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This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersA couple of months ago, it appeared as if 2025 might be the most remarkable year for international macroeconomics in many decades. Many economies were heading into what looked like a steady state. Inflation in leading economies was heading sustainably back towards central banks’ targets, labour markets were pretty much at full employment and interest rates were finding a neutral level, where they neither sought to restrain economic activity nor boost it. The growth outlook was close to trend. The future looked set to be one where observers could make a plausible case that leading economies were in what economists call “equilibrium”, or a “steady state” or what Keynes dismissively termed “the long run”. With Japan having had stimulative monetary policy since the early 1990s, this was rare indeed. Let’s be clear, a steady state or long-run equilibrium is far from a nirvana. Countries can be rich or poor and trend growth rates can be extremely weak. They can also be dissatisfied with the situation. But the significance is that it would not be clear what would happen next either to interest rates or activity because there would not be a significant imbalance to correct. That was then, however. Now that we are ending 2024, Keynes has had the last laugh and, just as in his original meaning for the phrase “in the long run we are all dead”, 2025 no longer looks like it will be the steady state it promised. Instead, central banks are ending this year in a state of some anxiety. Happy New Year!The Federal Reserve is worried about Trump and inflationIn what was a far from convincing performance, Fed chair Jay Powell laid bare his anxieties in the press conference after the US central bank’s latest meeting earlier this month. “Once again we’ve had a year-end projection for inflation and it’s kind of fallen apart,” he said, explaining the Fed’s new view that there were likely to be fewer rate cuts in 2025 than it previously expected and more inflationary pressure. Powell was clear that the Fed was closer to neutral interest rates with the cost of borrowing at 4.25 to 4.5 per cent. But that was not job done, he added. “We believe policy is still meaningfully restrictive.” Some members of the Federal Open Market Committee also included likely policies from the incoming Donald Trump administration in their economic projections, also raising interest rates and inflation from the previous forecasts in September. And, as for the long run, the FOMC is now far from certain about the meaning of “meaningfully restrictive”. As the chart below shows, the vast majority of the committee now thinks the long-run neutral interest rate has risen although members are much less certain what that rate is. Some content could not load. Check your internet connection or browser settings.The European Central Bank is worried about a slowdownThe European Central Bank was on a glide path towards neutral interest rates in the autumn. But winter has brought the additional chill of an economic slowdown that might require the ECB to stimulate the economy in 2025.Instead of maintaining a need for policy to remain “sufficiently restrictive” until inflation was beaten, ECB President Christine Lagarde explained that this language was removed because the central bank thinks the risk to inflation is now “two-sided”. Lagarde said the central bank saw a neutral rate somewhere between 1.75 and 2.5 per cent — only a touch below the current 3 per cent rate. So, rates are thought to be restrictive in Europe now, but 2025 might bring a need to drop them significantly. The Bank of England is worried about stagflationThe UK likes to pretend that its economy is different from continental Europe. In one respect it is. While the Eurozone has low growth and low inflation, there is a whiff of stagflation in Britain. Growth stalled in the three months to October, while underlying inflation has remained too high for comfort. Services inflation has been stuck at an annual rate of 5 per cent since September, with private sector regular pay growing at 5.4 per cent in the year to October. This data is likely to resolve in 2025 either in an inflationary or contractionary direction, but the current situation is deeply uncomfortable for the Bank of England, as was evident in the big splits on its Monetary Policy Committee at the December meeting. Some content could not load. Check your internet connection or browser settings.The Bank of Japan is worried about Trump and the yenHaving started a move into positive territory last spring and ended the zero interest rate environment that applied for almost all of this century, the Bank of Japan suddenly got cold feet about further normalisation. The economic numbers do not prevent further rises, but the central bank is caught between the contradictory concerns about imported inflation due to a weak yen, and fears of a Trump and tariff induced slowdown in 2025. The virtuous feedback between wages and prices the central bank hoped to see in 2025 is fading — although it is not out of sight yet. The People’s Bank of China is worried about becoming JapanIn December, the People’s Bank of China loosened its official monetary policy stance for the first time in 14 years to “moderately loose” from “prudent” in a sign that the Chinese authorities are increasingly worried about inflation that has hovered close to zero, lacklustre growth and barely any momentum in consumer activity. This is not a sign of confidence about growth and inflation in 2025 in the world’s largest economy. Falling Chinese bond market yields are an even better sign that investors believe the economy requires stimulus to maintain adequate growth rates. Some content could not load. Check your internet connection or browser settings.The Banco Central do Brasil is worried about repeating the pastSigns of stability are difficult to find in Brazil, with the currency hitting all-time lows in December, significant currency intervention by the BCB, and a rise in interest rates of one percentage point. Inflation is rising only modestly, but the Budget deficit is high and capital flight has been rampant. The economy will require financial stabilisation to restore confidence before any semblance of the “long run” can be found. This might prove tricky with President Luiz Inácio Lula da Silva saying earlier this month that “the only thing wrong in this country is the interest rate, which is above 12 per cent”. Some content could not load. Check your internet connection or browser settings.What I’ve been reading and watchingHelmut Schlesinger, the ultraorthodox Bundesbank president between 1991 and 1993, has diedIn an economy that has been far from stable in recent years, the Turkish central bank cut rates by 2.5 percentage points on December 26, citing a moderation in inflationary pressure. That brought the short-term rate down to a still hefty 47.5 per centJay Powell’s control over Fed monetary policy has been a series of flip-flops aggravating volatility around the world in 2024, according to Mohamed El-ErianRichard Barwell has a message for central bankers in 2025. Publish estimates of neutral rates, he demands. Barwell quite reasonably argues that these are important in internal assessments of monetary policy, so why do officials so often pretend otherwise?Recommended newsletters for you Free lunch — Your guide to the global economic policy debate. Sign up hereThe Lex Newsletter — Lex, our investment column, breaks down the week’s key themes, with analysis by award-winning writers. Sign up here More

The world’s second-largest economy has struggled to stage a robust revival this year as a prolonged property market downturn, mounting local government debt and subdued consumer confidence hampered growth.Exports, a key driver and a bright spot for the economy, could be threatened by potentially higher tariffs once President-elect Donald Trump returns to the White House later in January.In a televised speech, Xi said China had responded to the impacts of the changing environment at home and abroad and adopted a full range of policies to help it pursue high-quality development in the past year.Since late September, authorities unleashed a blitz of stimulus measures including broad rate cuts and looser rules around home buying to shore up the property market and domestic demand.”Current economic operation faces new challenges, including challenges of uncertainties in the external environment and pressure of transformation from old growth drivers to new ones,” Xi said. “But we can prevail with our hard work. As always, we grow in the wind and rain, and we get stronger through hard times,” he added. “We must be confident.”In another speech at a New Year event earlier on Tuesday, Xi said China’s GDP is expected to have grown by around 5% this year, suggesting the country is set to meet 2024’s official growth target.Earlier this month, top leaders pledged a shift to an “appropriately loose” monetary policy in 2025, which would mark the first such easing in 14 years. They also vowed to spur consumption and increase bond issuance to stimulate growth next year.Chinese authorities have agreed to issue a record 3 trillion yuan ($411 billion) worth of special treasury bonds in 2025, Reuters reported, citing sources.The country’s budget deficit is set to rise to 4% of GDP in 2025, sources said separately, while the government plans to maintain a growth target of around 5%.($1 = 7.2993 Chinese yuan renminbi) More

Prabowo said the decision should end speculation over which items and services would be affected by the VAT increase.The decision also reversed an announcement by finance ministry officials in December. Authorities at the time had said the VAT hike would apply across the board except for cooking oil sold under a government programme, sugar for industry and wheat flour, which would still be subject to an 11% VAT rate.”Today, the government has decided that the increase of VAT rate from 11% to 12% will apply only to luxury goods and services that are the subject of luxury sales tax and are consumed by those with higher income, such as private jets, yachts and luxury homes,” Prabowo said.Prabowo said the government will still move forward with planned support measures intended to soften the blow from the VAT hike, worth 38.6 trillion rupiah ($2.40 billion), which include electricity discounts and other tax breaks.($1 = 16,090.0000 rupiah) More

The S&P 500, Dow and Nasdaq are near record highs and are on track to end higher for a second straight year.A nearly 100-basis point cut in interest rates in 2024 by the Federal Reserve and a rally in technology stocks in anticipation of boost to corporate profits from artificial intelligence powered a strong surge in equities in 2024. The S&P 500 tech, communications services and consumer discretionary have jumped more than 30% this year.Although AI poster-child Nvidia (NASDAQ:NVDA)’s nearly 170% surge this year was smaller compared with last year, the rally helped the company notch $3 trillion in market value, while Tesla (NASDAQ:TSLA) reclaimed $1 trillion level. At 05:45 a.m. ET, Dow E-minis were up 90 points, or 0.21%, S&P 500 E-minis were up 17 points, or 0.29% and Nasdaq 100 E-minis were up 75.25 points, or 0.36%.Nvidia was up 0.7%, while the Elon Musk-led automaker added 1.6% in premarket trading. Moves are expected to be influenced by thin volumes ahead of New Year’s holiday on Wednesday.”It’s also normal to start thinking that the AI rally will one day fizzle out…but still, all those who called for a correction have so far happened to be wrong, and Wall Street analysts spent the year rising their price targets,” said Ipek Ozkardeskaya, senior analyst, Swissquote Bank. Toward the end of the year, risk-taking improved as Donald Trump’s presidential win boosted bets that he would deliver on his promises to ease regulations, cut taxes and raise tariffs to help domestic businesses. His win also powered small-cap stocks. The Russell 2000 clinched a record high, setting it up for a rise of about 10% – its second consecutive annual gain. Banks also have benefited and are up more than 30% this year.However, equities hit a rough patch in December, putting the S&P 500 on course for its biggest monthly decline since April, due to higher yields on Treasury notes at a time when equity valuations are stretched and the Fed is cautious.The yield on the benchmark 10-year note has come off its seven-month high and is at 4.5%, as markets see Trump’s plans as inflationary, potentially slowing the pace of the Fed’s rate cuts. Traders expect the central bank to deliver its first rate cut of 2025 in either March or May, according to the CME Group’s (NASDAQ:CME) FedWatch Tool.Trump’s win has also proved to be a tailwind for crypto stocks as bitcoin prices touched $100,000. MicroStrategy shares have more than tripled in value this year as it continues buying and holding bitcoin. The stock rose 3.3% on Tuesday, while Coinbase (NASDAQ:COIN) and MARA Holdings added 1% and 0.6%, respectively.Other areas of the market, however, have witnessed annual declines, with materials stocks down more than 2%, hurt by the economic woes in top metals consumer China. More

SINGAPORE/LONDON (Reuters) – World stocks held steady on Tuesday in cautious year-end trading that has seen investors bracing for the incoming Donald Trump administration by scaling back bets on deep U.S. interest rate cuts in 2025, helping the dollar stand tall against most other currencies.Volumes were light with a holiday for the New Year looming, with the Santa-rally largely failing to materialise as elevated Treasury yields weigh on high equity valuations and boost the greenback.MSCI’s world share index was flat on the day, but set to wrap up 2024 with a 16% annual gain.This year’s rally has been largely a U.S. phenomenon, with the S&P 500 having risen around 24% compared with an 8% gain for MSCI’s broadest index of Asia-Pacific shares outside Japan, and just 5% for Europe’s STOXX 600. (EU) But the mood latterly has been more cautious on the back of higher U.S. Treasury yields. The yield on the 10-year note reached 4.64% late last week, its highest since May. This marks something of a change as until late December, the U.S. benchmark yield had spent all of the second half of 2024 below 4.5%.This upward pressure, said Lee Hardman, senior currency analyst at MUFG, “reflects investor unease over the potential inflationary impact from the incoming Trump administration’s policy agenda.” Investors anticipate President-elect Trump’s policies around looser regulation, tax cuts, tariff hikes and tighter immigration to be both pro-growth and inflationary, which in theory would keep U.S. yields high. “The Fed has already displayed more caution over cutting rates further next year in light of potential policy changes,” said Hardman. But in a sign of end-of-year positioning, the 10-year yield dipped three basis points on Tuesday, after a seven-bp drop on Monday, to trade at 4.52%. [US/]Similarly all three major U.S. indexes closed on Monday with sharp losses mainly due to end-of-year tax positioning, valuations worries and uncertainties about 2025. [.N]CHINA The only economic indicators of note from Tuesday came from China, where data showed manufacturing activity barely grew in December, although services and construction recovered, suggesting policy stimulus is trickling into some sectors, as the economy braces for new trade risks.The National Bureau of Statistics purchasing managers’ index slowed to 50.1 in December from 50.3 a month prior, barely holding above the 50-mark denoting growth and missing a median forecast of 50.3 in a Reuters poll.Onshore Chinese blue chips shed 1.6%, while Hong Kong just held in positive territory. For all of 2024 the CSI 300 rose 14%, its first annual gain following an unprecedented three-year decline. The Hang Seng Index gained 18% after four years of declines. South Korea’s KOSPI was the worst-performing stock market in Asia this year with a decline of 10% as political turmoil took its toll on investor sentiment.Politics accounted for some underperformance in Europe too, and France’s main index fell 2.8% in 2024, as lawmakers continue to haggle over the 2025 budget after an inconclusive election and the collapse of one cabinet under Michel Barnier. In contrast, large jumps by a handful of Frankfurt-listed names, such as software firm SAP means the German benchmark is up over 18% on the year, despite a political vacuum there ahead of February’s election. In currency markets, 2024 has all been about the dollar, which gained against all other major developed-market currencies, as higher U.S. yields, and outperforming stock markets, drove inflows to the U.S. The dollar index which measures the U.S. currency against six others, dipped 0.16% on Tuesday, but held close to the two year high touched in November. The index is on course to rise 6.5% this year. In commodities, oil prices were poised for a second straight year of decline on demand concerns in top consuming countries. For the year, Brent crude futures declined 3.4%, while U.S. West Texas Intermediate crude was down 1%. [O/R]Both eked out small gains on Tuesday. But gold had a banner year, surging over 26% in the year, its strongest annual performance in over a decade on safe-haven demand amid geopolitical tensions around the world as well as monetary policy easing. [GOL/] (This story has been refiled to correct the year to 2024 in paragraph 3) More

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning and welcome to the final FirstFT Americas of 2024. Today’s highlights include:A record exodus from active equity fundsTrinidad and Tobago declares a state of emergency FT writers make their 2025 predictionsAnd who killed the rave?The shift away from actively managed stock funds into cheaper index-tracking investments accelerated this year.Outflows from stockpicking mutual funds rose to a record $450bn in 2024, eclipsing last year’s previous high of $413bn, according to data from EPFR.Traditional mutual funds have struggled to justify their relatively high fees in recent years, with their performance lagging behind the gains for Wall Street indices, which have been powered by big technology stocks. Active managers typically invest less in such companies than their benchmark indices. The trend has accelerated in recent years as older investors, who typically favour these products, cash out and retire while younger investors choose to put their savings in index-tracking ETFs. Read more on the trend that is reshaping the fund management industry.And here’s what else we’re keeping tabs on today: New year celebrations: From Sydney and London to New York, public events will mark the start of 2025. Edinburgh’s famous Hogmanay celebrations, however, have been cancelled due to concerns over “extreme weather”. FirstFT Americas is taking a break tomorrow and will return on Thursday.Five more top stories1. A Chinese state-sponsored actor hacked the US Treasury department through a third-party service provider in a “major cyber security incident”, the agency said yesterday. The department has been working with the FBI to determine the impact of the hack, it said in a letter to a Senate committee seen by the FT.2. The government of Trinidad and Tobago has declared a state of emergency over an unprecedented crimewave as violence surges across the Caribbean, partly fuelled by weapons from the US. The country, with a population of 1.5mn, has experienced its highest number of murders on record this year. 3. BlackRock is heading for a showdown with US banking regulators. The Federal Deposit Insurance Corporation has given the $11.5tn investment giant until January 10 to accept proposed new compliance measures whenever it owns more than 10 per cent of the outstanding shares in FDIC-supervised banks, people familiar with the situation said. Brooke Masters in New York has more details.4. A possible global trade war and regional political paralysis are the two biggest threats facing the Eurozone economy in 2025, according to a Financial Times poll of 72 economists. The region, which holds a large trade surplus with the US, is seen as acutely exposed to not only higher US tariffs but also the threat of China dumping cheap products on global markets.5. Donald Trump threw his support behind Mike Johnson for Speaker of the House, giving the embattled lawmaker a crucial endorsement amid Republican infighting ahead of a vote on who will lead the lower chamber of Congress on Friday. Johnson said he was “honoured and humbled” by the president-elect’s support. Here’s more on a pivotal moment for Johnson. We are planning to publish a special edition of FirstFT Americas ahead of the inauguration on January 20. Please submit your questions to firstft@ft.com, giving your name and location, and we will put them to our experts to answer. Forecasting 2025© FT montage/James FergusonFT writers have penned their best guesses for the new year, from the likelihood of peace in Ukraine, to whether the friendship between Donald Trump and Elon Musk will endure, and the chances of a CD revival. Read our forecasts and submit your own.We’re also reading . . . Map of the daySome content could not load. Check your internet connection or browser settings.Climate change is redrawing Europe’s wine map. Extreme weather is pushing viticulture into colder northern territories while forcing traditional winemaking regions such as Bordeaux and Rioja to grapple with hotter weather. Susannah Savage reports from Denmark where wine production has tripled in the past decade. The story you commented on most in 2024Readers had a lot of thoughts about the June news that wealthy foreigners were stepping up plans to leave the UK as taxes increased, with more than 2,500 leaving comments. Here’s a selection: If your only motivation for being in Britain is you want to pay less tax and a when a democratically elected government asks you to do pay slightly more you have a tantrum and leave then good riddance. Enjoy being a citizen of nowhere. — Reader Tony, Islington It is rich people that pay the vast majority of taxes. If they leave the country and pay nothing, everyone else either has to pay more or face big cuts in government spending. Policies driven by petty jealousies and envy end up costing those who are envious the most. — Reader Androcydes“I’ve worked my backside off for 25 years, having worked my butt off all through school. I’ve saved enough to retire age 49. You can be jealous, but I went to state school, started with nowt and my grandad was a builder. I am now going to move to Portugal (Golden visa for €500k), and whilst there I will be avoiding all this nonsense and paying 10 per cent tax. Plus getting a tan. — Reader 8Thank you for reading and remember you can add FirstFT to myFT. You can also elect to receive a FirstFT push notification every morning on the app. Send your recommendations and feedback to firstft@ft.comRecommended newsletters for youOne Must-Read — Remarkable journalism you won’t want to miss. Sign up hereNewswrap — Our business and economics round-up. Sign up here More

At a New Year’s event on Tuesday, Xi described the economy as “overall stable and progressing amid stability,” according to remarks published by Xinhua News Agency. He noted that risks in critical areas had been effectively managed, while employment and inflation remained steady.Though the final GDP figure won’t be confirmed until next month, Xi’s comments reflect the conclusion of a year marked by economic uncertainty.Initially, the 5% growth goal was seen by some as a “target without a plan.” However, the economic outlook improved after policymakers introduced a series of stimulus measures starting in late September. Economists now anticipate growth of around 4.8% for the year.Xi indicated that economic support would extend into 2025, reiterating the need for proactive macroeconomic policies during his New Year’s Eve address to China’s top political advisory body.China is expected to target a growth rate similar to 2024’s next year, with leaders signaling a willingness to apply stronger stimulus measures if necessary. This could help offset potential challenges, such as the prospect of increased U.S. tariffs under President-elect Donald Trump’s administration.The official growth target for 2025 will be announced in March during the annual legislative sessions. Reuters previously reported that the goal is likely to remain around 5%, while economists surveyed by Bloomberg forecast growth of 4.5% for next year.In December, policymakers pledged to drive growth through higher public borrowing, increased government spending, and monetary easing. Officials highlighted the first adjustment in monetary policy in 14 years, shifting to a “moderately loose” stance to boost confidence.Despite these measures, weak domestic demand and uncertainties in exports continue to weigh on the economy. Deflation is expected to persist into 2025, and the property market remains sluggish.While Beijing’s initial round of stimulus in 2025 may fall short of the aggressive interventions analysts believe are necessary to curb deflation, further support could be introduced later if growth begins to slow, mirroring the approach taken this year.The People’s Bank of China (PBOC) could play a key role in the next phase of economic easing. The central bank has yet to implement a liquidity boost by lowering the cash reserves that banks are required to hold, although this move was previously suggested as a possibility by the end of 2024.PBOC Governor Pan Gongsheng indicated in October that the bank might reduce the reserve requirement ratio (RRR) by 25 to 50 basis points, depending on liquidity conditions. At a major economic meeting in December, top officials echoed this sentiment, promising to lower the RRR at an “appropriate time” without specifying further details. More