Key Takeaways
- The European Central Bank lowered interest rates Thursday, the eighth time it has done so over the past year.
- President Donald Trump recently criticized Federal Reserve Chairman Jerome Powell for not following the ECB’s lead on cutting rates.
- The ECB said its future decisions could be affected by the heightened uncertainty of the current tariff environment.
The European Central Bank cut interest rates Thursday, putting the body further ahead of its U.S. counterpart in moving toward a less restrictive monetary policy—likely to the chagrin of President Donald Trump.
The ECB’s willingness to lower rates (it’s done so at eight consecutive meetings over the past year) differs from the Federal Reserve, which has held U.S. rates steady this year in an attempt to drive down inflation to a 2% annual rate. This has drawn criticism from Trump, who wants Powell to cut interest rates to lower borrowing costs and boost economic growth and job creation to avoid a downturn.
On Wednesday, the ADP’s survey of job creation found that pirate employers added 37,000 jobs in May, well below the 110,000 forecasters had expected. Trump took to Truth Social, posting, “ADP NUMBER OUT!!! ‘Too Late’ Powell must now LOWER THE RATE. He is unbelievable!!! Europe has lowered NINE TIMES!”
Trump’s tariff policy could be making it more likely the Fed holds back from cutting rates, however, due to concern that import taxes could reignite high inflation in the U.S. Meanwhile, European central bankers have been more concerned that the trade tensions with the U.S. could slow their countries’ economies.
The ECB said an escalation of tariffs would limit growth and inflation, while a “benign” resolution to the trade disputes would likely lead to growth and may spur higher inflation.
Inflation in the euro area is currently near the ECB Governing Council’s 2% medium-term target. For now, the decision to lower rates “should make the economy more resilient to global shocks,” the ECB said.
Leave a Reply