By Dan Burns and Howard Schneider

WASHINGTON () -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 and other leading central banks signaling caution over future rate decisions.

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.

But Fed officials dialed back projections for rate cuts in the face of stubborn inflation and Chair Jerome Powell said some in the bank were trying to judge how Trump’s planned tariffs, lower taxes and immigration curbs might affect policy.

The upshot was U.S. central bankers penciled in estimates for higher growth next year than previously estimated, but also notably higher inflation.

That left Powell repeatedly urging caution around additional rate cuts from here, which triggered a slide in stock prices and a recalibration of market estimates for further easing. Just a single Fed rate cut is now priced in for 2025.

“Some people did take a very preliminary step and start to incorporate highly conditional estimates of economic effects of policies into their forecasts at this meeting,” Powell said when asked if Trump’s policies factored into officials’ thinking.

As expected, the Bank of England kept its main interest rate unchanged at 4.75% on Thursday and said it needed to stick to its existing gradual approach to cutting rates.

“With the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year,” BoE Governor Andrew Bailey said.

Earlier in Asia, the Bank of Japan kept ultra-low interest rates as the threat of Trump’s policies cast a shadow over the export-reliant economy.

“There’s uncertainty over the policies of the incoming U.S. administration, so we need to scrutinise the impact more carefully,” BOJ Governor Kazuo Ueda told a press conference, adding that Trump trade and fiscal policies would have a huge impact on the global economy and financial markets.

A survey of Japanese businesses published last week showed nearly three-quarters expect Trump to have a negative effect on their operating environment, something BOJ officials may have to reckon with as the world’s lone developed central bank still trying to tighten policy.

Norway’s central bank held its policy interest rate unchanged at a 16-year high of 4.50% and highlighted the risk of a trade war between the United States and China.

“Higher tariffs will likely dampen global growth, but the implications for price prospects in Norway are uncertain,” the bank said.

Sweden’s central bank cut its key interest rate by a quarter percentage point to 2.50% as expected, but said it now saw reasons to be more cautious about cutting rates in early 2025.

UPHEAVAL

Ahead of the Fed decision, the European Central Bank and Bank of Canada had already lowered interest rates last week. Both are seen easing further in 2025 amid weakening outlooks.

While ECB President Christine Lagarde was vague about further rate cuts, she went out of her way to emphasize downside risks to growth, including from prospective trade tensions with the United States under Trump.

Although Trump may have been just at the periphery of officials’ thinking at the Fed, he was a central focus in Ottawa when Canadian Finance Minister Chrystia Freeland quit after clashing with Prime Minister Justin Trudeau on how to handle possible U.S. tariffs under the next U.S. administration.

Freeland said the threat of new U.S. tariffs represented a grave danger after Trump last month warned he would issue levies on goods imported from Canada and Mexico of 25% unless the two neighbors limit the flow of migrants and fentanyl into the United States.

“That means keeping our fiscal powder dry today, so we have the reserves we may need for a tariff war. That means eschewing costly political gimmicks, which we can ill afford,” she wrote in a letter to Trudeau posted on X.

Meanwhile, crypto market enthusiasm for Trump’s notion of establishing a strategic reserve of bitcoin was dealt a setback when Powell said that the Fed had no legal authority to hold it and no plan to seek a change in the law so that it could.

The remark contributed to a broad slide in crypto-related assets, including a 5% drop in bitcoin itself, its largest decline in more than three months.