, exchange rates, and global financial conditions.