Poland Holds Interest Rate at 4%, Pausing Cuts

The Federal Reserve is poised to cut interest rates one more time under Chair Jerome Powell's leadership, according to a new forecast from Wells Fargo.

In a note to clients, the bank's strategists predicted a 25-basis point rate reduction before Powell’s eight-year tenure concludes in May. They anticipate another cut of the same size will follow this summer, likely under a new Fed Chair.

Political Pressure Clouds Fed's Independence

This forecast arrives amidst a tense political climate for the world's most influential central bank. The Trump administration recently initiated a criminal investigation into Powell, a move the Fed Chair has described as a "pretext" to influence monetary policy.

President Donald Trump has repeatedly criticized Powell for not cutting rates more aggressively, even after several reductions were implemented last year to bolster a weakening labor market.

The investigation has fueled concerns over the Federal Reserve's ability to operate free from political interference—long considered a cornerstone of the U.S. financial system. Some investors now question whether President Trump will seek to install a loyalist as Powell's successor.

Market Uncertainty and a Divided FOMC

Against this backdrop, the future path of U.S. interest rates remains unclear. Market indicators from the CME FedWatch tool suggest the central bank will hold rates steady at its next meeting, though two cuts are still widely expected at some point this year. The exact timing, however, remains a major source of uncertainty.

Wells Fargo analysts noted that the rate-setting Federal Open Market Committee (FOMC) has been "divided in recent months about the appropriate stance of monetary policy." They also highlighted that "the recent Department of Justice subpoenas to the central bank further increase the scrutiny and pressure on U.S. monetary policymakers."

Economic Data Supports Easing Policy

The push for lower rates isn't just political. Recent economic data provides a clear justification for the Fed to consider easing its policy stance.

Analysts point to a softening labor picture, with employers neither hiring nor firing workers. According to the Wells Fargo note, the most recent labor data "continue to point to a jobs market that is modestly on the wrong side of full employment," a key part of the Fed's dual mandate alongside price stability.

Furthermore, inflation data from earlier this week showed that underlying price growth eased in December.

Based on this evidence, the Wells Fargo analysts concluded, "we see scope for the [FOMC] to continue to nudge the federal funds rate toward neutral in the coming months."

OPEC's first detailed forecast for 2027 projects that global oil demand will continue to grow at a steady rate, signaling a potentially tight market in the years ahead.

According to an internal report from the group's secretariat, world oil consumption is expected to increase by 1.3 million barrels per day in 2027. This would bring the daily average to 107.9 million barrels, a growth rate only slightly lower than this year's.

Forecast Suggests a Potential Supply Squeeze

The projected rise in demand is nearly double the supply growth anticipated from producers outside the OPEC+ alliance. This gap suggests that global oil markets could face tightening conditions next year unless the organization continues to restore its own production capacity.

This dynamic places a spotlight on the group's future output decisions, which will be critical in balancing the market.

Why Past Projections Warrant Caution

Despite the confident outlook, OPEC has a recent history of overly optimistic demand forecasts that failed to materialize. This track record invites skepticism about its latest projections.

For instance, in 2024, the organization was forced to slash its demand growth estimates by 32% over a series of six consecutive monthly downgrades. Similarly, in late 2023, a forecast predicting a record inventory deficit never came to pass.

These past inaccuracies highlight the challenges of predicting market fundamentals and suggest that current bullish projections could be revised.

Current Production and OPEC+ Strategy

Last year, key OPEC+ members, led by Saudi Arabia, surprised traders by rapidly increasing oil production despite signs that markets were well-supplied by growing output from the Americas.

More recently, the coalition has agreed to pause any further output increases during the first quarter of the year. The group plans to review its production strategy on a monthly basis for the remainder of the year.

The latest report also revealed that OPEC+ production fell by 238,000 barrels per day in December, reaching a total of 42.83 million. This decline was almost entirely due to a major disruption in Kazakhstan, where output plunged by 237,000 barrels a day to 1.52 million following attacks on a key crude export terminal.

Source: Bloomberg

Canadian Prime Minister Mark Carney arrived in Beijing on Wednesday, marking the first state visit by a Canadian leader in eight years and signaling a major effort to renegotiate economic ties. The trip centers on critical trade issues, with Chinese state media urging Ottawa to remove tariffs on the country's exports.

High-level meetings are scheduled with Premier Li Qiang on Thursday and President Xi Jinping on Friday. Discussions are expected to cover trade, energy, and global security.

The Core Negotiation: EVs for Canola

At the heart of the visit is a potential trade-off: Beijing has reportedly proposed easing restrictions on Canadian rapeseed products if Ottawa scraps tariffs on Chinese-made electric vehicles.

This dynamic stems from actions taken in 2024 under former leader Justin Trudeau, when Canada imposed tariffs on Chinese EVs, aluminum, and steel, largely to align its trade policy with the United States. China responded with its own levies on Canadian agricultural goods, including rapeseed, a major crop known in Canada as canola.

An opinion piece in the state-backed Global Times this week called for Canada to "translate a correct understanding of China into concrete actions, including lifting unreasonable tariff restrictions and advancing more pragmatic cooperation."

Mending Fences After Years of Tension

Since coming to power last March, Carney has focused on repairing a relationship that was frozen following the 2018 arrest of Huawei executive Meng Wanzhou in Canada. A meeting between Carney and Xi at the Asia-Pacific Economic Cooperation summit in South Korea last October was described by the Canadian leader as "a turning point in the relationship."

The push for better relations with China comes as Canada seeks to diversify its trade partners. Facing tariffs from the administration of U.S. President Donald Trump, Carney has set a goal to double Canada's non-US exports within the next decade. China currently stands as Canada's second-largest trading partner after the United States.

Persistent Friction Over Taiwan

Despite the potential for economic cooperation, significant political friction remains. Taiwan President Lai Ching-te recently thanked Canada for expressing concern over China's military drills last month, highlighting deepening ties between Taipei and Ottawa during a meeting with Canadian lawmakers on Tuesday.

Melissa Lantsman, deputy leader of Canada's Conservatives, assured Lai that Taiwan is a trusted partner with friends in the Canadian Parliament. In a sign of the diplomatic sensitivity, two Liberal Members of Parliament cut short their own visit to Taiwan on government advice to avoid any confusion with Carney's official trip to Beijing.

Global Tariff Landscape Shifts

While Canadian officials have downplayed the likelihood of an immediate deal on EV tariffs, momentum may be building internationally. On Monday, the European Union announced it is considering a minimum price system to replace the import tariffs of up to 35% it imposed on Chinese EVs in 2024. The EU's reassessment comes as it seeks to strengthen other trade relationships amid rising tensions with the U.S. following President Trump's threats over Greenland.

Poland is carefully monitoring potential market turmoil stemming from a US investigation into the Federal Reserve as it weighs issuing dollar-denominated debt later this year. The Eastern European nation, which carries a public debt load larger than that of Malaysia, Turkey, and Argentina, has significant exposure to the US currency, having sold two dollar bonds last year and maintaining at least 11 such notes outstanding.

Karol Czarnecki, head of the Polish finance ministry's public debt department, confirmed the government's cautious stance. "We are taking a deep look," he said in an interview. "We cannot exclude that the development of the situation will be adverse for issuers, but for the moment we're not discounting a disaster."

Scrutiny on Fed Independence Sparks Concern

The market uncertainty follows a probe by the Trump administration into the remodeling of the US central bank's headquarters. This move is widely seen as a significant escalation in attacks on the Federal Reserve, raising fresh concerns about the institution's political independence.

For sovereign issuers like Poland, any instability in US markets or perceptions of the Fed could directly impact the cost and viability of issuing dollar-denominated bonds.

Poland's Broader Foreign Debt Strategy

The potential dollar issuance is part of a broader strategy to front-load its 2026 borrowing plans, which could total as much as €12 billion ($14 billion) in foreign-currency debt sales this year. Czarnecki noted that Poland's options extend beyond the dollar to include the Japanese yen. He also highlighted the Swiss franc as an "interesting proposition" due to favorable pricing and demand dynamics.

Poland has already been active in the market, selling a total of €3.25 billion in 5- and 10-year euro-denominated notes last week. However, Czarnecki suggested another euro transaction is unlikely until after the summer to allow the market time to absorb the recent supply.

Maintaining Flexibility in Volatile Markets

While Poland last sold bonds in Japanese yen in 2024 and has not tapped the public Swiss franc market since 2015, any future transactions in dollars or yen will hinge on market conditions. The government is preparing for multiple scenarios to navigate the current uncertainty.

"We are pretty much ready for both markets," Czarnecki explained. "We have a kind of optionality in case something wrong happens, to choose the market we want to enter."