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The Bank of England wrapped up a big year of central bank rate cuts by keeping rates steady on Thursday, a day after the Federal Reserve eased policy but suggested it would be more cautious in 2025. The Swiss National Bank, which has been at the forefront of monetary easing, cut rates by an unexpectedly large 50 basis points (bps) to 0.5% last week, the lowest since November 2022 and the bank's biggest reduction in almost a decade. It indicated further easing would be gradual after annual inflation accelerated to 2%, but with Canada's weak economy threatened by U.S. President-elect Donald Trump's proposed tariffs, markets placed 50% odds on a 25-bps cut next month.

Although the Federal Reserve's "hawkish cut" on Thursday had been broadly expected, markets now fear 4% policy rates will be the floor for the coming year at least - and no further easing until midyear or later. The picture painted by the Fed removes monetary easing as tailwind from the stock market for months and has seen the dollar rocket to its highest in more than two years - bowling over emerging, developed and crypto currencies alike. Lifting their median inflation forecast for next year by 0.3 percentage point to 2.5% but only nudging the GDP growth up a tenth to 2.1%, Fed policymakers also raised their policy rate forecasts for the next two years by half a point to 3.9% and 3.4% respectively.

Fed Chair Powell tried to make sense of contradictory storylines and conflicting data, delivering a final watchword: caution.

NEW YORK (Reuters) -The rally in U.S. stocks is encountering a fresh hurdle -- a potentially problematic rise in Treasury yields as the Federal Reserve signals fewer interest rate cuts for 2025. The central bank's rate outlook on Wednesday included only two cuts in the coming year, rather than the four previously penciled in, catching investors off guard, and sending stocks tumbling while driving up yields and the dollar. That overshadowed the Fed's widely expected decision to reduce its benchmark rate for a third straight meeting.

Central banks from Brazil to Indonesia scrambled to defend their struggling currencies on Thursday, hours after the Federal Reserve jolted markets by indicating it may not cut rates by much next year. The Fed's tacit acknowledgement of the inflationary risks likely to come from incoming president Donald Trump's immigration and trade policies unnerved investors. U.S. Treasury yields rose, sending the dollar to its highest in two years against six major rivals.

The world's economic reckoning with the incoming Trump administration kicked off in earnest this week, with the U.S. Federal Reserve flagging fewer rate cuts, a resignation in Canada over budgeting for tariffs and heightened focus on cryptocurrencies. The Fed cut rates as expected on Wednesday amid a busy year-end run of central bank meetings from Ottawa and Frankfurt to Tokyo and London that showed heightened uncertainty ahead of Donald Trump entering the White House in the new year. Indeed, Fed officials not only dialed back projections for rate cuts in the face of stubborn inflation, Chair Jerome Powell said some in the bank were also trying to judge how Trump's planned tariffs, lower taxes and immigration curbs might affect policy.

SEOUL (Reuters) -The South Korean won dropped to its weakest level in 15 years on Thursday, weighed down by risk-averse sentiment after the U.S. Federal Reserve's cautious stance on more interest rate cuts, as well as domestic political uncertainty. The U.S. central bank cut interest rates on Wednesday, as expected, but Federal Reserve Chair Jerome Powell said more reductions in borrowing costs now hinged on further progress in lowering stubbornly high inflation. U.S. central bankers now project they will make just two quarter-percentage-point rate reductions next year, half a percentage point less than anticipated in September, with higher projections of inflation for the first year of the new Donald Trump administration.