Global central bank body warns Trump’s trade policies could trigger resurgent US inflation

According to the Bank for International Settlements (BIS), Trump’s trade policies could reignite inflationary pressures in the US economy.

In the bank’s annual report, General Manager of the BIS, Agustin Carstens, detailed how Trump’s tariffs disrupted the economy, pointing to elevated uncertainty levels during enforcement. However, the situation has stabilized somewhat during the ongoing 90-day suspension.

He explained, “We were meant to have a soft landing — everything was going according to plan. Then we had this very substantive period of volatility with the threat that tariffs would make more difficult convergence towards 2% in some countries.”

The BIS warns that the global economy is vulnerable to disruptions 

Carstens argued that the global economy is at a critical stage and countries are looking at a period of elevated uncertainty. In the BIS report, he warned that economic growth potential is slowing, with threats to price stability, fiscal health, and the broader financial system mounting.

He added that the global economy is especially vulnerable to disruptions with the ongoing climate and geopolitical changes, an increasing aging population and supply chain challenges.

Additionally, the report showed that the post-COVID inflation surge affected people’s perception of price movements, and the high public debt levels do not make the situation any lighter. 

When Trump’s tariffs were first introduced, markets fell sharply and have only partially recovered. The bank’s report showed that investor confidence was severely shaken at the time, and while doubts remain, the pause on tariffs helped ease some of that uncertainty.

So far, the US dollar has dropped 10% in 2025 and could quickly grow to be the most significant H1 drop since the early 1970s, according to Hyun Song Shin, the BIS’s main economic advisor.

Shin maintained that there’s still no sign that investors are moving away from the American currency, as some economists may have hinted. He claimed it’s still too early to determine anything, especially since sovereign funds and central banks move slowly. 

Shin, however, noted that treasuries and other US assets may have contributed to the dollar’s recent depreciation.

The BIS recommended reducing trade barriers and bureaucracy to cultivate growth

The BIS believes that inflation and instability risks are more likely to emerge from, or be amplified by, tensions in sovereign bond markets. It also warned that the increasing doubts in fiscal sustainability may make refinancing debt harder and affect inflation expectations.

It has thus called for more flexible labor policies, reduced bureaucracy and trade barriers, increased public investment, and advocated fiscal repair to promote growth and productivity.

Officials, however, cautioned against easing bank regulatory laws and even urged for more supervision of non-bank financial institutions.

They also asked central banks to tread carefully when weighing growth against inflation, as market participants remain highly reactive to price shifts. The Deputy General Manager, Andrea Maechler, even argued that a price surge today is no longer seen as a temporary blip but a potential sign of inflation. 

The bank’s officials also advised central banks to stick to their primary mandates to ensure client trust and the effectiveness of their actions, and warned of the growing attention to stablecoins.

Aside from that, Carstens cautioned that the US Federal Reserve may face turbulence, especially with Chair Jerome Powell opposing reduced interest rates that the White House insists on.

He believes the central bank could see “higher inflationary pressures or deviating inflationary expectations and a slowdown in the economy.” 

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