UK inflation fell to 3% in January, the lowest level in 10 months, strengthening the case for a rate cut at the Bank of England’s March meeting. Lower fuel prices were the main driver of the decline, although services inflation remains relatively elevated. Members of the Monetary Policy Committee are divided over the timing of rate cuts, but recent data support a downward trend in price pressures. The central bank expects inflation to return to its 2% target in the spring, while signs of labor market weakness are also emerging.

Federal Reserve officials say they are assessing the impact of artificial intelligence on the economy, but there is still no clear sign of a fundamental shift in macroeconomic data. Daly stressed that AI’s effect on productivity will take time and that policymakers must closely monitor detailed data. At the same time, Austan Goolsbee said that if inflation returns toward the 2% target, several rate cuts could occur in 2026. After three rate cuts in late 2025, the Fed is currently taking a wait and see approach while evaluating inflation and growth data.

Strong wage growth in Australia has intensified the inflation challenge for the Reserve Bank of Australia. The annual wage index rose 3.4% in the quarter ending in December, while public sector wages, up 4%, grew faster than those in the private sector. The labor market remains tight and unemployment is low at 4.1%, a factor that keeps price pressures elevated. Policymakers have not ruled out another rate hike in the coming months.

The minutes of the January Federal Reserve meeting showed that officials, contrary to market expectations, were cautious about cutting interest rates, and some even suggested the possibility of a rate hike. Most policymakers believe that last year’s labor market weakness is fading, but the risk of persistent inflation remains. This approach could put the Federal Reserve at odds with Donald Trump, who has repeatedly called for rate cuts. At the same time, this situation complicates the task of Warsh, Trump’s nominee for the future chair of the central bank.