IMF says US president Trump is pushing global interest rates higher

Mr. Donald Trump hasn’t even stepped back into the White House yet, but his usual chaos is already here. The International Monetary Fund (IMF) says his now-infamous tariff threats are pushing long-term interest rates higher worldwide.

Kristalina Georgieva, the IMF’s Managing Director, called the situation “very unusual” during a press conference. Short-term rates are going down, which doesn’t typically happen at the same time as a global spike in long-term borrowing costs.

Blame it on Trump’s second-term trade policy promises, she says. This guy has made it clear that he’s gonna go after imports from China, Mexico, Canada, and anyone else he considers an economic rival—or ally, for that matter actually.

The IMF is so mad at him right now. Pierre-Olivier Gourinchas, their Chief Economist, warned back in October that trade wars and uncertainty could chop 0.5% off global output. He told Trump directly that he would drag America and everyone else down. We think it’s safe to assume that Trump is not gonna listen.

Markets freak out as Trump haunts

Meanwhile, bond yields are climbing everywhere, and the US dollar is on a rampage. Investors are spooked, and they’re bracing for what Trump’s second term could bring. Georgieva says medium-sized economies, Asia, and emerging markets are going to feel the pain the most.

“The greenback’s strength could fuel higher funding costs for emerging-market economies and especially for low-income countries,” she explained.

Here’s the thing though: this economic turbulence comes while the global economy is already limping. Since the pandemic, the IMF has been warning that growth isn’t great. Back in October, they predicted the global economy would expand by 3.2% in 2025.

Don’t expect a major update on January 17 when the next forecast is released. Sorry, but Georgieva has already said that the number will stay about the same. Still though, there’s a lot happening under the hood. The US is outperforming expectations, while the European Union is losing steam.

India is dragging a little, and China is stuck in a mess of low demand and deflation. In the middle of all this, the Federal Reserve is in a weird spot. December jobs data was stronger than expected, flipping rate-cut predictions on their head.

Bank of America has completely scrapped its forecast for rate cuts, saying hikes might even be on the table if inflation doesn’t stay in check. Citigroup is still clinging to hopes for rate cuts, but even they’ve pushed the timeline to later in the year.

Georgieva thinks the Fed has room to wait it out. Meanwhile, traders are already adjusting. Interest rate cut bets are shrinking fast. Markets are now pricing in just 30 basis points of reductions through the end of 2025, with any movement likely happening closer to September instead of mid-year.

Europe braces for another Trump storm

Over in Europe, leaders are on edge. The European Union isn’t taking Trump’s tariff threats lightly, and officials are openly preparing for a trade war. Stephane Sejourne, their industry chief, says the bloc has both defensive and offensive tools ready to protect its industries.

“Markets are increasingly protective, with aid making our industries uncompetitive,” he said. He added, “This marks the end of European complacency.”

Translation: If Trump follows through on tariffs, the EU plans to fight back. They’ve been here before. In 2018, Trump slapped European steel and aluminum with tariffs. The EU didn’t sit around—they hit back with duties on politically sensitive American products like Harley-Davidson motorcycles and Levi Strauss & Co. jeans.

“We have everything to lose from a collective trade war,” Sejourne admitted, but that doesn’t mean they’re rolling over. Since Trump’s first election win in 2016, the EU has bulked up its trade defense playbook. They now have measures in place to counter economic coercion, and they’re ready to use them.

“I’m prepared to explore both defensive and offensive actions with my colleagues,” Sejourne said. Europe’s strategy includes potential tariffs on US imports and financial aid for European businesses that might get caught in the crossfire.

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