ECB cuts rates as inflation nears 2%, fueling bets on US Fed rate cuts despite Powell’s caution on trade uncertainty.
In response to inflation indicators that indicate a decline, the European Central Bank (ECB) has implemented interest rate reductions as a whole. There is a developing optimism that the United States Federal Reserve will follow the European Central Bank in reducing interest rates.
The European Central Bank has reduced rates by 25 basis points
The ECB’s Governing Council has approved three significant interest rate reductions of 25 basis points to stimulate the regional economy. The ECB has announced in a press release that the decision to reduce interest rates was made in response to an updated evaluation of the available inflation data for the EU.
The data indicates that the short-term inflation rate in the EU is approximately 2%. Long-term projections suggest that the inflation rate will remain conservative. The European Central Bank (ECB) also observes that analysts anticipate increasing GDP projections despite the ongoing trade uncertainties.
The ECB’s reduction of interest rates by 25 basis points will impact facilities related to deposits, main refinancing operations, and marginal lending in the future. The deposit facility’s interest rates remain at 2.00% with the 25 basis point reductions, while the main refinancing and marginal lending facilities are at 2.15% and 2.40%, respectively.
The European Central Bank (ECB) announced that it would maintain its interest rates in April due to the reduced trade tensions. Following the April skirmish in which Donald Trump imposed 50% tariffs on the region’s imports, EU and US representatives have consented to commence negotiations to establish a trade agreement.
When will the Federal Reserve announce its interest rate reductions?
The United States is under increasing pressure to disclose interest rate cuts in response to the European Central Bank’s action. To provide context, the European Central Bank has reduced interest rates nine times; however, the Federal Reserve, under Jerome Powell’s leadership, is taking a firm stance on this matter.
The US Fed may be influenced to replicate the ECB’s decision to reduce rates, which was primarily motivated by the ECB’s explanation for declining inflation figures. The Consumer Price Index (CPI) data indicates that the inflation rate in the United States has decreased to 2.3%, the lowest level since 2021. Additionally, the US Core PPI data suggests a decrease in inflation metrics and an increase in the number of requests for the Federal Reserve to reduce rates.
In addition to the ECB’s decision, a recent meeting between Powell and Trump fosters speculation regarding an imminent rate cut announcement. However, the minutes of a FOMC meeting indicate that the Federal Reserve will exercise caution regarding interest rate reductions, citing the uncertainties surrounding Trump’s tariffs.
According to data from CME Fedwatch, there is a 99% likelihood that the Federal Reserve will maintain interest rates between 4.25% and 4.50%. Despite the growing chatter, Powell has refrained from discussing the economic outlook as the FOMC meeting approaches.
