Central banks brace for 2026 inflation risks, but lack consensus on how to tackle them.
The single word that best captures the state of the global economy across every continent is uncertainty. Business leaders feel it acutely, but nowhere is it more pressing than in the deliberations of central bankers. Monetary authorities are operating in an environment where the trajectory of growth, trade, and inflation is increasingly difficult to predict, forcing them to rely on caution. With diverging approaches and contrasting trends, it is under this cloud of uncertainty that central banks around the world have been conducting policy, often struggling to anticipate the consequences of sudden shifts in the global economic order. It was in this environment that Global Finance conducted its 31st annual grading of central bankers, covering 105 countries.
METHODOLOGY Global Finance editors, with input from financial industry sources, grade the world’s leading central bankers from A to F, with A+ being the highest grade and F the lowest, based on objective and subjective metrics. These judgments are based on performance from July 1, 2024, to June 30, 2025. A governor must have held office for at least a year to receive a letter grade. Central bankers in countries that are in deep conflicts are not included due to incomplete information. An algorithm supports consistency of grading across geographies. The proprietary formula factors in monetary policy, financial system supervision, asset-purchase and bond-sale programs, forecasting and guidance, transparency, political independence, and success in meeting the national mandate (which differs from country to country).
Much of the turbulence traces back to January, when Donald Trump was sworn in as President of the United States. His campaign rhetoric quickly gave way to executive actions and the expansive introduction of tariffs, abrupt reversals, and a constant stop-and-go of policy decisions that have dominated international economic discussions. While nations with limited trade exposure to the United States may feel fewer immediate shocks, all are affected by the ripple effects. Global supply chains, commodity markets, and cross-border investment flows remain unsettled, complicating the work of central banks everywhere.
Monetary policy, of course, depends on a reasonably clear outlook for growth and prices. Tariffs, however, inject volatility on both fronts: they can weaken trade and investment, undermine business confidence, and simultaneously stoke inflationary pressures by raising import costs. This dual risk—slowing activity combined with rising prices—leaves central banks in a precarious position, uncertain whether to tighten policy in defense of price stability or loosen it to support growth. Thus, even countries far removed from the direct line of tariff fire ultimately confront the consequences, as developments in the world’s two largest economies—the US and China—reverberate through the global system and challenge the traditional levers of monetary policy.
This divergence has already become evident. In September, the US Federal Reserve resumed its easing cycle with its first rate cut since December 2024, setting itself apart from most other major central banks that remain on hold. The Fed signaled further cuts in October and December, citing a weakening labor market as the key driver. Markets are now pricing in an additional 50 basis points of easing by yearend. The Bank of Canada followed with a cut to 2.5%, its lowest level in three years, also reflecting labor market weakness. Markets see a 40% probability of another cut next month.
By contrast, the Bank of England and the Bank of Japan left rates unchanged, while the European Central Bank also held steady and indicated its rate-cutting cycle may be nearing an end. The risk, however, is that central bankers could face renewed inflationary pressures in 2026.
“This is lift-off, and the [US Federal Reserve] is now all in on supporting the labor market, signaling a decisively aggressive cutting cycle in 2025. The message is clear: growth and employment are the priority, even if that means tolerating higher inflation in the near term.” Olu Sonola, Head of US Economic Research at Fitch Ratings, said. “For now, the Fed is effectively communicating that it will cross the higher-inflation bridge if it shows up in 2026. What’s striking is the lack of consensus around 2026. The absence of a unified view on policy suggests the Fed may once again find itself in wait-and-see mode early next year, navigating inflation risks as they emerge rather than preempting them.”
Central Banker Report Cards 2025: By Region
