Caution tape hangs near the steps of Federal Hall across from the New York Stock Exchange (NYSE) in New York, U.S. (Photographer: Michael Nagle/Bloomberg)

Central Banks' Club of Caution Grows as Bad News Piles Up

(Bloomberg) -- Three months since the Federal Reserve put U.S. interest rates on a prolonged pause, more and more central bankers around the world are getting nervous about tightening monetary policy.

Policy makers across Asia, Europe and North America shifted their tones, with Sweden and Canada among them. The caution came in a week of fresh pessimism on the global outlook as trade and electoral uncertainties linger.

Here’s our weekly wrap of what’s going on in the world economy.

Waiting Games

This week alone, the Bank of Japan reinforced its easy stance with a pledge to keep interest rates at rock bottom levels through at least spring of 2020 and the Riksbank backtracked on plans to hike. Turkey’s central bank dropped a pledge to deliver more tightening if needed, and Bank of Canada officials ditched a rate-hike bias. Ukraine, with Europe’s highest borrowing costs, cut its main rate half a percentage point to 17.5 percent on Thursday. Indonesia left its benchmark unchanged.

The Federal Reserve is eyeing a slide in inflation, but U.S. rate-cut calls seem a little overdone. That’s also true elsewhere. A sharp inflation slowdown alone can’t push Australia to a cut, Bloomberg Economics argues, and the weak lira is holding back reductions in Turkey. A BE study of neutral rates globally shows that the first quarter should be the low point for 2019 growth as stimulus sets in.

For those who think they can do better, the U.K. has started its search for a new Bank of England governor to replace Mark Carney.

Central Banks' Club of Caution Grows as Bad News Piles Up

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Headwinds Blowing

Even if data from the U.S. and China are reassuring, a slew of bad news -- such as plunging trade volumes -- makes it hard to see how a global upturn can take hold just yet. Japan’s factory output contracted out of the blue, South Korea’s economy unexpectedly shrank the most since 2008, sentiment wobbled in Germany and France, and Australia’s inflation shock rattled investors and economists. And Sri Lanka suffered a renewed blow to its critical tourism industry in the aftermath of tragic attacks.

U.S. stocks may have hit a record high this week, but it’s not all plain sailing for companies. 3M, a maker of everything from health-care supplies to industrial products, cut its outlook on Thursday after a “disappointing start to the year.”

More long-term, here’s a chart-heavy look at the Japanese economy as an era comes to an end. Bloomberg Economics explores how South Korea’s misses on structural policies are endangering prosperity.

Central Banks' Club of Caution Grows as Bad News Piles Up

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Trade Promises

China will host U.S. negotiators in a new round of trade negotiations in Beijing next week, though even as talk of a truce continues, Asia’s trade is still hurting. Aggravating the tensions: The White House’s top economist compares tariffs to a bitter but necessary medicine to fix global trade ailments, while the president ramped up his Twitter war on the European Union. And Japan’s finance minister pushed back on U.S. attempts to include the yen in trade talks. Here’s a QuickTake on those negotiations.

An unlikely trade-war winner is China’s $13 trillion bond market. China was more focused this week on rebooting its image on another front, hosting world leaders for a Belt and Road summit.

Central Banks' Club of Caution Grows as Bad News Piles Up

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Electoral Stress

Electoral tensions are affecting a growing lot of economies, including in Sri Lanka where there’s government jostling in the aftermath of the terrorist attacks. Post-election gridlock is holding back the Thai baht, and a lack of resolution in Indonesia’s vote threatens to inhibit Southeast Asia’s biggest economy. Spain is bracing for deadlock in Sunday elections, and six weeks of voting in the world’s biggest democracy are in full swing.

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Weekend Reading

Chart of the Week

Central Banks' Club of Caution Grows as Bad News Piles Up

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