Central banks globally struggle to keep up with US Fed's rate cut timeline

Finance chiefs from economies large and small are scrambling to keep pace with the Federal Reserve's rapid resetting of rate-cut expectations as US inflation data roils markets from London to Brazil.

All insist they are setting policy independently of the Fed and basing it on local conditions. But those conditions are now being buffeted by a sudden likelihood of US interest rates staying higher for longer than had been expected as the year began after a run of hotter-than-expected inflation data.

It's an unexpected turn that has supercharged the US dollar, stressing other currencies in return and raising the prospect of currency intervention in Asia. It has also forced Latin American central bankers to tailor their rate-cut plans, and even left officials in developed countries wondering whether new constraints on their own easing plans may emerge.

"When the March (US inflation data) scare came, there was a drastic reversal of expectations, and this changed the mood significantly regarding how economic variables will behave worldwide," Brazil's Finance Minister Fernando Haddad said in a press conference in Washington on Thursday on the sidelines of the International Monetary Fund and World Bank spring meetings.

"Everything else depends somewhat on this." The dollar's 4.75pc appreciation against a basket of currencies this year is creating headaches in many quarters of the globe, but its gains of 9.6pc against Japan's yen and 6.5pc versus South Korea's won have been especially troublesome for two key US trading partners.

Those moves led officials from Japan and South Korea this week to huddle urgently with US Treasury Secretary Janet Yellen in hopes of stemming the slides, holding out the possibility of intervention if needed.

Bank of Japan Governor Kazuo Ueda said the Japanese central bank may raise interest rates again if the yen's declines significantly push up inflation, highlighting the impact currency moves may have on the timing of the next policy shift.